[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
STRENGTHENING AND IMPROVING MEDICARE
=======================================================================
HEARING
before the
SUBCOMMITTEE ON HEALTH
of the
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
APRIL 9, 2003
__________
Serial No. 108-22
__________
Printed for the use of the Committee on Energy and Commerce
Available via the World Wide Web: http://www.access.gpo.gov/congress/
house
__________
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COMMITTEE ON ENERGY AND COMMERCE
W.J. ``BILLY'' TAUZIN, Louisiana, Chairman
MICHAEL BILIRAKIS, Florida JOHN D. DINGELL, Michigan
JOE BARTON, Texas Ranking Member
FRED UPTON, Michigan HENRY A. WAXMAN, California
CLIFF STEARNS, Florida EDWARD J. MARKEY, Massachusetts
PAUL E. GILLMOR, Ohio RALPH M. HALL, Texas
JAMES C. GREENWOOD, Pennsylvania RICK BOUCHER, Virginia
CHRISTOPHER COX, California EDOLPHUS TOWNS, New York
NATHAN DEAL, Georgia FRANK PALLONE, Jr., New Jersey
RICHARD BURR, North Carolina SHERROD BROWN, Ohio
Vice Chairman BART GORDON, Tennessee
ED WHITFIELD, Kentucky PETER DEUTSCH, Florida
CHARLIE NORWOOD, Georgia BOBBY L. RUSH, Illinois
BARBARA CUBIN, Wyoming ANNA G. ESHOO, California
JOHN SHIMKUS, Illinois BART STUPAK, Michigan
HEATHER WILSON, New Mexico ELIOT L. ENGEL, New York
JOHN B. SHADEGG, Arizona ALBERT R. WYNN, Maryland
CHARLES W. ``CHIP'' PICKERING, GENE GREEN, Texas
Mississippi KAREN McCARTHY, Missouri
VITO FOSSELLA, New York TED STRICKLAND, Ohio
ROY BLUNT, Missouri DIANA DeGETTE, Colorado
STEVE BUYER, Indiana LOIS CAPPS, California
GEORGE RADANOVICH, California MICHAEL F. DOYLE, Pennsylvania
CHARLES F. BASS, New Hampshire CHRISTOPHER JOHN, Louisiana
JOSEPH R. PITTS, Pennsylvania JIM DAVIS, Florida
MARY BONO, California THOMAS H. ALLEN, Maine
GREG WALDEN, Oregon JANICE D. SCHAKOWSKY, Illinois
LEE TERRY, Nebraska HILDA L. SOLIS, California
ERNIE FLETCHER, Kentucky
MIKE FERGUSON, New Jersey
MIKE ROGERS, Michigan
DARRELL E. ISSA, California
C.L. ``BUTCH'' OTTER, Idaho
David V. Marventano, Staff Director
James D. Barnette, General Counsel
Reid P.F. Stuntz, Minority Staff Director and Chief Counsel
______
Subcommittee on Health
MICHAEL BILIRAKIS, Florida, Chairman
JOE BARTON, Texas SHERROD BROWN, Ohio
FRED UPTON, Michigan Ranking Member
JAMES C. GREENWOOD, Pennsylvania HENRY A. WAXMAN, California
NATHAN DEAL, Georgia RALPH M. HALL, Texas
RICHARD BURR, North Carolina EDOLPHUS TOWNS, New York
ED WHITFIELD, Kentucky FRANK PALLONE, Jr., New Jersey
CHARLIE NORWOOD, Georgia ANNA G. ESHOO, California
Vice Chairman BART STUPAK, Michigan
BARBARA CUBIN, Wyoming ELIOT L. ENGEL, New York
HEATHER WILSON, New Mexico GENE GREEN, Texas
JOHN B. SHADEGG, Arizona TED STRICKLAND, Ohio
CHARLES W. ``CHIP'' PICKERING, LOIS CAPPS, California
Mississippi BART GORDON, Tennessee
STEVE BUYER, Indiana DIANA DeGETTE, Colorado
JOSEPH R. PITTS, Pennsylvania CHRISTOPHER JOHN, Louisiana
ERNIE FLETCHER, Kentucky JOHN D. DINGELL, Michigan,
MIKE FERGUSON, New Jersey (Ex Officio)
MIKE ROGERS, Michigan
W.J. ``BILLY'' TAUZIN, Louisiana
(Ex Officio)
(ii)
C O N T E N T S
__________
Page
Testimony of:
Berenson, Robert A., Senior Consultant, Academy Health....... 19
Buddy, Robert................................................ 50
Foster, Richard S., Chief Actuary, Center for Medicare and
Medicaid Services.......................................... 8
Grealy, Mary R., President, Healthcare Leadership Council.... 41
Kennelly, Barbara B., President, National Committee to
Preserve Social Security and Medicare...................... 46
Moon, Marilyn, Senior Fellow, The Urban Institute............ 28
Rawlings, Susan, Head, Retiree Markets, Aetna Inc............ 23
Material submitted for the record by:
Alliance to Improve Medicare, prepared statement of.......... 76
(iii)
STRENGTHENING AND IMPROVING MEDICARE
----------
WEDNESDAY, APRIL 9, 2003
House of Representatives,
Committee on Energy and Commerce,
Subcommittee on Health,
Washington, DC.
The subcommittee met, pursuant to notice, at 10 a.m., in
room 2322, Rayburn House Office Building, Hon. Michael
Bilirakis (chairman) presiding.
Members present: Representatives Bilirakis, Barton, Deal,
Norwood, Shadegg, Buyer, Brown, Pallone, Stupak, Engel, Green,
Strickland, and Capps.
Staff present: Steve Tilton, health policy coordinator;
Kathleen Weldon, professional staff; Eugenia Edwards,
legislative clerk; Amy Hall, minority professional staff;
Bridgett Taylor, minority professional staff; and Karen Folk,
minority special staff.
Mr. Bilirakis. Good morning. I now call this hearing to
order.
Obviously, the rule regarding opening statements and
deferring opening statements, etcetera, is in place.
Our hearing yesterday focused on designing a prescription
drug benefit as part of Medicare. Today, the Health
Subcommittee will consider ways to strengthen and improve
Medicare with the goal of improving the financial health of the
program and ensuring that future beneficiaries will be able to
enjoy the security Medicare has provided millions of Americans
for almost 40 years.
Today there are 34 million Americans over the age of 65,
5.5 million people with disabilities, and 240,000 people with
end stage renal disease that participate in the Medicare
program. The Federal Government spends nearly $250 billion
annually to provide health care benefits to these people. It is
estimated that Medicare will serve 77 billion Americans by
2030.
Medicare was established in 1965 by Congress and was
structured around an acute patient care model to cover
hospitalization and physician visits. As we all know, the
program has had great difficulty keeping up with advances in
medicine over the past 38 years, with the most glaring example
being the fact that traditional fee for service Medicare does
not provide prescription drug coverage.
Medicare also does not cover preventative services in any
rational fashion. While Medicare does cover preventative
services for 10 different diseases and conditions, it does not
offer other preventative benefits that would seem like common
sense aspects of a modern, comprehensive health insurance
product.
That is why it is essential for Congress to find ways to
strengthen and improve Medicare, so it is truly a 21st century
benefit and to ensure its continued financial viability. As we
will hear from Rick Foster, the chief actuary for the Center
for Medicare and Medicaid Services, the Hospital Insurance
Trust Fund will go bankrupt in the year 2026 under the current
benefit structure, with HI Trust Fund revenues falling short of
program expenditures beginning in 2013.
In addition, it will take significant increases in
beneficiary premiums to subsidize the Supplemental Medical
Insurance Trust Fund, which pays for Medicare Part B services.
We are shirking our responsibility to continue to argue that
the solution to our problems with Medicare is to tack on
trillion dollar benefits with no hint of meaningful reforms.
As Congress continues to debate the future of Medicare,
this program and other entitlements are eating up a larger and
larger share of our gross domestic product. This is an
unsustainable rate of growth, and no amount of partisan
rhetoric on either side of the aisle is going to change that.
We have seven excellent witnesses here today. I hope that
members take advantage of them and keep the grand-standing to a
minimum. I know at the end of the day we all share the same
goal--and that is heartwarming; we all share the same goal--and
that is protecting Medicare's future while finding ways to
provide comprehensive health care coverage for our seniors and
people with disabilities.
I am now pleased to recognize the gentleman from Ohio for
an opening statement. Mr. Brown.
Mr. Brown. Thank you, Mr. Chairman, and I apologize for
being a few minutes late.
I want to welcome my former colleague, Ms. Kennelly. Nice
to see you. And Ms. Moon--thank you, Dr. Moon, for joining us,
and all of you on the panel.
If yesterday's hearing is any guide, there will be
discussion in addition to discussions about strengthening and
improving Medicare, about whether we can afford to strengthen
and approve this program or even maintain the program the way
that it is. Let us dispense with that issue first.
During yesterday's hearings, several colleagues expressed
concern that Medicare is simultaneously barrelling toward
insolvency and jeopardizing the Nation's economy by absorbing
so much of our GDP. How can a program partially funded out of
general revenues be barreling toward insolvency? Does the fact
that we just increased the tax dollars devoted to the
Department of Defense mean that we rescued it from the brink of
insolvency?
Taxes are a flexible funding mechanism. The President
clearly recognizes that taxes are not set in stone. He hasn't
hesitated to propose tax cuts, even when those cuts produce
budget deficits or perhaps they produce insolvencies. But
surely neither the President nor my friends on the other side
of the aisle would propose tax cuts if we truly believe that
Medicare is at risk.
In his State of the Union address, the President called
Medicare the binding commitment of a caring society. I am sure
the President wouldn't say that and then turn around and cut
trillions from Federal revenues while Medicare withers on the
vine.
This Nation can afford Medicare. The President's tax cuts
will cost between 2.3 percent and 2.7 percent of GDP over the
next 75 years. The combined deficit in Medicare and Social
Security--the combined deficit in Medicare and Social Security
will cost one-third to one-half of that.
To paraphrase Jeanie Lambrew, a witness at one of last
year's Medicare hearings, this isn't about dollars. It is about
priorities. The question then becomes: how do we strengthen and
improve Medicare? Some of my Republican colleagues believe we
should abandon the traditional Medicare program. Seniors would
be better off, they say, choosing between and among private
health plans.
The premise that insurance is like a car, that seniors
would be better off customizing their coverage to fit their
health care needs, is the biggest fallacy of the privatization
campaign. People generally don't attempt to customize their
health insurance based on their unique health care needs,
because people generally can't anticipate their unique health
care needs.
When people do try to pick and choose coverage based on
known health care, you know, based on known health conditions,
it is called adverse selection. Creating a system characterized
by multiple benefit packages and adverse selection means
creating a system that is unstable and unfair. Some plans will
be overpaid, some underpaid. Some enrollees will bear
disproportionate risk, others will get off easy.
A reliable risk adjuster would help mitigate the problem,
but we don't have a reliable risk adjuster, and God knows we
have tried. The fact is there is no incremental benefit to
multiple benefit designs, the relative value of which is
impossible for a prospective enrollee to assess.
We all need health insurance that covers medically
necessary care delivered by the health care providers we trust.
Sounds a lot like Medicare. And we all need coverage that
lasts. Disappearing health plans and shrinking benefits are
hallmarks of the privatization efforts, the Medicare+Choice
Program.
Instead of alleviating uncertainty, these plans breed it.
No one really wants coverage like that. Proponents of
privatization argue that Federal employees have a choice of
private health plans. The fact that FEHBP features a plethora
of private health plans does not mean FEHBP is a better system
than Medicare or the best system out there.
FEHBP programs grew 11 percent in 2003. Senior social
security income grew by less than 4 percent. Last year seniors
earned about $14,000 on average. There is not much cushion
there for unpredictable premium increases.
Some privatization proponents argue that plan choice makes
sense, not because health needs vary but because income does.
The premise that we are seeing is that wealthier individuals
should be able to choose less generous coverage because they
can afford to pay any balance out of pocket. But as we know
from the under 65 market, it won't be individuals, it won't be
wealthy individuals who will go without comprehensive health
insurance.
Lower income beneficiaries would be the ones relegated to
inferior health plans, if we abandon traditional Medicare. It
is difficult to imagine how creating a two-tier health system
featuring health plans that may or may not provide lasting
coverage, and may or may not provide reliable coverage, that
they possibly qualify as a strategy for strengthening and
improving Medicare.
We keep coming back to the same question: are we
considering Medicare privatization because there is merit to it
or because my friends on the other side of the aisle don't like
government programs?
The Heritage Foundation launched a Mediscare campaign in
1995. The goal was to privatize Medicare. This seems to be the
culmination of those efforts. Medicare, the President said, is
the binding commitment of a caring society. Should ideology or
should common sense guide its future?
Thank you, Mr. Chairman.
Mr. Bilirakis. I thank the gentleman. Mr. Buyer for an
opening statement. I know you are chomping at the bit. Go
ahead.
Mr. Buyer. No, I just--I can't believe I work in the same
institution as Mr. Brown.
Mr. Bilirakis. Well, you do.
Mr. Buyer. I mean, I remember in April 1995 getting a
letter from the Medicare trustees, many of whom were on
President Clinton's cabinet, of whom said Medicare was going to
go bankrupt. So let us don't advance this 6 years later and
then say someone else made it up. That just--boy, I don't
understand that.
I like to have a clean record, and that really bothered me,
Mr. Brown. You just can't make it up as you go. And I know
sometimes we get excited in the rhetoric, but, please, I would
invite you to look at the April letter of 1995 from the
Medicare trustees.
I will yield back, so I can retain the rest of my time.
Mr. Bilirakis. The gentleman yields. Ms. Capps. Let us see,
no, Mr. Pallone.
Ms. Capps. I am going to waive.
Mr. Bilirakis. You are going to waive?
Ms. Capps. I have an opening statement to submit.
Mr. Bilirakis. Mr. Pallone.
Mr. Pallone. Thank you, Mr. Chairman. I am opposed to
privatizing Medicare, both in general as well as for purposes
of providing a prescription drug plan. And my fear, Mr.
Chairman, is that the Republicans will propose a voucher-type
system under which private health plans compete with one
another as well as with traditional Medicare.
And such a proposal raises several problems for me, Mr.
Chairman. First, it is likely that healthier beneficiaries will
be the ones to sign up for private plans, and this leaves the
sicker beneficiaries in a traditional Medicare program. This
will inevitably drive up the costs of traditional Medicare, and
as a result the per person cost of the traditional Medicare
program will escalate, putting people who need health care the
most at greater risk of higher expenses and fewer benefits.
Also, private health plans have abandoned hundreds of
thousands of seniors for Medicare+Choice plans, and yet the
Republican proposals seem to rely on private health plans for
Medicare restructuring. In the last 2 years, over 100 plans
dropped out of the Medicare+Choice system all together, and
over 100 plans reduced their service areas. And many other
plans increased premiums and reduced benefits.
Compared to private health insurance plans, Medicare has
done a much better job at controlling per person health care
costs. Therefore, there is no reason to turn Medicare over to
the private sector. Empirical data has shown over the last 30
years that per person private health insurance quotes have
increased faster than Medicare. Therefore, protecting
Medicare's solvency should not depend on private health plans.
I don't understand the rationale.
Some of the Republican proposals give unwarranted credence
to the Federal Employees Health Benefit Plan as the model for
restructuring Medicare. But that system has not moderated costs
better than Medicare. It serves a much smaller population that
is younger, healthier, wealthier, and more attractive to
private insurers. And the number of HMOs offering health
coverage to Federal employees and retirees declined from 476 in
1996 to 277 in 2000.
My point, Mr. Chairman, is that the Medicare program is
popular and effective. It has served seniors well for 37 years,
and proposals to restructure the program seem unreliable and
likely to deliver less services to seniors at essentially
greater cost.
Most private health plans that provide services for seniors
have unimpressive records of covering prescription drugs.
Seniors should not have to rely on private health plans as
proposed by President Bush to receive crucial prescription drug
coverage.
In summary, Mr. Chairman, of course this is the same thing
I essentially said yesterday. Whether you are talking about
Medicare restructuring in general, or you are talking about
trying to provide a prescription drug plan, there is no
empirical evidence based on what we have seen in the last few
years to suggest that privatization or competition with
privatization is going to improve the situation, either in
terms of an overall restructuring of Medicare or in providing
prescription drugs.
And I don't understand how either the President or the
Republicans think that somehow they are going to drive--they
are going to operate on the experience of the last few years to
improve the system using private plans. It doesn't make sense.
Mr. Bilirakis. The gentleman's time has expired. Had you
finished?
Mr. Pallone. Yes, thank you.
Mr. Bilirakis. Okay. Dr. Norwood.
Mr. Norwood. Mr. Chairman, I am still breathless from Mr.
Brown's opening statement, so I will waive my time and ask for
a lengthy 8 minutes in questioning.
Mr. Bilirakis. Let us see. Who is--Mr. Green.
Mr. Green. Thank you, Mr. Chairman, and I will give my
opening statement because I am getting ready to go to a markup
in the Telecom Subcommittee. But I appreciate your continuing
effort on having these hearings, particularly yesterday, and I
would like to welcome a fellow Texan.
The Houstonian, Robert Buddy, who is on the panel today,
lives just northwest of our district, I know in Congressman
Brady's district. And I have up until 1960 there, so you are
just northwest of us.
I think we all agree, especially after yesterday's hearing
on Medicare prescription drug benefit, that there is little
doubt that the Medicare program needs improvement. The most
obvious need is to modernize Medicare to include prescription
drug benefit, although additional improvements in the area of
disease management, care coordination, and prevention service
should also be discussed.
I have two pieces of legislation. One, the first, the
Geriatric Care Act of 2003, would make sure we have enough
geriatricians physicians to treat our elderly. There is an
artificial ceiling in the law, and right now there are only
9,000 certified geriatricians. And that number is expected to
decline over the years, so we need to address that.
The other bill is the access to diabetes screening services
for Medicare coverage for recipients. Diabetes is so important,
not only in Medicare but also to our whole population, but we
need to do better on screening for diabetes, particularly with
senior citizens.
These two bills are examples of how we can make traditional
fee for service Medicare respond to the needs, and should be
considered in the context of Medicare reform.
Unfortunately, there are far too many people who disregard
ideas of reform fee for service Medicare, because they want to
keep Medicare program outdated to justify the desire to turn it
into a premium support or defined contribution program. By
shifting to a defined contribution rather than defined benefit,
we can limit the amount the Federal Government will spend on
health care. And we are concerned about that, but we also know
with our elderly population increasing we are going to spend
more money.
Mr. Chairman, I would like to read from an editorial in The
Houston Chronicle just this last Monday. And I will ask
unanimous consent for both my statement and the editorial to be
placed into the record.
Mr. Bilirakis. Without objection.
Mr. Green. It talks about, ``Take Care, President's
Promise, One Health Policy and Proposes Another One. Under the
President's plan, full coverage of prescription drugs should be
withheld from Medicare patients who do not agree to join
managed care plans. Such plans sometimes provide affordable
health care precisely because they limit patient choice,
discourage expensive or innovative treatment, and reserve for
company bean counters many decisions once made by patients'
doctors.''
``Competition among private insurance plans intended to
keep the Medicare program from going broke in 2030 or before.
Unfortunately, competition is just as likely to produce
insurance company losses leading to lost of disrupted coverage
and the care for patients. That is the case in Houston where
several HMOs pulled out of the market, leaving thousands of
Medicare patients without a doctor and scrambling to make
alternative arrangements. Nowadays many doctors--their eyes are
fixed on the bottom line--refuse to see new elderly patients.''
I would like to put the whole editorial into the record.
And thank you, Mr. Chairman.
Mr. Bilirakis. Without objection.
Mr. Green. I yield back my time.
Mr. Bilirakis. The Chair thanks the gentleman. Mr.
Strickland for an opening statement.
Mr. Strickland. I would like to have 8 minutes for
questioning. So thank you, Mr. Chairman.
Mr. Bilirakis. You have that right. Thank you.
Without objection, of course, the opening statement of all
members of the subcommittee will be made a part of the record.
We will now go into----
[Additional statement submitted for the record follows:]
Prepared Statement of Hon. W.J. ``Billy'' Tauzin, Chairman, Committee
on Energy and Commerce
Thank you, Mr. Chairman for holding this very important hearing.
The Medicare program is a critical part of our health care system,
providing
health insurance for 40 million aged and disabled beneficiaries.
Yet this program suffers from a number of shortcomings. Because the
program has not been significantly updated since its creation in the
1960s, it does not provide many of the benefits that are now
commonplace in the private health insurance sector, most notably
prescription drugs.
When it was created in 1965, the Medicare program mirrored the type
of insurance that was available in the private sector. But because each
significant change to Medicare requires an act of Congress, the program
has not adapted to the changing healthcare marketplace as quickly as
private sector plans, leaving beneficiaries without coverage that is
commonplace in other forms on insurance.
Medicare also faces some very serious long-term fiscal challenges.
As the President notes in his budget, the present value of Medicare's
unfunded liabilities totals $13.3 trillion--that's the excess of
benefits promised to future retirees over the expected tax revenues
dedicated to Medicare. We clearly need to add a prescription drug
benefit to Medicare to meet the needs of our seniors. But we must also
remain cognizant of the fiscal burden we are placing on our children
and grandchildren by expanding entitlement spending.
Currently, Social Security, Medicare, and Medicaid comprise more
than 40 percent of the federal budget. According to the General
Accounting Office, these three programs alone could consume nearly
three-quarters of the federal budget by 2030 if no changes are made.
Such a scenario will leave little room for spending on other
priorities.
Looking at these numbers another way, in 2000, spending on these
three entitlement programs was 7.6 percent of our nation's gross
domestic product (GDP). If no changes are made in these programs, by
2030 they will consume nearly 14 percent of GDP, and by 2075, more than
20 percent of our nation's resources--one-fifth of our economic
output--will be going to government entitlement programs. This is
simply not sustainable.
Consider also that since World War II, federal tax revenues have
generally been between 17 and 20 percent of GDP. If entitlement
programs alone are consuming more than 20 percent of GDP by 2075, we
will either be experiencing an unprecedented level of taxation to pay
for these programs--while maintaining other discretionary spending--or
else all other functions of the federal government will have ceased to
exist.
If we allow our entitlement programs to simply continue on their
current course, without any changes, we will have one of two options.
We will either have to raise taxes on working families, making it
harder for those families to make ends meet, provide for their
children, send their kids to college, and save for their own
retirement. Or we will have to cut back on the other services the
government provides, such as education funding, medical research,
defense, and homeland security. These are stark choices.
Therefore, as we address the short-term concerns we have with
Medicare, we must also consider the long-term implications of our
actions. Simply adding to the costs of our entitlement programs,
without enacting reforms to strengthen these programs for the future,
will increase the burden we leave for our children and grandchildren.
As the Energy and Commerce Committee takes up its Medicare
modernization legislation, we will do our best to balance the needs of
both beneficiaries and taxpayers. We will be looking to improve the
Medicare benefit package, increase the choices available to our
seniors, put the program on a sound financial footing, and bring
Medicare into the 21st century.
Thank you. I look forward to hearing from all of our witnesses.
Mr. Brown. Mr. Chairman, can I ask unanimous consent to
place in the record this chart from the trust fund report? It
shows that the 1995-96, the Medicare trust fund's life
expectancy in response to Mr. Buyer, was only 5 years. Now it
is 23 years, and I would just like to put that----
Mr. Bilirakis. Without objection, that will be the case.
All right. I want to, again, thank the witnesses for being
here. Your written statement that you have submitted is a part
of the record. We would hope that what you would do is
supplement or complement it. And start off with, I think
probably rightly so, with Mr. Foster.
Mr. Rick Foster is the Chief Actuary of the Center for
Medicare and Medicaid Services. I am going to introduce all of
you here at one time I guess, if I may. Dr. Robert Berenson is
Senior Consultant with Academy Health, located here in
Washington, D.C. Ms. Susan Rawlings is Head of the Retiree
Markets with Aetna Inc. Marilyn Moon, Dr. Marilyn Moon is
Senior Fellow at The Urban Institute. Ms. Mary Grealy is
President of Healthcare Leadership Council. Ms. Barbara
Kennelly, a former colleague of ours, long-time colleague of
ours--welcome, Barbara----
Ms. Kennelly. Thank you.
Mr. Bilirakis [continuing] is President of the National
Committee to Preserve Social Security and Medicare. And Mr.
Robert Buddy is a Medicare recipient, as I understand it.
Mr. Buddy, I hope you hear all of this rhetoric up here. We
talk about wanting to improve things. We don't say what plan we
want. Nowhere in my opening statement did I talk about a
particular plan privatizing or anything of that nature, but we
still try to get the job done in spite of the fact that a lot
of the grand-standing that I had hoped we would not have has
taken place. Please don't get too discouraged.
In any case, let us start off, Mr. Foster. Please proceed,
sir. You have 5 minutes.
STATEMENTS OF RICHARD S. FOSTER, CHIEF ACTUARY, CENTER FOR
MEDICARE AND MEDICAID SERVICES; ROBERT A. BERENSON, SENIOR
CONSULTANT, ACADEMY HEALTH; SUSAN RAWLINGS, HEAD OF RETIREE
MARKETS, AETNA INC.; MARILYN MOON, SENIOR FELLOW, THE URBAN
INSTITUTE; MARY R. GREALY, PRESIDENT, HEALTHCARE LEADERSHIP
COUNCIL; BARBARA B. KENNELLY, PRESIDENT, NATIONAL COMMITTEE TO
PRESERVE SOCIAL SECURITY AND MEDICARE; AND ROBERT BUDDY
Mr. Foster. Thank you. Chairman Bilirakis, Representative
Brown, distinguished members of the subcommittee, thank you for
inviting me to testify today about the financial outlook for
the Medicare program. I will briefly summarize the most
important findings from the 2003 Annual Report of the Medicare
Board of Trustees.
Let me emphasize that the purpose of the trustees' report
is to evaluate the financial status of the Medicare trust
funds. Specifically, are the trust fund income and assets
provided under current law sufficient to enable the payment of
benefits and administrative expenses?
This is a fundamentally important question, because the
existence of a positive trust fund balance provides the
statutory authority to pay benefits. But it is not the only
question. One can also ask about the long-range financial
sustainability of Medicare.
Mr. Bilirakis. Can you pull that mike closer, Mr. Foster? I
am not sure how much help it might be, but----
Mr. Foster. Sure. Is that any better?
Mr. Bilirakis. Yes. Can you hear back there? That is the
point. It is a little better, yes.
Mr. Foster. You can also ask about the financial impact of
Medicare on the Federal budget. These issues are very
different, but they are often confused and treated
interchangeably, which they should not be.
I will focus on the financial status of Medicare, and, in
particular, I will note that the two Medicare trust funds are
financed by completely different approaches. The Hospital
Insurance Trust Fund, or Part A of Medicare, is financed
primarily by a portion of the FICA and SECA payroll taxes on
workers' earnings. And the Hospital Insurance or HI tax rate is
fixed into law. It won't change without further legislation.
In contrast, supplementary medical insurance, or Part B of
Medicare, is financed about 25 percent by beneficiary premiums
and about 75 percent by Federal general revenues. And under the
law, these amounts are, in fact, changed, updated every year,
to match the current level of costs.
Now, by law, these two trust funds are distinct financial
entities. There is no provision for interchanging amounts back
and forth between them, and that is why you have to look at the
financial status of the two funds separately.
The projections that the trustees make are made assuming
that current law continues without change indefinitely. These
projections are necessarily uncertain, especially over very
long time horizons like the trustees' 75-year projection
period. So the projections are useful for informing policy
development, but they should be used only with the full
awareness of their limitations and their uncertainty.
I don't think I need to tell any of you that the basic
challenge in financing health care, not only Medicare but
health care generally, relates to the fact that expenditures
tend to grow by the increases in health care prices,
utilization, and the intensity or the average complexity of
health care services. And the collective growth in these
factors is almost always greater than the increase in workers'
earnings or the economy.
Moreover, for Medicare of course we are facing the well-
known problem associated with the retirement of the baby boom,
such that in the future the number of beneficiaries will
increase much more rapidly than the number of workers. Together
these factors give us the following projection--that total
Medicare costs, as a percentage of GDP, would increase from
about 2.6 percent today to over 5 percent by 2035, and over 9
percent by the end of the 75-year period.
The Hospital Insurance Trust Fund itself is in reasonably
good shape for the near future. The income to the trust fund is
projected to be adequate to cover expenditures for roughly the
next 15 years. Thereafter, assets would have to be drawn down
to cover the trust fund deficits. And as Chairman Bilirakis
mentioned, the assets would be exhausted in 2026 under the
trustees' intermediate projections without corrective
legislation.
At the end of the 75-year period, the scheduled tax revenue
for hospital insurance would be sufficient to cover only a
little less than one-third of the projected benefits.
For the Supplementary Medical Insurance Trust Fund,
remember, the fundamental difference from hospital insurance.
Namely, we reset the financing every year, so SMI Trust Fund
income will keep pace with expenditures, and the trust fund
will not go broke. That is the good news.
However, there are significant adverse implications that
continue in rapid growth in SMI expenditures, both for
beneficiaries and for the Federal budget. A good example
occurred--or a bad example--in 2002 when SMI costs increased
11.6 percent. We can talk about the reasons for that if time
permits. That growth rate, together with the consolidated
appropriations resolution that was recently enacted increasing
physician payments, together will imply that this year we
expect to run a deficit in SMI of about $7.4 billion.
So we will have to raise beneficiary premiums and general
revenues for next year by over 12 percent to match this new
higher level of expenditures.
Based on these projections, the Board of Trustees
recommends prompt attention to the financial challenges facing
Medicare, and I pledge the Office of the Actuary's continuing
assistance, with the efforts by Congress and the
administration, to develop effective solutions to these
challenges.
[The prepared statement of Richard S. Foster follows:]
Prepared Statement of Richard S. Foster, Chief Actuary, Centers for
Medicare & Medicaid Services
Chairman Bilirakis, Mr. Brown, distinguished Subcommittee members,
thank you for inviting me to testify today about the financial outlook
for the Medicare program as shown in the recently released 2003 annual
report of the Medicare Board of Trustees. I welcome the opportunity to
assist you in your efforts to ensure the future financial viability of
the nation's second largest social insurance program--one that is a
critical factor in the income security of the aged and disabled
populations.
The Trustees Report focuses on the financial status of the Medicare
trust funds under current law--that is, whether these funds have
sufficient revenues and assets to enable the payment of Medicare
benefits and administrative expenses. This analysis compares each trust
fund's statutory income, from all sources, to its expenditures and
determines whether the fund is operating with a surplus or a deficit in
a given year. Most of my testimony is based on this traditional ``trust
fund perspective.'' I will also comment briefly on a ``budget
perspective,'' that is, the impact of Medicare on the Federal budget.
The financial outlook for the Medicare program presents a mixed
picture. Over the next 10 years, the Hospital Insurance (HI) and
Supplementary Medical Insurance (SMI) trust funds are adequately
financed and meet the Trustees' formal tests for short-range financial
adequacy. However, HI and SMI expenditures are projected to continue to
grow more rapidly than workers' earnings or the economy. HI tax
revenues are projected after 2012 to fall increasingly short of program
expenditures, eventually covering less than one-third of estimated
costs by the end of the Trustees' 75-year projection period. The
depletion of the HI trust fund, which had been projected for 2030 in
last year's Trustees Report, is now projected to occur in 2026. For
SMI, continuing rapid expenditure growth would place growing financial
burdens both on beneficiaries and on the Federal budget. The SMI trust
fund would remain in financial balance indefinitely, however, due to
the annual redetermination of program financing.
Background
Roughly 41 million people were eligible for Medicare benefits in
2002. HI, or ``Part A'' of Medicare, provides partial protection
against the costs of inpatient hospital services, skilled nursing care,
post-institutional home health care, and hospice care. SMI (``Part B'')
covers most physician services, outpatient hospital care, home health
care not covered by HI, and a variety of other medical services such as
diagnostic tests, durable medical equipment, and so forth.
Only about 22 percent of HI enrollees received some reimbursable
covered services during 2002, since hospital stays and related care
tend to be infrequent events even for the aged and disabled. In
contrast, the vast majority of enrollees incur reimbursable SMI costs
because the covered services are more routine and the annual deductible
for SMI is only $100.
The two parts of Medicare are financed on totally different bases.
HI costs are met primarily through a portion of the FICA and SECA
payroll taxes.1 Of the total FICA tax rate of 7.65--percent
of covered earnings, payable by employees and employers, each, HI
receives 1.45--percent. Self-employed workers pay the combined total of
2.90 percent. Following the Omnibus Budget Reconciliation Act of 1993,
HI taxes are paid on total earnings in covered employment, without
limit. Other HI income includes a portion of the income taxes levied on
Social Security benefits, interest income on invested assets, and other
minor sources.
---------------------------------------------------------------------------
\1\ Federal Insurance Contributions Act and Self-Employment
Contributions Act, respectively.
---------------------------------------------------------------------------
SMI enrollees pay monthly premiums ($58.70 in 2003) that cover
about 25 percent of program costs. The balance is paid by general
revenue of the Federal government and a small amount of interest
income.
The HI tax rate is specified in the Social Security Act and is not
scheduled to change at any time in the future under present law. Thus,
program financing cannot be modified to match variations in program
costs except through new legislation. In contrast, SMI premiums and
general revenue payments are reestablished each year to match estimated
program costs for the following year. As a result, SMI income
automatically matches expenditures without the need for legislative
adjustments.
Each part of Medicare has its own trust fund, with financial
oversight provided by the Board of Trustees. My discussion of
Medicare's financial status is based on the actuarial projections
contained in the Board's 2003 report to Congress. Such projections are
made under three alternative sets of economic and demographic
assumptions, to illustrate the uncertainty and possible range of
variation of future costs, and cover both a ``short range'' period (the
next 10--years) and a ``long range'' (the next 75 years). The
projections are not intended as firm predictions of future costs, since
this is clearly impossible; rather, they illustrate how the Medicare
program would operate under a range of conditions that can reasonably
be expected to occur. The projections shown in this testimony are based
on the Trustees' ``intermediate'' set of assumptions.
Short-range financial outlook for Hospital Insurance
Chart 1 shows HI expenditures versus income over the last 10 years
and projections through 2012. For most of the program's history, income
and expenditures have been very close together, illustrating the pay-
as-you-go nature of HI financing. The taxes collected each year are
intended to be roughly sufficient to cover that year's costs. Surplus
revenues are invested in special Treasury securities.
During 1990-97, HI costs increased at a faster rate than HI income.
Expenditures exceeded income by a total of $17.2 billion in 1995-97.
Prior to the Balanced Budget Act of 1997, this trend was expected to
continue, with costs growing at about 8 percent annually, against
revenue growth of only 5 to 6 percent. The 1995-97 shortfalls were met
by redeeming trust fund assets, but in the absence of corrective
legislation, assets would have been depleted in about 2001. The
Medicare provisions in the Balanced Budget Act were designed to help
address this situation. As indicated in chart 1, these changes--
together with subsequent low general and medical inflation and
increased efforts to address fraud and abuse in the Medicare program--
resulted in lower HI--expenditures during 1998-2000 and trust fund
surpluses totaling $61.8 billion over this period.
The Board of Trustees has recommended maintaining HI assets equal
to at least one year's expenditures as a contingency reserve. As
indicated in chart 2, HI assets at the beginning of 2003 represented
about 150 percent of estimated expenditures for the year. The HI trust
fund is estimated to continue to experience significant surpluses for
roughly the next 15 years. After 2017, however, expenditures are
projected to again exceed income. As shown in chart 2, assets would
initially accumulate rapidly but then be drawn down to cover the
resulting shortfalls. The trust fund would be exhausted in 2026 under
the Trustees' intermediate assumptions.
The depletion date estimated in the 2003 Trustees Report represents
a significant deterioration compared to last year's estimate (2030).
The change arises both from lower projected payroll tax revenues and
higher projected inpatient hospital expenditures. The lower payroll
taxes are the result of a downward revision by the Bureau of Economic
Analysis to their estimates of historical wage and salary
disbursements. The higher inpatient hospital cost projections result
from more inpatient hospital admissions in 2002 than previously
estimated and a greater increase in the average complexity of
admissions. Overall, Medicare payments for inpatient hospital care
increased by almost 10--percent in 2002--significantly above normal
rates of growth.
Long-range financial outlook for Hospital Insurance
The interpretation of dollar amounts is very difficult over
extremely long time horizons like the 75-year projection period used in
the Trustees Report. For this reason, long-range tax income and
expenditures are expressed as a percentage of the total amount of wages
and self-employment income subject to the HI payroll tax (referred to
as ``taxable payroll''). The results are termed the ``income rate'' and
``cost rate,'' respectively. Projected long-range income and cost rates
are shown in chart 3 for the HI program.
Past income rates have generally followed program costs closely,
rising in a step-wise fashion as the payroll tax rates were adjusted by
Congress. Income rate growth in the future is minimal, due to the fixed
tax rates specified in current law. Trust fund revenue from the
taxation of Social Security benefits increases gradually, because the
income thresholds specified in the Internal Revenue Code are not
indexed. Over time, an increasing proportion of Social Security
beneficiaries will incur income taxes on their benefit payments.
Past HI cost rates have generally increased over time but have
periodically declined abruptly as the result of legislation to expand
HI coverage to additional categories of workers, raise (or eliminate)
the maximum taxable wage base, introduce new payment systems such as
the inpatient prospective payment system, etc. Cost rates decreased
significantly in 1998-2000 as a result of the Balanced Budget Act
provisions together with strong economic growth. The cost rate
increased somewhat in 2001 and 2002 as a result of the Benefit
Improvement and Protection Act of 2000 and the 2001 economic recession.
In general, HI costs are expected to increase faster than taxable
payroll, because increases in the prices, utilization, and intensity of
health care services collectively exceed increases in workers'
earnings. After 2006, cost rates are projected to increase steadily for
these reasons and to accelerate significantly with the retirement of
the baby boom, beginning in 2010. By the end of the 75-year period,
scheduled tax income would cover less than one-third of projected
expenditures.
The average value of the financing shortfall over the next 75
years--known as the actuarial deficit--is 2.40 percent of taxable
payroll. This deficit could be closed by an immediate increase of 1.2
percentage points in the HI payroll tax rate, payable by employees and
employers, each. (The projected deficit could also be eliminated by
many other revenue increases and/or expenditure reductions.) Note,
however, that such a change would correct the deficit only ``on
average.'' Initially, HI revenue would be significantly in excess of
expenditures, but by the end of the period, only about one-third of the
projected deficit would be eliminated.
The effect of the baby boom's retirement on Social Security and
Medicare is relatively well known, having been discussed at length for
nearly 30 years. Basically, by the time the baby boom cohorts have
retired, there will be nearly twice as many HI beneficiaries as there
are today. When the HI program began, there were 4.5 workers in covered
employment for every HI beneficiary. As shown in chart 4, this ratio
for 2002 is just under 4.0 workers per beneficiary. With the advent of
the baby boom's retirement, the number of beneficiaries will increase
more rapidly than the labor force, resulting in a decline in this ratio
to 2.4 in 2030 and 2.0 in 2077, based on the intermediate projections.
Other things being equal, there would be a corresponding increase in HI
costs as a percentage of taxable payroll.
There are other demographic effects beyond those attributable to
the varying number of births in past years. In particular, life
expectancy has improved substantially in the U.S. over time and is
projected to continue doing so. The average remaining life expectancy
for 65-year-olds increased from 12.4 years in 1935 to 17.5 years
currently, with an estimated further increase to about 22--years at the
end of the long-range projection period. Medicare costs are also
sensitive to the age distribution of beneficiaries. Older persons incur
substantially larger costs for medical care, on average, than younger
persons. Thus, as the beneficiary population ages over time they will
move into higher-utilization age groups, thereby adding to the
financial pressures on the Medicare program.
Financial outlook for Supplementary Medical Insurance
Chart 5 presents estimates of the short-range outlook for SMI and
is generally similar to the information presented in chart 1 for the HI
trust fund. Two key differences are evident: First, the income and
expenditure curves for SMI are nearly indistinguishable in the future.
As noted previously, SMI premiums and general revenue income are
reestablished annually to match expected program costs for the
following year. Thus, the program will automatically be in financial
balance, regardless of future program cost trends. The second
difference is that--in contrast to the decline in HI expenditures
during 1998-2000--SMI expenditures increased at an average rate of 6.9
percent over this period.
As with HI, the 2002 SMI expenditures were significantly higher
than expected, having increased 11.6 percent for the year. Preliminary
data indicate that the rapid growth was due in part to (i) the
continuing transfer of certain home health services from HI to SMI as
specified in the Balanced Budget Act of 1997, (ii) a 7-percent increase
in spending on physician services, despite a negative 5.4-percent
payment update, (iii) a 20-percent increase in durable medical
equipment spending, and (iv) a 25-percent rise in physician-
administered drug spending. These cost increases, together with the
recent enactment of legislation increasing Medicare payment rates to
physicians effective March 1, 2003, will result in an estimated SMI
trust fund deficit of $7.4 billion in 2003.2 Program
financing for 2004 and later will be established at levels sufficient
to cover the higher expenditures. As a consequence, the monthly SMI
premium is estimated to increase from $58.70 in 2003 to about $66 in
2004, with general revenue transfers increasing at a correspondingly
rapid rate.
---------------------------------------------------------------------------
\2\ Financing for calendar year 2003 was set in September 2002,
before data showing the full extent of the 2002 expenditure increase
were available and before the Consolidated Appropriations Resolution,
2003 was enacted.
---------------------------------------------------------------------------
Chart 6 shows projected long-range SMI expenditures and premium
income as a percentage of GDP. Under present law, beneficiary premiums
will continue to cover approximately 25 percent of total SMI costs,
with the balance drawn from general revenues. In the long run,
expenditures are projected to increase at a significantly faster rate
than GDP, for largely the same reasons underlying HI cost growth.
Although SMI is automatically in financial balance, the program's
continuing rapid growth in expenditures places an increasing burden on
beneficiaries and the Federal budget. In 2002, for example, about 6.8
percent of a typical 65-year-old's Social Security benefit was withheld
to pay the monthly SMI premium of $54.00, and another 8.9 percent was
required to cover average deductible and coinsurance expenditures for
the year, for a total of 15.7 percent. Twenty years later, under the
intermediate assumptions, the same beneficiary's premium and copayment
costs would average 23 percent of his or her benefit.3
Similarly, SMI general revenues in fiscal year 2002 were equivalent to
7.8 percent of the personal and corporate Federal income taxes
collected in that year. If such taxes remain at their current level,
relative to the national economy, then SMI general revenue financing in
2070 would represent 30 percent of total income taxes.
---------------------------------------------------------------------------
\3\ The growth in average copayment costs over this period is
reduced significantly by (i) the fixed $100 deductible applicable to
SMI services, and (ii) the gradual correction of an excessive level of
beneficiary coinsurance on outpatient hospital services, as provided
for in the Balanced Budget Act of 1997 and subsequent legislation.
---------------------------------------------------------------------------
Combined HI and SMI expenditures
The financial status of the Medicare program is appropriately
evaluated for each trust fund separately, as summarized in the
preceding sections. By law, each fund is a distinct financial entity,
and the nature and sources of financing are very different between the
two funds. This distinction, however, frequently causes greater
attention to the HI trust fund--its projected year of asset depletion
in particular--and less attention to SMI, which does not face the
prospect of depletion. It is important to consider the total cost of
the Medicare program and its overall sources of financing, as shown in
chart 7. Interest income is excluded since, under present law, it would
not be a significant part of program financing in the long range.
Combined HI and SMI expenditures are projected to increase from 2.6
percent of GDP to about 9.3 percent in 2077, based on the Trustees'
intermediate set of assumptions. In past years, total income from HI
payroll taxes, income taxes on Social Security benefits, HI and SMI
beneficiary premiums, and SMI general revenues was very close to total
expenditures. Over the next 10 years, such Medicare revenues are
estimated to slightly exceed program expenditures, reflecting the
automatic financing of SMI plus an expected excess of HI tax income
over expenditures. Thereafter, however, overall expenditures are
expected to exceed aggregate revenues. Again, the growing difference
arises from the projected imbalance between HI tax income and
expenditures--since throughout this period, SMI revenues would continue
to approximately match SMI expenditures.
Over time, SMI premiums and general revenues would continue to grow
rapidly, since they would keep pace with SMI expenditure growth under
present law. HI payroll taxes are not projected to increase as a share
of GDP, primarily because no further increases in the tax rates are
scheduled under present law. Thus, as HI sources of revenue become
increasingly inadequate to cover HI costs, SMI premiums and general
revenues would represent a growing share of total Medicare income.
``Trust fund'' versus ``budget'' perspectives
Medicare's financial operations can be considered from two
different viewpoints: a ``trust fund perspective'' and a ``budget
perspective.'' The Trustees Report reflects the perspective of the
trust funds, since its purpose is to determine the financial status of
these funds by assessing whether they have sufficient revenues and
assets to enable the payment of Medicare benefits and administrative
expenses. From this trust fund perspective, all types of income are
equivalent, and their collective adequacy in covering expenditures is
paramount.
In particular, the existence of trust fund assets provides the
statutory authority to make benefit payments and cover other
expenditures. Medicare benefits can be paid if and only if the relevant
trust fund has sufficient assets. Congress established the trust fund
mechanism for financing Medicare (as well as Social Security and
certain other Federal programs) in part for the financial discipline it
imposes and also to serve as an early warning if program financing and
expenditures fall out of balance.
In contrast, the Federal budget focuses on taxes and other amounts
received by the government from the public and on amounts paid to the
public in the form of benefits, government purchases from the private
sector, wages to Federal employees, etc. If aggregate receipts from the
public exceed total outlays to the public, then the Federal government
has a budget surplus; the opposite relationship results in a Federal
budget deficit. In the context of the Federal budget, amounts paid from
the general fund of the Treasury to a Federal trust fund, referred to
as ``intragovernmental transfers,'' have no impact on the overall
budget surplus or deficit and consequently are excluded from
consideration.
In the budget context, one can look at the public receipts and
outlays associated with Medicare and determine the program's impact on
the Federal budget--that is, whether Medicare is making a net
contribution to the budget or is drawing from the budget. Whether the
HI or SMI trust fund is running a surplus or deficit may have little or
nothing to do with whether Medicare is contributing to a Federal budget
surplus or deficit. Due in part to the similar terminology, however,
people have sometimes confused these two different issues.
The differences between the trust fund and budget perspectives can
be clarified by examining how Medicare revenues are treated under each
approach. The following table shows estimated Medicare income by
category for 2003 under the Trustees' intermediate assumptions and
compares these amounts with expenditures under the two perspectives.
Estimated Medicare trust fund operations in calendar year 2003: ``Trust
fund perspective'' versus ``budget perspective''
(In billions)
------------------------------------------------------------------------
HI SMI Total
------------------------------------------------------------------------
Income:
Receipts from the public:
Payroll taxes........................... $155.6 -- $155.6
Income taxes on Social Security benefits 6.3 -- 6.3
Premiums................................ 1.6 $27.4 29.0
Other................................... 0.7 -- 0.7
-----------------------------
Subtotal.............................. 164.1 27.4 191.5
Intragovernmental transfers:
Interest on trust fund assets........... 15.3 2.0 17.3
General revenues........................ 0.4 86.2 86.6
-----------------------------
Subtotal.............................. 15.7 88.2 103.9
Total trust fund income................... 179.8 115.6 295.4
Expenditures.............................. 156.1 123.0 279.2
Trust fund surplus or deficit \1\......... 23.7 -7.4 16.3
Net impact on Federal budget \2\.......... 8.0 -95.7 -87.7
------------------------------------------------------------------------
\1\ Total trust fund income less expenditures.
\2\ Total receipts from the public less expenditures.
As indicated in the table, all revenue categories are counted for
determining trust fund financial status, and the HI trust fund is shown
to have an estimated surplus of $23.7--billion in 2003. As noted
previously, income from all sources to the SMI trust fund is projected
to fall short of expenditures in 2003 by $7.4 billion, requiring the
redemption of $7.4 billion in trust fund assets to cover the deficit.
From the budget perspective, in contrast, only tax receipts and
beneficiary premiums are counted, since interest earnings and general
revenue payments represent intragovernmental transfers. HI is projected
to have total receipts from the public in 2003 that exceed payments to
the public by $8.0 billion. For SMI, the only receipts from the public
are the beneficiary premiums, which total $95.7 billion less than SMI
expenditures. Accordingly, HI can be thought of as making an estimated
net contribution to the Federal budget of $8.0 billion in 2003, while
SMI is expected to draw $95.7--billion from the budget. Medicare,
overall, is thus projected to draw a net amount of $87.7 billion from
the budget.
Each viewpoint--the trust fund perspective and the budget
perspective--is appropriate for its intended purpose. One point of view
cannot be used to answer questions related to the other, however. Trust
fund surpluses or deficits reveal nothing about the impact of Medicare
on the Federal budget, and the impact of Medicare on the Federal budget
offers no insight into whether a trust fund has sufficient assets to
permit payment of benefits.
Conclusions
In their 2003 report to Congress, the Board of Trustees emphasizes
the continuing financial pressures facing Medicare and urges the
nation's policy makers to take further steps to address these concerns.
They also argue that consideration of further reforms should occur in
the relatively near future. The earlier that solutions are enacted, the
more flexible and gradual they can be. In addition, the Trustees note
that early action increases the time available for affected individuals
and organizations--including health care providers, beneficiaries, and
taxpayers--to adjust their expectations.
I concur with the Trustees' assessment and pledge the Office of the
Actuary's continuing assistance to the joint effort by the
Administration and Congress to determine effective solutions to the
remaining financial problems facing the Medicare program. I would be
happy to answer any questions you might have on Medicare's financial
issues.
[GRAPHIC] [TIFF OMITTED] T7482.001
[GRAPHIC] [TIFF OMITTED] T7482.002
[GRAPHIC] [TIFF OMITTED] T7482.003
Mr. Bilirakis. Thank you very much, Mr. Foster.
Dr. Berenson.
STATEMENT OF ROBERT A. BERENSON
Mr. Berenson. Thank you, Chairman Bilirakis, Representative
Brown, and members of the committee. I very much appreciate the
opportunity to provide comments on the important topic of
strengthening and improving Medicare.
I have enjoyed a diverse professional experience from which
I am basing my views about the future of Medicare. I practiced
internal medicine for over 20 years, including 12 in a private
practice in the Capitol Hill community about seven blocks from
here.
I served 10 years as a co-founder and medical director of
the National Capital PPO, a broker model PPO that was serving
nearly 150,000 people when I left in 1996. In the last 3 years
of the Clinton Administration, I had the privilege of serving
as Director of the Center for Health Plans and Providers in the
agency then known as HCFA. In that position I had the honor of
testifying before this subcommittee on a few occasions. Today I
am speaking only for myself.
In preparing my remarks, I relied on the White House press
release of March 3, 2003, titled, ``21st Century Medicare: More
Choices, Better Benefits, a Framework to Modernize and Improve
Medicare,'' which provides a glimpse of the President's ideas
for Medicare restructuring.
I am troubled by the framework's clear preference for
private health insurance options to the detriment of the
traditional Medicare program that has served the public so well
for over 35 years. It appears that the fundamental assumption
underlying the President's framework is that the traditional
Medicare program is incapable of controlling costs, assuring
access, and improving quality.
I believe strongly that that assumption represents an
ideological position, not based on objective review of the
evidence. Further, unless the administration proposes a
draconian defined contribution type model that shifts
substantial costs onto the backs of beneficiaries, there is no
reason to believe that greater reliance on private plans will
actually reduce expenditures or put the program on sounder
financial footing.
The framework seems designed more as part of an ongoing
attack on the government's role in health care in the face of
evidence showing that Medicare has been a remarkably successful
social insurance program.
The framework's option 2, enhanced Medicare, calls for
massive expansion in private health insurance options that are
mere variations on indemnity insurance approaches. In my
opinion, this option will add costly administrative expense to
Medicare and will further segment detrimentally the beneficiary
insurance pool.
Private plans will become financial winners if they design
benefits that attract healthier than average beneficiaries,
while the costs of maintaining the fallback traditional program
could become unsustainable. In thinking about Medicare reform,
it is important to understand crucial but rarely appreciated
differences between the challenges faced by private and public
employers in arranging health insurance for their employees and
covered retirees and by the Medicare program.
In distinct contrast to Medicare, even the largest national
employers have limited market shares in most of the markets in
which their employees reside. As a result, these employers need
to rely on managed care products, which increasingly are PPOs,
primarily as a way to get physicians, hospitals, and other
providers to agree to negotiated contractual payment rates.
In short, PPOs and many IPA model health maintenance
organizations carry out one function and one function only for
employers. They negotiate prices with providers. But the
traditional Medicare program has no need for private plans to
negotiate prices on its behalf.
The problem private health plans have setting up provider
networks in rural areas illustrates the point about the
different challenges employers in Medicare face.
Medicare+Choice has private fee for service plans only because
Congress decided to allow these private plans to impose
traditional Medicare prices on providers.
Similarly, all coordinated care, Medicare+Choice plans, get
to use Medicare payment rates for out-of-network coverage. The
Center for Studying Health System Change and MedPAC have
documented that overall traditional Medicare pays providers
substantially less than private plans do.
The point is that Medicare has no need for private plans if
all they are really doing is negotiating payment rates with
providers. And unfortunately, that is basically all that many
private plans actually do.
Some assert that beneficiaries, when aging into Medicare,
want the same set of insurance choices that they had as
employees or retirees covered under employer plans. I
respectfully disagree. What beneficiaries aging into Medicare
want most is the ability to keep the same physicians from whom
they have been receiving care, not the same insurance
arrangements.
If the traditional Medicare program's benefits were
improved to provide prescription drugs, catastrophic expense
protection, and other enhancements that the President would
provide only in private plans, beneficiaries would be able to
have the kind of choice of professionals and providers that
they want.
As I noted earlier, the President's framework implicitly
belittles the documented successes of the traditional Medicare
program. Actually, the history of Medicare is replete with
innovation, many of which have been adopted by commercial
market plans and payers.
Although many of us casually but inaccurately refer to the
traditional program as fee for service Medicare, in fact most
payment systems are now prospective--many paying per episodes
of care. They are not fee for service. The physician fee
schedule stands out as the exception, and that payment system
similarly should be reformed.
Recently, I co-authored a Health Affairs article
recommending payment innovations in the traditional program to
improve the care provided to the large majority of Medicare
beneficiaries who have long-standing----
Mr. Bilirakis. Will you please summarize, Doctor?
Mr. Berenson. Pardon me?
Mr. Bilirakis. Please summarize, if you would.
Mr. Berenson. Okay. Basically, there are a number of tools
that traditional Medicare could use to innovate, to hold down
costs, and perhaps a little later we will have an opportunity
to talk about what some of those area. The bottom line is I see
no need to privatize Medicare.
Mr. Bilirakis. Well, we certainly are very interested in
those ideas. If you don't get it across during the inquiry, by
all means submit it to us in writing.
Mr. Berenson. Very good.
[The prepared statement of Robert A. Berenson follows:]
Prepared Statement of Robert A. Berenson, Senior Consultant, Accademy
Health
Chairman Bilirakis, Mr. Brown, and members of the committee. I
appreciate the opportunity to provide comments on the important topic
of ``Strengthening and Improving Medicare.'' I have enjoyed a diverse
professional experience from which I am basing my views about the
future of the Medicare program. I practiced Internal Medicine for over
20 years, including twelve in private practice in the Capitol Hill
community, about seven blocks from here. I served ten years as a co-
founder and medical director of the National Capital PPO, a broker
model preferred provider organization (PPO) that was serving nearly
150,000 people when I left in 1997. And in the last three years of the
Clinton Administration, I had the privilege of serving as Director of
the Center for Health Plans and Providers in the agency then known as
the Health Care Financing Administration (HCFA). In that position I had
the honor of testifying before this subcommittee on a few occasions.
My job at HCFA gave me an unusual perspective on the issues being
discussed here today, as I had responsibility for contracting with
Medicare + Choice (M+C) plans, as well as for payment policies in the
traditional Medicare program. I was able to gain insights about the
relative strengths and weaknesses of the two sides of Medicare, and I
will reflect on some of those today.
In preparing my remarks, I relied on the White House press release
of March 3, 2003, titled ``21st Century Medicare: More Choices--Better
Benefits. A Framework to Modernize and Improve Medicare,'' which
provides a glimpse of the President's ideas for Medicare restructuring.
I am troubled by the framework's clear preference for private health
insurance options to the detriment of the traditional Medicare program
that has served the public so well for over 35 years.
It appears that the fundamental assumption underlying the
President's Framework is that the traditional Medicare program is
simply incapable of controlling costs, assuring access, and improving
quality. I believe strongly that that assumption represents an
ideological position, not based an objective review of the evidence.
Further, unless the Administration proposes a draconian defined
contribution model that shifts substantial costs onto the backs of
beneficiaries, there is no reason to believe that greater reliance on
private plans will actually reduce expenditures or put the program on a
sounder financial footing. The Framework seems designed more as part of
an ongoing attack on government's role in health care, in the face of
the evidence showing that Medicare has been a remarkably successful
social insurance program.
The Framework's ``Option 2--Enhanced Medicare'' calls for massive
expansion in private health insurance options that are mere variations
on indemnity insurance approaches. In my opinion, this Option will add
costly administrative costs to Medicare and will further segment
detrimentally the beneficiary insurance pool. Private plans will become
financial winners if they design benefits that attract healthier than
average beneficiaries, while the costs of maintaining the ``fallback''
traditional program could become unsustainable.
In thinking about Medicare reform, it is important to understand
crucial, but rarely appreciated, differences between the challenges
faced by private and public employers in arranging health insurance for
their employees and covered retirees and by the Medicare program. In
distinct contrast to Medicare, even the largest national employers have
limited market shares in most of the markets in which their employees
reside. As a result, these employers need to rely on managed care
products, which increasingly are PPOs, primarily as a way to get
physicians, hospitals, and other providers to agree to negotiated,
contractual payment rates. Without these insurance products that
aggregate insured lives to provide negotiating leverage, many employers
would be paying the highly inflated charges that individuals without
insurance or insurers without provider contracts face.
In short, PPOs and many Individual Practice Association--model
(IPA) health maintenance organizations (HMOs) carry out one function,
and one function only, for employers--they negotiate prices with
providers. When I was in charge of the M+C program, PPOs made it clear
that they wanted to be exempt from quality improvement activities and
even from basic quality reporting requirements. They told me they had
no ability to affect quality, and Congress accommodated their wishes.
In short, the array of indemnity-type insurance products envisioned
under the Enhanced Medicare Option would offer additional choices, but
not choices that add value to the Medicare program.
But the traditional Medicare program has no need for private plans
to negotiate prices on its behalf. The program already has market
power, and it has used its authority to set administered prices that
providers accept. In setting these rates, the program has a fundamental
obligation to find a reasonable balance between assuring continued
access for beneficiaries and restraining provider prices. Guided by
MedPAC, the General Accounting Office and the health services research
and policy community, the Congress and the Centers for Medicare and
Medicaid Services (CMS), for the most part, have done a good job of
finding that balance.
The problem private health plans have setting up provider networks
in rural areas illustrates the point about the different challenges
employers and Medicare face. Medicare + Choice has private fee for
service plans only because Congress decided to allow these private
plans to impose traditional Medicare prices on providers. Similarly,
all coordinated care, M+C plans get to use the Medicare payment rates
for out-of-network coverage. Further, The Center for Studying Health
System Change and MedPAC have documented that, overall, traditional
Medicare pays providers substantially less than private plans do. The
point is that Medicare has no need for private plans if all they are
really doing is negotiating payment rates with providers. And,
unfortunately, that is basically all that many private plans do.
Some assert that beneficiaries when aging into Medicare want the
same set of insurance choices that they had as employees or retirees
covered under employer plans. I respectfully disagree. What
beneficiaries aging in to Medicare most want is the ability to keep the
same physicians from whom they have been receiving care, not the same
insurance arrangements. If the traditional Medicare program's benefits
were improved to provide prescription drugs, catastrophic expense
protection, and other enhancements that the President would provide
only in private plans, beneficiaries would be able to have the kind of
choice of professionals and providers they want.
As I noted earlier, the President's Framework implicitly belittles
the documented successes of the traditional Medicare program. Actually,
the history of Medicare is replete with innovation, many of which have
been adopted by commercial market plans and payers. Although many of us
casually, but inaccurately, refer to the traditional program as ``fee
for service Medicare,'' in fact, most payment systems are now
prospective, many paying for episodes of care. They are not fee for
service. The physician fee schedule stands out as the exception, and
that payment system similarly should be reformed.
Recently, I co-authored a Health Affairs article recommending
payment innovations in the traditional program to improve the care
provided to the large majority of Medicare beneficiaries who have long-
standing, chronic conditions. Currently, CMS is monitoring
demonstrations of disease management programs in Medicare. If these
demonstrations prove successful, traditional Medicare can contract with
disease management vendors just as managed care plans do.
In addition, to help rationalize and limit expenditures, CMS should
be given authority to use selected managed care tools in its
administration of the program, as well as the requisite administrative
resources to function as a value purchaser. Examples of tools the
program should be allowed to use include promoting centers of
excellence, providing incentives for beneficiaries with multiple
chronic conditions to have a ``medical home,'' and using prior
authorization for select high cost, elective procedures.
For the most part, managed care failed in its execution of what
were and still are potentially useful care delivery innovations.
Further, managed care plans rarely provided the kind of transparency
that patients and contracting professionals rightly expect and deserve.
Of course, given its market power and the fact that it is the
government, there is justifiable concern about how CMS and its
administrative agents would function as a value purchaser.
Nevertheless, from my experience, I believe that requirements for
public rule-making, a commitment to fair process and disclosure, and,
in general, program accountability to the Congress and the public
suggest that the traditional Medicare program is actually better
positioned than most managed care plans to actually deliver on the
unrealized promise of managed care to provide high quality, affordable
health care.
There should be a prominent place in Medicare for innovative
private health plans, particularly group and staff model HMOs, that
offer true alternative delivery systems from that offered under
traditional Medicare. Those plans can and should be accommodated in a
modified Medicare + Choice program. However, at a time when the managed
care industry has lost its credibility and when plans have reverted to
being passive insurance companies, making money by charging high
premiums and generating investment income on their reserves, I do not
understand why Congress would want to privatize Medicare.
Mr. Bilirakis. Ms. Rawlings.
STATEMENT OF SUSAN E. RAWLINGS
Ms. Rawlings. Thank you. Mr. Chairman and members of the
subcommittee, my name is Susan Rawlings. I am Head of Retiree
Markets and Vice President for Aetna Incorporated. I am very
pleased to be here today.
Aetna has a long history of serving the Medicare program.
As a matter of fact, we processed the first Medicare claims in
1965. I am very pleased to be here to share with you our
thoughts on Medicare, Medicare+Choice, and how private plans
can participate successfully with you.
I should also note for you that our chairman and chief
executive, Dr. Jack Rowe, is a geriatrician by training and is
also a commissioner on MedPAC and is very interested in the
evolution of the program.
I have submitted some written testimony for the
subcommittee, and I would like to summarize that for you now.
Mr. Bilirakis. Please.
Ms. Rawlings. Aetna believes very strongly that we should
work together to involve----
Mr. Bilirakis. Hold the mike a little--maybe down a little
bit----
Ms. Rawlings. Down a little bit?
Mr. Bilirakis. [continuing] toward your----
Ms. Rawlings. Is that better?
Mr. Bilirakis. That is better.
Ms. Rawlings. Okay. Aetna believes we must work together to
evolve the program and modernize it. As we all know, the
population is growing and living longer. There is greater
technology available, and there are more choices available for
beneficiaries. We believe very strongly that the expertise and
learnings of the private sector should be fully leveraged.
We work together successfully in many capacities today in
serving other parts of the Federal Government programs such as
the FEHBP, Tricare, and Medicare, as well as Medicare+Choice
programs today.
Aetna believes there are five key foundational blocks to
building and evolving the program. We think we are starting
from a reasonably comprehensive place at the moment. But we
believe as we evolve we should consider five things, key
things.
The first one is adequate funding. This is critical to the
stability and sustainability of any program long term, and we
believe it is critical we keep that in mind as we proceed. We
also believe that the government must fund Medicare programs
commensurate with its promises to its beneficiaries.
Second, we do support fully the addition of pharmacy
benefits into the Medicare program. We believe medication
coverage is imperative for improving and maintaining health
status, and we want to work with the Federal Government to help
that become available.
Third, we believe access is critical for the program for
beneficiaries. It should be available all over the country,
which it is today, and choices should likewise be available.
Health care is delivered locally. Beneficiaries need to have
access to the care in their local community's choices and the
ability to address their own financial resources with the
choices that are available for them.
And finally, we believe very strongly in the aspect of
coordination of care, which is something we believe most
Medicare+Choice programs and other private plans have been able
to provide over time. This particular population is very care-
needy. And as people age, as we all know, we become typically
more chronically ill rather than acute.
We believe promoting self-care and promoting--focusing on
preventive benefits we believe we have additional benefits for
beneficiaries to maintain quality of life as well as to keep
costs consistent.
I would like to highlight a few things we believe the
private plans bring to value today to the government and to the
beneficiaries. The first one is that we provide richer benefits
than the traditional program. As a matter of fact, in 2002, 72
percent of Medicare+Choice beneficiaries actually had access to
prescription drugs.
We provide affordable access for low income and minority
beneficiaries. Forty percent of African-Americans with no group
or Medicaid coverage, as well as 52 percent of Hispanics and 40
percent of the people with incomes between $10,000 and $20,000
per year, are in Medicare+Choice today.
We provide better quality than traditional fee for service.
This is not necessarily because fee for service is not a
wonderful program. It is because we take a different approach.
Traditional fee for service is an indemnity-style program. The
Medicare+Choice programs and the private plans typically focus
on more preventive care and a holistic approach, preventive
services, and comprehensive benefits.
Today we also offer better choice. We have HMO options, PPO
options, private fee for service options. As a matter of fact,
Aetna is participating in the PPO demonstration project that
was launched January 1 in 21 counties in three States.
Medicare is at a crossroads as government tries to sort out
the best public and private sector roles going forward. It is
Aetna's view that the private sector role must be expanded or
the program will fail to grow sufficiently to keep pace with
the demands of a growing and longer living population.
It wasn't too long ago that the prior--the previous program
Medicare Plus--previous program to Medicare+Choice, the
Medicare Risk Program, was able to offer very competitive
comprehensive benefits, including pharmacy benefits, at no
cost. This is something we should strive for. This semblance of
quality and coverage we should strive for together.
Aetna is committed to serving Medicare beneficiaries and is
ready and willing to partner with the Federal Government to
develop workable solutions for this population. We appreciate
the opportunity to testify today.
[The prepared statement of Susan E. Rawlings follows:]
Prepared Statement of Susan E. Rawlings, Vice President and Head of
Retiree Markets, Aetna Inc.
Mr. Chairman and members of the Subcommittee, I am Susan Rawlings,
vice president and head of retiree markets for Aetna. Thank you for the
opportunity to testify before you today.
Aetna believes that a modernized Medicare program must leverage the
expertise and build upon the learnings of the private sector. The
Medicare+Choice program--is one example of the level of quality,
choice, and affordability that could be available to Medicare
beneficiaries if the private sector is fully leveraged by the Medicare
program. Despite a critical shortfall in government funding, about five
million Medicare-eligible seniors and disabled choose to participate in
Medicare+Choice, enjoying access to extra benefits--including
prescription drug coverage, preventive care, wellness and disease
management programs. These benefits are not available under Original
Medicare.
Medicare+Choice provides Medicare beneficiaries with better
benefits, better quality and better choices than the fee-for-service
program. But, as I said, it is only one example of what can be
accomplished when the private and public sectors work together to
develop solutions for Medicare beneficiaries. Based on our experiences
with this program and our knowledge of the population that it serves,
we ask you to consider a number of important issues critical to the
successful modernization of the Medicare program.
These issues include:
Adequate funding. Increased funding is necessary for stability
and sustainability of private offerings of comprehensive
benefits packages year after year. The government must fund its
programs commensurate with the promise made to its Medicare
beneficiaries.
Prescription drug benefits. Medication coverage is imperative
for improving and maintaining the health status of
beneficiaries. A funded prescription benefit allows treatment
of the many chronic conditions of seniors in the ambulatory
setting, thus avoiding unnecessary inpatient acute care stays.
It simply doesn't make sense for the program to cover heart
disease surgery, but not the medication that could have
prevented the need for surgery.
Nationwide accessibility. Health care services must be
available to all beneficiaries. Flexibility in patterns of
health care delivery must be created to include network and
non-network private offerings--with the protection of the
Medicare allowable fee schedules--to avoid excessive out-of-
pocket spending by Medicare beneficiaries.
Choice of plan design. Multiple private plan designs are
necessary to meet the needs of seniors in terms of benefits
requirements, benefits choices and financial resources.
Coordination of care. Medicare beneficiaries are a care-needy
population. In order to meet the multiple chronic care needs
and acute care needs of beneficiaries, there must be
coordination and communication across settings such as
inpatient acute care, rehabilitation care to restore function,
skilled nursing care and home care to improve health status.
This coordination should be focused on promoting self-care and
avoiding duplicative and redundant diagnostic and treatment
protocols.
While we ask that you consider all of these issues as part of your
efforts to modernize the program, we'd also like you to take a step
back and consider the myriad successes experienced by the
Medicare+Choice program. We hope that you will agree that these
successes provide further proof of the importance of involving the
private sector in this public program.
PRIVATE SECTOR MEDICARE PLANS PROVIDE RICHER BENEFITS
The Original Medicare program does not provide a number of benefits
that are commonly covered in private sector health plans. Every
Medicare+Choice plan, for example, provides enrollees with the FFS
benefits package and additional benefits. According to an analysis by
Mathematica Policy Research, 72 percent of all beneficiaries in
Medicare+Choice plans had access to a prescription drug benefit in
2002. Last year, health plans also provided added benefits not covered
by FFS Medicare, including physical exams (100 percent of all enrollees
in Medicare+Choice), vision benefits (87 percent), and hearing aid
benefits (54 percent).
In addition, Medicare+Choice plans also offer a number of chronic
care, wellness and preventive benefits that are so important to keeping
older and disabled Americans healthy. These services often include
patient education, disease management programs, calls from nurse case
managers to remind patients of optimal care, phone calls from the
health plan to remind members to keep their appointments and to have
the screenings necessary to avoid complications, caregiver education,
and reminders and reports to physicians about their patients' status
and the services they have received or missed.
Aetna, for example, has a program to conduct health risk
assessments for all of our Medicare+Choice members. Members who are
identified in their health risk assessment as being at high or moderate
risk will be contacted by an Aetna nurse case manager to determine if
case management can be of assistance in helping to maintain or improve
their health status. This program allows us to proactively identify
health issues and work with members, their physicians and other
community resources to help confirm that the member is both engaged in
the right programs, and motivated to actively participate in them.
Studies demonstrate that these extra benefits reduce out-of-pocket
costs for beneficiaries. According to the Kaiser Family Foundation,
``M+C HMOs have typically charged lower premiums than Medigap plans and
offered coverage for a variety of services that Medicare does not,
potentially lowering overall costs for enrollees.'' (Snyder, et al.
January 2003) The Kaiser study also found that total out-of-pocket
spending was reduced considerably for beneficiaries in Medicare+Choice
plans compared to enrollees in FFS Medicare and Medigap plans.
Medicare+Choice plans play an important role in providing health
coverage to low-income and minority beneficiaries who cannot afford the
high out-of-pocket costs they would incur under the Original Medicare
program. A recent study reports that ``about 40 percent of African-
Americans with no group or Medicaid coverage are in M+C plans, as are
52 percent of Hispanics and 40 percent of those with incomes between
$10,000 and $20,000 regardless of race or ethnicity.'' (M. Gold, Health
Affairs Web exclusive, April 2003) According to an April 2002 study by
Kenneth Thorpe for the Blue Cross Blue Shield Association, if the
Medicare+Choice program did not exist, 42 percent of Medicare-enrolled
African-Americans currently in Medicare+Choice plans would be forced to
go without coverage for prescription drugs and other supplemental
benefits. Aetna has a corporate initiative to reduce health care
disparities, which have been documented to exist based upon race and
ethnicity, and our efforts have been recognized and supported by the
Department of Health and Human Services.
PRIVATE SECTOR MEDICARE PLANS PROVIDE BETTER QUALITY
Medicare+Choice plans offer a different approach to health care
than beneficiaries experience under the Original Medicare program.
Instead of focusing almost exclusively on treating beneficiaries when
they are sick or injured, Medicare+Choice plans place a strong emphasis
on preventive health care services that help to keep beneficiaries
healthy, detect diseases at an early stage, avoid preventable
illnesses, and improve quality of life.
Aetna, for example, has a program to proactively reach out to each
member over the age of 50 to remind them to receive influenza and
pneumococcal pneumonia immunizations and colorectal cancer screenings.
These simple but important steps in preventive care can help Medicare
beneficiaries avoid serious, life-threatening illnesses.
Research studies show that enrollees in Medicare+Choice plans
receive care that is comparable to, or better than, beneficiaries
enrolled in Medicare FFS:
An analysis of data published in the Journal of the American
Medical Association (Jencks, et al. JAMA, January 15, 2003) and
data compiled by the National Committee for Quality Assurance
finds that Medicare+Choice plans outperform Medicare fee-for-
service in five of seven key HEDIS quality measures: beta
blockers after heart attacks; annual flu vaccines; breast
cancer screenings; diabetes testing; and diabetes lipid
screening. (AAHP 2003)
A study by CMS and the National Cancer Institute (NCI) found
that Medicare managed care enrollees were less likely than fee-
for-service patients to have their breast cancer diagnosed at
late stages. Only 7.6 percent of Medicare managed care
enrollees had a late-stage diagnosis, compared to 10.8 percent
of fee-for-service patients. (G. Riley, Journal of the American
Medical Association, Vol. 281, February 24, 1999)
A large-scale study comparing quality of care for elderly
heart attack patients covered by Medicare managed care plans
and Medicare fee-for-service coverage found that health plans
offer access to care equal to or better than fee-for-service
coverage. All indicators of timeliness and quality of care for
elderly patients with acute myocardial infarction were higher
or similar under Medicare managed care coverage compared with
fee-for-service coverage. Enrollees in Medicare managed care
plans were more likely to receive beta blocker therapy (73
percent vs. 62 percent). (S. Soumerai, Archives of Internal
Medicine, Vol. 159, 1999)
Another study found that Medicare managed care enrollees were
more likely to have had a mammogram in the previous year
compared to fee-for-service beneficiaries (62 percent vs. 39
percent). (L. Nelson, Access to Care in Medicare Managed Care,
November 1996)
Research also has shown that Medicare managed care enrollees
were diagnosed at considerably earlier stages, and therefore
more treatable stages, than fee-for-service patients for four
types of cancer: breast, cervix, melanoma and colon. Among
patients with cervical cancer, 76 percent of Medicare managed
care enrollees were diagnosed at early stages, compared to 55
percent of fee-for-service patients. (G. Riley, American
Journal of Public Health, October 1994)
In recognition of the value that Medicare+Choice plans provide, the
Medicare program has developed initiatives that reward Medicare+Choice
plans that meet certain goals. For example, CMS has implemented a
program that provides ``Extra Payment in Recognition of the Costs of
Successful Outpatient Congestive Heart Failure Care.'' Under this
program, qualifying Medicare+Choice organizations that meet CMS
performance criteria receive extra payments for enrollees with CHF who
were not hospitalized as a result of effective management of their
disease. Aetna supports this initiative and recommends that CMS
consider similar programs for other disease states. Aetna participates
in the Congestive Heart Failure initiative and has successfully
maintained members in the ambulatory setting with appropriate medical
services, medication and disease management.
PRIVATE SECTOR MEDICARE PLANS PROVIDE BETTER CHOICES
Consumers in the private sector have benefited from the widespread
availability of health plan options, which has promoted access to
affordable, comprehensive coverage. Despite the chronic underfunding of
the Medicare+Choice program, Medicare+Choice plans are currently
offering many Medicare beneficiaries innovative health plans that are
targeted to meet specific needs. Almost 60 percent of all Medicare
beneficiaries have access to Medicare+Choice plans. These include
coordinated care plans (HMO), preferred provider organizations (PPOs),
private fee-for-service plans, and plans specifically targeted to the
needs of frail elderly and disabled beneficiaries.
Aetna is currently participating in the Centers for Medicare and
Medicaid Services' (CMS) Preferred Provider Organization (PPO)
demonstration project. Through this demonstration project, which began
operating in January of this year, Aetna is offering new choices to
Medicare beneficiaries in 21 Maryland, New Jersey and Pennsylvania
counties. Our Aetna Golden Choice Plan is an HMO-based point-of-service
plan that allows members to receive care within or outside the Aetna
provider network, without obtaining referrals or selecting a primary
care physician. Notably, the plan also provides coverage for
prescription drugs, which are not covered under Original Medicare.
Aetna Golden Choice Plan members receive generic drug coverage with no
annual dollar limit, paying only a $15 copay per prescription.
Medicare is at a crossroads as government tries to sort out the
best public and private sector roles. Going forward it is Aetna's view
that the private sector role must be expanded or the program will fail
to grow sufficiently to keep pace with the demands of a growing and
longer-living population. At one time `` before the now infamous
Balanced Budget Act of 1997 `` Aetna provided Medicare beneficiaries
with a comprehensive benefits package that included vision and dental
coverage, preventive, wellness and disease management programs, and
prescription drug coverage `` all for a zero-dollar premium.
Competitive markets and adequate funding allowed for this, and
returning to some semblance of this level of quality coverage should be
our mutual goal.
CONCLUSION
Aetna is committed to serving Medicare beneficiaries, and ready and
willing to partner with the federal government to develop workable
solutions for this population. However, we need to recognize that, in
order to provide a strong foundation of expanded choices for
beneficiaries, private sector Medicare programs must be adequately
funded.
Since 1998, many Medicare+Choice beneficiaries have been enrolled
in health plans to which payments increased by only the minimum annual
update--which has been set at two percent since 1998 (but was
temporarily increased to three percent in 2001 only). To underscore the
inadequacy of government payments to Medicare+Choice plans, it is
useful to compare Medicare+Choice to other government health programs
and private sector health coverage. In 2003, funding for the health
benefits of all Medicare+Choice enrollees increased by only two
percent. The following facts highlight the inadequacy of this increase:
The Office of Personnel Management (OPM) has estimated that,
on a per-enrollee average, total premiums collected by health
plans in FEHBP increased by 10.5 percent in 2001 and by 13
percent in 2002;
PricewaterhouseCoopers has estimated that health insurance
premiums increased by an average of 13.7 percent for large
employers between 2001 and 2002; and
The William M. Mercer consulting firm has released survey
findings showing that spending for employer-sponsored health
coverage increased by an average of 11.2 percent in 2001 and
14.7 percent in 2002.
Any effort to modernize the Medicare program must directly address
these concerns by committing a significant level of additional funds to
support the health benefits of Medicare enrollees. Over the past two
years, more than 120 Members of Congress `` including 79 Democrats and
43 Republicans `` have cosponsored bills or signed letters indicating
their support for legislation to address the Medicare+Choice funding
crisis. The Bush Administration has also proposed additional funding to
stabilize the Medicare+Choice program. Building upon this strong base
of bipartisan support, it is critically important for Congress to pass
legislation to provide additional funding to protect the health care
choices and benefits of Medicare+Choice enrollees.
Aetna appreciates this opportunity to testify before the
subcommittee today. Private sector Medicare plans provide benefits,
quality and choices that are not available to enrollees in Original
Medicare. This is why we believe that a modernized Medicare should be
built upon increased private sector involvement in the program. We are
pleased that Congress is considering expanding the range of choices
available to Medicare beneficiaries. As Congress moves forward it
should ensure that the government will provide funding sufficient to
allow individuals a reasonable level of choice within an area, and that
the choices should remain available and stable over time.
Any Medicare reform proposal should also include prescription drug
benefits, nationwide accessibility, choice of plan design and
coordination of care.
Finally, Congress should also ensure that a reformed Medicare
program is administered under a framework designed to achieve a fair
and sound balance between the need for regulatory oversight and the
promotion of innovative, quality coverage solutions for all Medicare
beneficiaries.
Mr. Bilirakis. Thank you very much, Ms. Rawlings.
Dr. Moon.
STATEMENT OF MARILYN MOON
Ms. Moon. Thank you, Mr. Bilirakis, Mr. Brown, members of
the committee. I am very pleased to be here today to be able to
testify on this very important issue. My testimony essentially
makes five points, and I am going to talk primarily about one
of them, because I think a number of the other issues have been
raised already today.
First, the drivers of health care costs for Medicare
beneficiaries are essentially the same drivers of health care
costs for people in the private sector. We know that technology
and the improvements in health care that have come along have
not come cheaply in the United States, and this is true for
Medicare beneficiaries as well as for anyone else.
It is not Medicare's problem. It is Medicare's problem, but
it is not Medicare's fault that health care costs on a per
capita basis are rising for the most part.
Second, and where I want to put much of my emphasis, is on
alternative measures of affordability, and when people talk
about whether or not Medicare is affordable over time. I would
underscore Rick Foster's testimony that the trust funds and
part of Medicare are separate. Part A and Part B are separate
and need to be thought of that way. We need to be very careful
not to inappropriately put them together in looking at issues.
Part A is better off than many people have believed and has
been for the last few years. I served as a public trustee for 5
years, just after 1995, and to the year 2000. I would like to
argue that I am responsible for the great improvements in the
trust fund, but that is not the case.
What happened is that the Congress and other factors going
on in the economy conspired to help the Medicare program look a
lot better. We had strong economic growth, which is crucial,
and we had efforts, continuing efforts to change the program
over time, which is also a crucial factor in terms of looking
at how things will do well over time.
I would also point out that over the next 10 years revenues
are expected to exceed what the spending will be in Part A by
over $500 billion--a much better track record than we are
seeing for much of the activities of the Federal budget at the
moment.
But I also understand people's interest and desire to look
at Medicare in terms of the full cost of the program. It is
important to think about both Part A and Part B and not focus
just on one part of the program. And there are ways in which
people have done that--sometimes to look at the worker-to-
retiree ratio, sometimes to look at the share of GDP.
Those are both valuable measures, but they don't capture
the fact that over time the share of the pie will have to rise
to support Medicare. That is absolutely right. But that pie is
going to be much larger.
We will have the resources to provide that support. The
question is: will we have the willingness to do so?
If you control for inflation and look into the future of
the Medicare program, you will find that on a per worker basis
GDP, using the assumptions in the 2003 trustees report, that
GDP will rise after controlling for inflation by about 54
percent, 54.9 percent over the next 35 years, or until 2035 at
least. It is not quite 35 years.
And what that means is that workers, on average, will have
command of resources 1\1/2\ times greater than today, even
after controlling for inflation. If you take out of that the
burden that Medicare will mean for workers over time, and
treat, then, what the resulting net growth will be, it will
have fallen because Medicare will have risen as a share of GDP,
but only to 51 percent.
This is an affordable program. The question is: are we
willing to put the resources into that? And if so, how will we
do so?
The third point that I make in the testimony is that we do
need to have change in Medicare, but that it is not necessarily
private sector changes that will do a good job of that. And I
think that Bob Berenson's testimony bears credit for a lot of
that, and I would refer you to him.
Fourth, we do need to have change in the basic Medicare
program. And I think that that program should change in ways
that many people have talked about. Certainly, prescription
drugs are very important, and that is a key factor. It should
be a factor for traditional Medicare as well as for the program
as a whole in terms of use and reliance on the private sector.
But I would like to see the private sector used for
presumably what the private sector is supposed to be good at,
and that is coordination of care, which we have seen them do
very little of in practice. If they were doing a good job, I
think then we would have a very different story.
Finally, traditional Medicare also needs to look at a lot
of ways to improve coordination of care. It is going to be the
default mechanism for many years to come, and it needs to
change as well and we need to be creative there.
Thank you very much.
[The prepared statement of Marilyn Moon follows:]
Prepared Statement of Marilyn Moon,\1\ Senior Fellow, The Urban
Institute
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\1\ The material presented in this testimony represents the
opinions of the author and not of the Urban Institute, its officers or
funders. Much of the research reported here was funded by the
Commonwealth Fund and the Henry J. Kaiser Family Foundation.
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Mr. Chairman and Members of the Committee: Thank you for inviting
me to testify at this hearing.
The long term financing challenges facing Medicare are formidable.
Largely because of advances in medicine and technology, spending on
both the old and the young has grown at a rate faster than spending on
other goods and services. Combining a population that will increasingly
be over the age of 65 with health care costs that will likely continue
to rise over time is certain to mean an increasing share of national
resources devoted to this group. In order to meet this challenge, the
nation must plan how to share that burden and adapt Medicare to meet
new demands.
But this should not lead to the conclusion that Medicare cannot
continue nor that it must be dramatically altered. Medicare's future
will require additional financing, but the demands on society are
within our resources. The bigger long term challenge will be in
deciding how the rising costs of healthcare for this population need to
shared.
In my testimony today, I raise five major issues:
First, the drivers of healthcare costs are not unique to
Medicare, and it is important to recognize that Medicare needs
to grow in concert with changes in the healthcare system as a
whole.
I offer an alternative measure of affordability to illustrate
that even with no changes in the basic program, the burdens
from Medicare are not excessive in the context of reasonable
expectations about economic growth in the future.
While society can afford to spend more on healthcare for older
and disabled persons, passing greater costs onto older and
disabled Americans must be done with caution.
Change in Medicare will be needed but the answer may not rest
with turning the program over to the control of the private
sector. Medicare actually has a better track record over the
last thirty years than does private insurance.
Traditional Medicare can and should remain a major part of the
overall program; but it too needs a number of changes.
REASONS FOR RISING COSTS
Projections from the 2003 Medicare Trustees Report indicate that
Medicare's share of the Gross Domestic Product (GDP) will reach 4.75
percent in 2030, up from 2.56 percent in 2002. Although this is a
substantial increase, it is actually smaller than what was being
projected just a few years ago. In 1996, for example, the projection
for 2030 was 7.39 percent of GDP--or 56 percent higher than the
projection made this year. This slowdown in growth does not eliminate
the need to act, but it does allow time for study and deliberation
before putting substantial changes into place.
Projected increases in Medicare's spending arise because of growing
numbers of people eligible for the program and the high costs of health
care. The beneficiary population is rising because of increased life
expectancy (in part reflecting the success of the Medicare program) and
that growth will be accelerated in the future by the retirement of the
baby boom. The number of younger disabled beneficiaries is also
expected to remain high. This creates challenges for Medicare and
represents a major component of spending projection increases. By 2030,
for example, the number of beneficiaries will reach 79 million--nearly
double today's number.
Technological advances that raise the costs of care are the primary
reason for higher per capita spending over time, and this phenomenon
occurs systemwide, not just in Medicare. The problems driving Medicare
costs upward are not unique to the public sector. They are found
throughout our nation's healthcare system, and the crisis of rising
healthcare costs affects all payers: individuals, businesses, and
governments. And just as Medicare is influenced by the overall
healthcare system, the opposite is true as well. Medicare has been a
leader in experimenting with options for curbing the costs of care,
both in terms of increasing prices and use of services. Further, while
costs continue to rise, efforts through time to hold down these costs
have led to a better outlook than was the case in the mid-1990s.
Similar re-evaluation of the program to make changes where needed will
be an important part of Medicare's future.
MEASURING MEDICARE'S FINANCIAL BURDENS
Medicare is currently financed in a variety of ways. Part A relies
mainly on payroll taxes with a modest contribution from part of the
taxes imposed on Social Security benefits. Part B, on the other hand,
is financed by enrollee premiums set at 25 percent of the costs of Part
B benefits for elderly beneficiaries and by general revenue
contributions sufficient to cover the remaining costs.
Medicare's financial health can be viewed from several
perspectives. The appropriate question over time is whether, as a
society, we can afford to support Medicare. But the measures often used
actually focus on a narrower issue of solvency, particularly that of
the Part A Trust Fund. That measure does point to the need for some
type of policy change in the future, but that could simply mean
increasing the revenues going into the trust funds, for example.
Solvency Measures
Solvency, as measured by the date of exhaustion of the Part A Trust
Fund, is one of the most commonly reported statistics about
Medicare.1 This is just one of many measures reported in the
Medicare Board of Trustees annual reports on Medicare's financial
outlook. Critics of Medicare often emphasize the solvency of the Part A
Trust Fund as an indicator of affordability as well as solvency. This
implicitly treats the Part A Trust Fund as establishing a limit on what
can be spent on Part A.
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\1\ Although there is also a Part B Trust Fund, it serves a much
different purpose and is intentionally kept at a small positive level.
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The Part A Trust Fund was designed to assure that the specified
payroll tax contribution would be used specifically for Part A
spending. As dedicated revenues, payroll and other revenue sources that
exceed the amount necessary to cover Part A benefits go into the Trust
Fund and collect interest. When the trust fund forecasts indicate a
declining balance, this serves as an early warning of the need for an
adjustment either in revenue contributions or spending on the program.
Over the next ten years, Medicare revenues will exceed spending by over
$500 billion.
Projections of the Medicare Part A trust fund in the most recent
Trustees' Report indicate that it will maintain a positive balance
through 2026. Considered in historical context, the date of projected
insolvency historically is far into the future as compared to what it
has been in earlier years (Figure 1). The trust fund is expected to
grow until 2014, after which the trust fund's balances will begin to
decline. At that point, payroll tax and other receipts are insufficient
to cover all expenditures. After 2014, Part A of Medicare must
supplement tax revenues with funds accumulated in the Part A Trust
Fund.
Another solvency measure that was contained in the Administration's
budget documents for this year indicated that there was a $13.3
trillion unfounded liability facing Medicare over the next 75 years.
But this is based on very misleading figures. The text implies that
payroll taxes are the only revenue source from which Medicare is
allowed to draw to cover its costs. While Part A is largely funded by
payroll taxes, Part B by law has always relied on general revenues.
Including its costs in an analysis of the adequacy of the current
payroll tax has as much validity as treating any other expenditure
covered by general revenues (such as defense) as having large unfounded
liabilities as well. If done correctly, the ``unfounded promises''
under Medicare would be much lower, more in the range of $5 trillion.
That is not to say that this is not a large amount, but rather that
the size is more manageable than the $13.3 trillion implies. It is
important to note, for example, that in the next ten years, Part A
revenues will exceed Part A spending by over $500 billion.
Affordability Measures
Assessing affordability using the solvency of the Part A Trust Fund
as the measure is analogous to individuals arguing that they cannot pay
all their bills because the balance in one of their checking accounts
is too low. Affordability is a broader issue that turns on whether we
as a society can support Medicare into the future. The need for
healthcare for this segment of the population will not go away simply
because we decide to cut back on government's contribution. But the
ability of Medicare beneficiaries to absorb higher healthcare costs if
no new revenues are forthcoming would be in serious doubt.
The Medicare Trustees Annual Report offers two broader measures of
affordability described below, although each are limited in scope.
Thus, an alternative measure presented here proposes a more
comprehensive way to examine affordability.
The Worker-to-Beneficiary Ratio. The ratio of workers contributing
to Medicare at any point in time compared to the number of
beneficiaries shows that the number of younger persons relative to
older ones will decline in the future given the aging of society. This
declining ratio of workers to retirees indicates that each worker will
have to bear a larger share of the cost of providing payroll tax-
financed Medicare benefits.
Between 2002 and 2030 (about the time when most Baby Boomers will
have become eligible for Medicare), the ratio of workers to
beneficiaries will fall from 3.9 to 2.4. Indeed, this is one of the
statistics commonly cited by those who claim the program is
``unsustainable.'' This measure does signal the need for more revenues
per worker--a legitimate issue for debate. However, it fails to assess
the level of burden relative to ability to pay from each future worker,
ignoring any improvement in the economic circumstances of workers over
time due to per capita economic growth.
Medicare Spending as a Share of GDP. A second measure is the sum of
Part A and B spending as a share of GDP. In 2002, Medicare's total
share was 2.56 percent and is projected to rise to 4.75 percent in
2030. This represents a doubling of the GDP share. Such an increase
reflects the fact that health care costs per capita are expected to
continue rising, and the number of people covered will double over that
time period. But again, this measure is not as helpful in the debate on
Medicare's future because it does not consider how well off we will be
as a society as the level of GDP grows. Some goods and services, like
health care, may appropriately grow as a share of GDP in response to
higher living standards and preferences of the population. What is
needed is more information to be able to understand the consequences of
devoting a higher share of society's resources to Medicare.
A More Comprehensive Measure of Affordability. Another way to look
at affordability is to focus not just on the number of workers that
contribute to payroll and income taxes or on aggregate GDP, but instead
on how the Medicare per capita burden will affect workers over time.
While the share of the pie (GDP) going to Medicare is likely to rise,
if the pie (on a per capita basis) is also much larger, then an
increasing share is less of a burden. If the future leads to increased
national well-being, additional resource sharing would be affordable.
Thus, another way to examine affordability is to focus on whether
taxpayers of the future will be better off even after they pay higher
amounts for Medicare.
This approach measure begins with computing per worker GDP over
time, resulting in a measure of the nation's output of goods and
services divided across the working population. This provides the base
for assessing Medicare's burden on workers, who pay for the bulk of
support for the program. Per worker GDP--even after adjusting for
inflation--rises substantially, from $69,000 per worker in 2002 to just
under $107,000 in 2035 (in 2003 dollars).2 This is an
increase of 54.9 percent in per worker GDP, a substantial increase in
financial well-being.
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\2\ The figure used here is based on the intermediate projections
from the 2002 Trustees Report, which assumes a 1.1 percent real growth
in per worker wages each year. Over the past 50 years, productivity has
been higher than this amount, averaging over 1.5 percent per year.
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What about Medicare's costs over this period? The burdens from
Medicare spending on each worker are projected to rise at a faster rate
than per capita GDP because both numbers of beneficiaries and their
inflation-adjusted spending will rise over time. But because per worker
GDP is a much larger dollar amount than the dollars of Medicare
burdens, the reduction in well-being that this entails for workers is
modest.
To calculate this per worker burden from Medicare, several
adjustments are necessary. First, each worker will bear an increasing
share of Medicare over time because of the change in the ratio of
workers to retirees. Further, per capita Medicare costs are expected to
rise by 90 percent in real terms by 2035, also increasing the real
dollar burden on workers. But not all of Medicare's costs are borne by
workers. Thus, costs are adjusted downward by the contributions that
will be made by beneficiaries themselves. The Part B premium accounts
for about 10 percent of Medicare's costs. In addition, beneficiaries
make further contributions because some of the taxation of Social
Security benefits goes into Part A and older and disabled persons also
pay income taxes that help support Part B. Thus, those costs need to be
netted out.
The resulting real per worker burden estimates range from $1,556 in
2002 to $4,993 in 2035 (in 2002 dollars). In Figure 2, the bar graph
indicates per worker GDP in inflation-adjusted dollars, and the line
graph indicates how much would be left after accounting for the
Medicare burden.
From 2002 to 2035, the increase in net (after subtracting Medicare)
per worker resources would be 51.0 percent as compared to the 54.9
percent increase in per worker GDP. That is, workers would still be
substantially better off than today, even after paying the full
projected costs of Medicare. The pie will indeed have gotten larger,
making it possible to absorb Medicare's higher costs. Essentially our
estimates indicate that Medicare's greater burdens would ``consume''
about 7 percent of increased well-being for workers over that period.
There will, of course, be other demands on these resources as well, but
this approach puts demands from Medicare into a broader perspective.
This measure for examining affordability takes into account Parts A and
B of Medicare, and it puts the issue of the burdens of the program into
a per worker context.
This more comprehensive measure of net per worker output also
suggests that, as a society, we will be able to afford Medicare without
an inordinate burden on workers or taxpayers once even modest estimates
of productivity growth over time are taken into account. A greater
challenge will be for society to decide whether it is willing to share
these costs.
HOW MUCH SHOULD BENEFICIARIES BE ASKED TO PAY?
The burdens of higher health care costs in the future will likely
need to be shared between beneficiaries and younger taxpayers in some
manner deemed reasonable. The numbers above already give a sense that
future workers will be in a reasonable position to pay more. What about
beneficiaries?
Options for passing more costs of the program onto beneficiaries,
either directly through new premiums or cost sharing or indirectly
through options that place them at risk for health care costs over
time, need to be carefully balanced against beneficiaries' ability to
absorb these changes. Just as Medicare's costs will rise to
unprecedented levels in the future, so will the burdens on
beneficiaries and their families. Even under current law, Medicare
beneficiaries will be paying a larger share of the overall costs of the
program and more of their incomes in meeting these health care
expenses. In 2003, beneficiaries will spend about 23 percent of their
incomes on average for acute health care. In a study I did with
Stephanie Maxwell and Misha Segal, we projected per capita out-of-
pocket spending based on projected Medicare growth into the future and
found that the average beneficiary in 2025 would likely have to pay
nearly 30 percent of her income on health care because the costs of
care grow faster than incomes over time. Figure 3 also indicates how
these burdens would grow for other groups of the Medicare population.
Thus, a difficult question to answer will be how much more can be
shifted onto beneficiaries over time? If incomes rise faster than
anticipated and health care spending moderates, there will certainly be
room for greater contributions. But a full shifting of additional costs
does not seem to be a viable option. Moreover, it will be very
important to take special care with the most vulnerable beneficiaries.
In addition, options to increase beneficiary contributions to the
cost of Medicare further increase the need to provide protections for
low-income beneficiaries. The current programs to provide protections
to low-income beneficiaries are inadequate, particularly if new premium
or cost-sharing requirements are added to the program. Participation in
the Medicare Savings programs is low, likely in part because these
programs are run by Medicaid and are thus tainted by association with a
``welfare'' program. Further, states, which pay part of the costs, tend
to be unenthusiastic about these extra program and likely discourage
participation.
WOULD RELYING ON THE PRIVATE SECTOR MAKE MEDICARE A MORE VIABLE
PROGRAM?
Much of the debate over how to reform the Medicare program has
focused on broad restructuring proposals, moving the management and
oversight increasingly under the control of private insurance. What are
the tradeoffs from increasingly relying on private plans to serve
Medicare beneficiaries? Most important, there is little evidence to
suggest even modest savings to Medicare from increased competition and
the flexibility that the private sector enjoys. Further, the effort
necessary to create, in a private plan environment, all the protections
needed to compensate for moving away from traditional Medicare seems
too great and too uncertain.
Claims for savings from options that shift Medicare more to a
system of private insurance usually rest on two basic arguments: first,
it is commonly claimed that the private sector is more efficient than
Medicare, and second, that competition among plans will generate more
price sensitivity on the part of beneficiaries and plans alike.
Although seemingly credible, these claims do not hold up under close
examination.
Looking back over the period from 1970 to 2000, a recent study I
completed with Cristina Boccuti found that Medicare's cost-containment
performance has been better than that of private insurance even after
controlling for coverage of comparable services. Starting in the 1970s,
Medicare and private insurance plans initially grew very much in
tandem, showing few discernible differences (See Figure 4). By the
1980s, per capita spending had more than doubled in both sectors. But
Medicare became more cost-conscious than private health insurance in
the 1980s, and cost containment efforts, particularly through hospital
payment reforms, began to pay off. From about 1984 through 1988,
Medicare's per capita costs grew much more slowly than those in the
private sector.
This gap in overall growth in Medicare's favor stayed relatively
constant until the mid 1990s when private insurers began to take
seriously the rising costs of health insurance. At that time, growth in
the cost of private insurance moderated in a fashion similar to
Medicare's slower growth in the 1980s. Thus, it can be argued that the
private sector was playing ``catch up'' to Medicare in achieving cost
containment. Private insurance thus narrowed the difference with
Medicare in the 1990s, but as of 2000, there was still a considerable
way for the private sector to go before its cost growth would match
Medicare's achievement of lower overall growth. When comparison is made
on rates of growth for comparable benefits, Medicare's cumulative rate
is 19 percent below that of private insurance.
Technological change and improvement represents a major factor
driving high rates of expenditure growth. To date, most of the cost
savings generated by all payers of care has come from slowing growth in
the prices paid for services and making only preliminary inroads in
reducing the use of services or addressing the issue of technology.
Reining in use of services will constitute a major challenge for
private insurance as well as Medicare in the future, and it is not
clear whether the public or private sector is better equipped to do
this.
Reform options such as the premium support approach also seek
savings by allowing the premiums paid by beneficiaries to vary such
that those choosing higher cost plans pay substantially higher
premiums. The theory is that beneficiaries will become more price
conscious and choose lower cost plans. This in turn will reward private
insurers that are able to hold down costs. And there is some evidence
from the federal employees system and the Calpers system in California
that this has disciplined the insurance market to some degree. Studies
that have focused on retirees, however, show much less sensitivity to
price differences. Older persons may be less willing to change doctors
and learn new insurance rules in order to save a few dollars each
month. Thus, what is not known is how well this will work for Medicare
beneficiaries.
For example, for a premium support model to work, at least some
beneficiaries must be willing to shift plans each year (and to change
providers and learn new rules) in order to reward the more efficient
plans. Without that shifting, savings will not occur. In addition,
there is the question of how private insurers will respond. (If new
enrollees go into such plans each year, some savings will be achieved,
but these are the least costly beneficiaries, and may lead to further
problems as discussed below.) Will they seek to improve service or
instead focus on marketing and other techniques to attract a desirable,
healthy patient base? It simply isn't known if the competition will
really do what it is supposed to do.
In addition, new approaches to the delivery of health care under
Medicare may generate a whole new set of problems, including problems
in areas where Medicare is now working well. For example, shifting
across plans is not necessarily good for patients; it is not only
disruptive, it can raise costs of care. Some studies have shown that
having one physician over a long period of time reduces costs of care.
And if it is only the healthier beneficiaries who choose to switch
plans, the sickest and most vulnerable beneficiaries may end up being
concentrated in plans that become increasingly expensive over time. The
case of retirees left in the federal employees high-option Blue Cross
plan and in a study of retirees in California suggest that even when
plans become very expensive, beneficiaries may be fearful of switching
and end up substantially disadvantaged. Thus, the most vulnerable may
stay in plans that become inordinately expensive. Further, private
plans by design are interested in satisfying their own customers and
generating profits for stockholders. They cannot be expected to meet
larger social goals such as making sure that the sickest beneficiaries
get high quality care; and to the extent that such goals remain
important, reforms in Medicare will have to incorporate additional
protections to balance these concerns as described below.
Ultimately, projected cost savings from a private insurance
initiative arise from passing costs off onto beneficiaries through
higher premiums or increased cost sharing requirements. If that indeed
is the case, then this approach merely represents an elaborate way to
avoid an honest debate about how to share future burdens.
CHANGES TO IMPROVE MEDICARE
Making changes to Medicare that can improve its viability both in
terms of its costs and in how well it serves older and disabled
beneficiaries should certainly be pursued. Further, it makes little
sense to look for a solution that takes policy makers permanently out
of Medicare's future. The flux and complexity of our healthcare system
will necessitate continuing attention to this program. At present a
number of areas in Medicare need attention.
What I would prefer to see instead is emphasis on improvements in
both the private plan options and the traditional Medicare program,
basically retaining the current structure in which traditional Medicare
is the primary option. Rather than focusing on restructuring Medicare
to emphasize private insurance, I would place the emphasis on
innovations necessary for improvements in health care delivery
regardless of setting.
Critics of Medicare rightly point out that the inadequacy of its
benefit package has led to the development of a variety of supplemental
insurance arrangements which in turn create an inefficient system in
which most beneficiaries rely on two sources of insurance to meet their
needs. It is sometimes argued that improvements in coverage can only
occur in combination with structural reform. And some advocates of a
private approach to insurance go further, suggesting that the
structural reform itself will naturally produce such benefit
improvements. This implicitly holds the debate on improved benefits
hostage to accepting other unrelated changes. That logic actually
should run in the other direction. It is not reasonable to expect any
number of other changes to work without first offering a more
comprehensive benefit package for Medicare. In that way, payments made
to private plans can improve, allowing them to better coordinate care.
And the fee for service system will also be able to change in ways that
might encourage better care delivery. For example, it is not reasonable
to ask patients to participate in a program to reduce hypertension
(which can save costs over the long run) without covering the
prescription drugs that are likely to be an essential part of that
effort. In addition, a better benefit package will also allow at least
some beneficiaries to forego the purchase of inefficient private
supplemental insurance. That itself should be a goal of reform.
In addition, better norms and standards of care are needed if we
are to provide quality of care protections to all Americans. Investment
in outcomes research, disease management and other techniques that
could lead to improvements in treatment of patients will require a
substantial public commitment. This cannot be done as well in a
proprietary, for-profit environment where dissemination of new ways of
coordinating care may not be shared. Private plans can play an
important role and may develop some innovations on their own, but in
much the same way that we view basic research on medicine as requiring
a public component, innovations in health delivery also need such
support. Further, innovations in treatment and coordination of care
should focus on those with substantial health problems--exactly the
population that many private plans seek to avoid. Some private plans
might be willing to specialize in individuals with specific needs, but
this is not going to happen if the environment is one emphasizing price
competition and with barely adequate risk adjustors. Innovative plans
would likely suffer in that environment.
A good area to begin improvements in knowledge about the
effectiveness of medical care would be with prescription drugs.
Realistically, any prescription drug benefit will require efforts to
hold down costs over time. Part of that effort needs to be based on
evidence of the comparative effectiveness of various drugs, for
example. Establishing rules for coverage of drugs should reflect good
medical evidence and not just on which manufacturer offers the best
discounts. Undertaking these studies and evaluations represents a
public good and needs to be funded on that basis.
Within the fee-for-service environment, it would be helpful to
energize both patients and physicians in helping to coordinate care.
Patients need information and support as well as incentives to become
involved. Many caring physicians, who have often resented the low pay
in fee for service and the lack of control in managed care, would
likely welcome the ability to spend more time with their patients. One
simple way to do this would be to give beneficiaries a certificate that
spells out the care consultation benefits to which they are entitled
and allow them to designate a physician who will provide those
services. In that way, both the patient and the physician (who would
get an additional payment for the annual or biannual services) would
know what they are expected to provide and could likely reduce
confusion and unnecessary duplication of services that go on in a fee
for service environment.
Additional flexibility to CMS to manage and develop payment
initiatives aimed at using competition where appropriate also could
result in long term cost savings and serve patients well. In the areas
of durable medical equipment and perhaps even some testing and
laboratory services, contracting could be used to obtain favorable
prices.
These are only a few examples of changes, none of which promise to
be the magic bullet, but which could aid the Medicare program over
time.
CONCLUSION
It is important to consider the broader issue of affordability in
thinking about Medicare's future and not just the usual measures of
solvency on which people often depend. And while Medicare at its
current level is certainly affordable, a number of changes will need to
be made. Over the years, the financial viability of Medicare has been
improved by enacting a range of changes in the program. Further
improvements in the program will be needed in the future. Nonetheless,
we simply cannot expect as a society to provide care to the most needy
of our citizens for services that are likely to rise in costs and to
absorb a rapid increase in the number of individuals becoming eligible
for Medicare without taking the financing issue head on. As a
successful program, it makes sense to continue Medicare for the future,
but that will require additional revenues.
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Mr. Bilirakis. Thank you very much, Dr. Moon.
Ms. Grealy.
STATEMENT OF MARY R. GREALY
Ms. Grealy. Chairman Bilirakis, Congressman Brown, members
of the subcommittee, thank you for your invitation to testify
today. And thank you for the commitment and energy you are
bringing to this very necessary goal of strengthening and
improving Medicare.
The Health Care Leadership Council is a coalition of chief
executives of some of our Nation's most important and
innovative health care companies and institutions. Our members
share a commitment to a patient-centered health care system
that is characterized by innovation, value, and constantly
improving quality. We believe these are words that should be
used to describe our Nation's Medicare program.
I think we can all agree upon certain goals for the health
program that serves older and disabled Americans. Medicare
should have a prescription drug benefit. In fact, we support
President Bush's budget request for a drug benefit. Medicare
should offer a high level of health care quality and innovation
to its beneficiaries. Medicare should offer good value to both
beneficiaries and to taxpayers.
We believe that Medicare can be improved in both financial
and health care quality terms by moving toward a delivery model
that utilizes competition and invests beneficiaries with the
power of consumer choice. This model works well today for tens
of millions of people who are either in large employer-
sponsored health plans or in the Federal Employees Health
Benefit Program.
These programs deliver better benefits, including
prescription drugs, lower out-of-pocket costs, and the ability
to choose a plan that is best suited to individual needs.
This morning I would like to make three critical points
about what can be gained from a competitive Medicare model.
First, there is a level of quality that can be achieved through
a market-based incentive that simply does not occur in a price-
controlled, regulated environment.
Mr. Chairman, there is no question that Medicare
beneficiaries are missing out on quality health care
innovations that are being delivered to millions of health care
consumers throughout the country. Private health plans and
other providers have created effective care management programs
that lead to better health outcomes, greater patient
satisfaction, and cost efficiencies.
By contrast, Medicare does have an inherent difficulty in
keeping pace with the changing state of health care. Changing
the Medicare benefit package requires an act of Congress, and
the administrative process for determining whether Medicare
should cover a new treatment or procedure is painfully complex.
And, consequently, Medicare beneficiaries did not then have
access to the most effective preventive care available. Within
the FEHBP program, health plans respond quickly to changing
beneficiary needs, to new treatments, and to the availability
of new technologies.
My second point concerns the undeniable linkage between
choice and quality. Consumers influence the quality of their
care by choosing health plans that demonstrate better outcomes.
Consumers can also influence the value of their care by
choosing health plans that offer the best product for the
lowest price.
Doesn't it stand to reason, then, that Medicare
beneficiaries, given this power of choice, can be the drivers
of greater quality and greater value. Some have said that it
would be a confusing imposition to give seniors these choices.
We should not sell older Americans short. And with more
retirees having experienced some form of managed care during
their working years, modern Medicare beneficiaries will be
increasingly comfortable with, and accustomed to, selecting and
joining private health plans.
Finally, I would like to say a word about the financial
aspects of Medicare and how best to move the program toward
sound footing for future generations. Some would argue that the
right answer for Medicare involves government price controls
and periodic spending reductions like those that were included
in the 1997 Balanced Budget Act legislation.
And, yes, those actions have kept Medicare spending growth
at a comparatively lower rate. But at what price? Today's
Medicare program can control spending growth, because it does
not provide an outpatient prescription drug benefit. And it
does not always keep up with new health technologies as quickly
as the private sector does.
And providers can only continue to meet and treat Medicare
patients at low reimbursement rates by making up for that
through some of--or making up for some of their losses through
other payers. You can find savings through price controls and
spending cuts, but you pay through an erosion in access and in
quality.
It would make far more sense and be better for Medicare
beneficiaries to use market-based incentives to increase value
and to use the power of consumer choice to simulate cost
efficiencies and to use preventive care and health innovations
to reduce the need for costly acute care and lengthy
hospitalizations.
We can have a Medicare program that offers both quality and
value, and that is geared to meet the needs and challenges of
this century. We look forward to working with this committee to
pursue these essential goals.
Thank you.
[The prepared statement of Mary R. Grealy follows:]
Prepared Statement of Mary R. Grealy, President, Healthcare Leadership
Council
Thank you, Chairman Bilirakis, Congressman Brown, members of the
subcommittee for your invitation to testify today. The Healthcare
Leadership Council shares your commitment to a strong Medicare program,
and I look forward to sharing our members' views on how this valuable
program can be improved.
The Healthcare Leadership Council (HLC) is made up of chief
executives of the nation's premier health care companies and
institutions. Our members are health industry leaders who share a
vision of a patient-centered health care system characterized by
innovation, value and constantly-improving quality. The HLC is one of
the governing members of the Alliance to Improve Medicare--a broad-
based coalition of health, employer and retiree organizations dedicated
to a stronger Medicare program that embodies the best qualities of
American health care.
Clearly, steps must be taken to improve Medicare, in both financial
and health care quality terms. Today, Medicare spends an average $6,200
annually for each beneficiary in the fee-for-service program. Ten years
from now, that cost will increase to about $9,500. That's a 50 percent
increase in cost to simply maintain the program we have today, with no
outpatient prescription drug coverage, no significant overall quality
improvements or added value for beneficiaries.
I think we can all agree that Medicare should have a prescription
drug benefit. In fact, the HLC supports President Bush's generous $400
billion budget request for a prescription drug benefit and the work
done last year by the Committee. Medicare should also offer a higher
level of health care quality and innovation, and should offer greater
value to both beneficiaries and taxpayers.
We believe these goals can be achieved if Medicare moves toward a
delivery model that utilizes competition, flexibility and invests
beneficiaries with the power of consumer choice. This model works well
today for the tens of millions of Americans who receive their health
care through large employer-sponsored plans or through the Federal
Employees Health Benefits Program (FEHBP). People enrolled in these
programs generally receive better benefits, including prescription
drugs, lower out-of-pocket costs and the ability to choose a health
plan best suited for their needs.
Medicare, as it is structured today, bound by government
micromanagement, cannot offer these advantages.
REGULATED QUALITY VERSUS INCENTIVE-BASED QUALITY
Today's Medicare program has inherent barriers that prevent it from
offering the same kind of coordinated care, medical innovation and
continuous quality improvement offered in the private health insurance
market.
Medicare's administered pricing system and its complex regulations
don't provide incentives for quality improvements. Medicare's
regulations achieve a defined, and often outdated, regulatory
standard--in essence, a ``ceiling'' of health care quality. This
regulatory rigidity doesn't recognize that quality improvement is never
static. It is constantly evolving. Today's best practices, which
regulations lock into place, could be outdated a few months from now.
Medicare beneficiaries are missing out on quality achievements
taking place elsewhere. Private health plans, pharmacy benefit managers
and other health care providers have created effective care management
programs that lead to better health outcomes, greater patient
satisfaction and cost efficiencies. Members of one nationally-known
health plan can, for example, use the Internet to compare hospital
quality information for a wide variety of medical conditions and
surgical procedures, compare prescription drug choices for cost and
potential side effects and access information on thousands of health
and medical topics. Additionally, beneficiaries can utilize a 24-hour
telephone service to get professional case management services for
serious and complex medical conditions. This is emblematic of the
efforts and innovations being undertaken by health plans to keep
Americans healthier. Medicare simply does not have any built-in
incentives to guide beneficiaries toward the few preventive benefits
the program covers.
And private plans, not conventional Medicare, utilize the services
of pharmacy benefit management companies, which have developed
impressive programs to improve the quality and safety of pharmaceutical
regimens while also containing costs.
Competition, flexibility and consumer choice create these positive
results. Health plans must pursue and develop constant improvements in
order to compete for employers shopping for greater quality and value
in health coverage.
The Medicare+Choice program, its flawed structure notwithstanding,
has provided us with valuable information on the steps private health
plans will take to keep patients well. Ninety-five percent of
Medicare+Choice plans have diabetes management programs. Three of every
four have asthma and coronary heart disease management programs. And,
every single Medicare +Choice plan provides annual physical
examinations. By contrast, fee-for-service Medicare has just started
implementing limited disease management demonstrations.
In a recent paper, Dr. John Wennberg, author of the renowned
Dartmouth Atlas, discussed the linkage between a health system's
organizational structure and the usage of effective health care
practices. For example, the percentage of female Medicare beneficiaries
who received a mammogram at least once over a two-year period fell
below the ``best practice'' benchmark in every geographic region of the
country--ranging from a high of 77 percent to a disturbing low of 21
percent.
Why is there such variation in effective care? Dr. Wennberg wrote
that a critical factor is the lack of infrastructure to ensure
compliance with well-accepted, evidence-based standards of practice.
Dr. Wennberg's analysis is extremely important in discussing the
future of Medicare. We can't automatically improve the quality of care
for Medicare beneficiaries by adding new benefits, on an ad hoc basis,
to the existing fee-for-service program. Even the few preventive
benefits covered by Medicare are used sporadically, according to a 2002
General Accounting Office report. There are a lack of incentives and
organizational systems to encourage beneficiaries to take advantage of
services that can keep them healthier.
THE LINK BETWEEN QUALITY AND CHOICE
Beneficiary choice is a highly effective regulator of quality.
Consumers influence the quality of their care by choosing health plans
that demonstrate better outcomes. Consumers influence the value of
their care by choosing plans that offer the best product for the lowest
price. It stands to reason that Medicare beneficiaries, given the power
of consumer choice, will be the drivers of greater quality and value
within a modernized Medicare program.
In fact, beneficiaries who are provided user-friendly, customized
information on health care choices can bring about greater efficiency
in the overall Medicare program by reducing the need for top-down
federal micromanagement.
We object to the contention that Medicare beneficiaries would not
be up to managing a greater degree of consumer choice. This argument
sells today's seniors short. With more retirees having experienced some
form of managed care during their working years, and with fewer
employers offering retiree health benefits, ``modern'' Medicare
beneficiaries will be increasingly more willing to join private plans.
Statistics bear out this trend. In 1992, about 63 percent of the
under-65 population with health coverage were enrolled in traditional
fee-for-service health plans, with the remainder enrolled in HMOs,
preferred provider organizations and point-of-service plans. By 1999,
fee-for-service enrollment had decreased to only nine percent of the
under-65 covered population, with the other categories having greatly
expanded participation. These newer beneficiaries will enter Medicare
eligibility experienced in choosing health plans based on quality
measures, tailored benefit packages and cost-sharing advantages.
Further, moving Medicare toward an FEHBP model would likely open a
greater variety of plan options, as has happened in the private sector.
One can assume the emergence of preferred provider organizations and
private fee-for-service plans, as well as the more organized systems of
delivery already discussed. In a truly competitive environment,
beneficiaries will have different plan structures, premium
differentials and, very importantly, quality comparison information.
Just as federal employees do today, beneficiaries and their families
will have the information conveniently at hand to choose a plan and
benefits that best suit their individual needs.
Debate over whether a more competitive Medicare model should be
developed inevitably includes discussions of the Medicare+Choice
program. We can learn a great deal from the flaws of the
Medicare+Choice structure, and use that knowledge to shape Medicare
reform that will attract plan participation in Medicare and make health
plans attractive to Medicare beneficiaries.
MEDICARE+CHOICE: LEARNING LESSONS TO AID TRUE REFORM
Some have made the assertion that a competitive model for Medicare
cannot work. They use Medicare+Choice as an example. That is a flawed
argument.
It is true that Medicare+Choice has not yielded enough
participating plans to generate meaningful competition. This is largely
due to the fact that Medicare+Choice plans have not had the opportunity
to offer a competitive alternative to the Medicare fee-for-service
program.
Over the last five years--the time frame during which the
Medicare+Choice program has phased in--there has been an increasing gap
between what the traditional fee-for-service Medicare program spends on
a beneficiary and the amount a Medicare+Choice plan is paid to provide
care to a Medicare beneficiary in the same geographic area. This
widening payment differential forced Medicare+Choice plans to reduce
extra benefits they could use to attract beneficiaries. It has also
forced increased beneficiary cost-sharing. The concept of fair
competition was rendered impossible.
An important lesson learned from Medicare+Choice is that
competition based on quality and value cannot take place in an
environment of price controls and inflexibility. It is critical to keep
this in mind in designing a better Medicare program. Medicare+Choice
could not achieve its full potential because it ran into the impassable
barrier of unbalanced competition. Lawmakers will be faced with the
task of creating a level field of competition while maintaining the
current fee-for-service program. This will be difficult, both
politically and technically. It is, however, absolutely essential to
inject competition into the Medicare program if we are to provide
current and future beneficiaries with comprehensive, high-quality
health care.
A SUPERIOR MEDICARE MODEL
Our society has changed tremendously since Medicare was created in
1965. The Medicare of that time offered seniors what they needed most--
the acute care that so many older Americans required not long after
they reached retirement age.
Today, though, our senior population is greatly changed. Thanks to
modern medicine and greater knowledge about healthy lifestyles, life
expectancy is much greater than it was in 1965. Now, what seniors need
most is to better manage, or even prevent, chronic disease. Today's
Medicare, though, is still offering a 1965 prescription for a 21st
century diagnosis.
Creating a competitive FEHBP-style model for Medicare would
directly address many of the inherent flaws that prevent senior
citizens from receiving the benefits of health care innovation and
advancements.
Today's Medicare program is highly regulatory and inflexible,
although HHS Secretary Thompson deserves considerable credit for his
efforts to address this problem. The program is still afflicted with
over 100,000 pages of regulations, rules, manuals, instructions,
letters, alerts and notices. The administrative process for determining
whether new medical treatments or procedures merit coverage under the
Medicare benefits package is excruciatingly complex. Consequently,
Medicare is always a few steps behind the current state and quality of
American health care, and patients pay the price for this lag.
We have to ask ourselves, should seniors have to wait for an act of
Congress to modify the Medicare benefit package in order to have access
to the most effective preventive health services available?
HLC members believe an FEHBP-style model for Medicare would
represent the best possible partnership between the public and private
sectors to provide quality health care to America's seniors. In this
model, it would be a proper and essential role for government to
provide oversight of private health insurance programs, as is the case
with FEHBP.
We can draw a sharp contrast, though, between the FEHBP model and
conventional Medicare, in that the former requires a minimal amount of
regulation. This competitive model would provide better benefits, lower
out-of-pocket costs and much quicker access to lifesaving and life-
enhancing medical innovations. In the FEHBP model, health plans respond
swiftly to changing beneficiary needs, to new treatments and to the
availability of new technologies. Medicare, under this model, could
better keep pace with advances in health care and, most importantly,
prevent and manage disease instead of simply responding to individual
episodes of illness. That is the care today's seniors need.
CONCLUSION
Mr. Chairman, in discussing Medicare reform, there are important
facts that should come to the forefront of consideration--facts about
care management programs, about preventive care, about pharmacy benefit
management programs, about all of the beneficial approaches and
innovations that private plans are utilizing and Medicare is not. It is
possible to modernize Medicare to better serve the health needs of
America's seniors and to do so cost-efficiently.
As we look at Medicare's financial challenges, some will argue that
the right answer for Medicare involves government price controls and
periodic spending reductions such as those legislated in the 1997
Balanced Budget Act. They will say that these tools have traditionally
kept Medicare spending growth at a lower rate than private health care
spending.
But, looking at the health care economy as a whole, these savings
are false. In the bifurcated world of Medicare versus private health
care, payment reductions in Medicare just result in shifts from one
side of the payment world to the other. Providers are only able to
continue treating Medicare patients at such low rates because they make
up for some of these losses through other payers.
Additionally, Medicare's slower growth is partially due to the fact
that it does not provide an outpatient prescription drug benefit and it
does not keep up with new technologies as well as the private health
care sector does.
Using draconian payment cuts to control Medicare spending, instead
of building in incentives to increase the value of care, cheats
Medicare beneficiaries out of the potential quality innovations being
achieved by providers and plans competing for millions of federal
employees and private sector workers. Such cuts ignore also the fact
that providers deserve and must have adequate payment in order to
provide high quality health care to Medicare beneficiaries.
The Healthcare Leadership Council compliments this committee for
its efforts to look toward a future for Medicare that embraces both
long-term financial health for the program as well as better health
care for its beneficiaries. We look forward to working with you to
achieve these important goals.
Thank you again for this opportunity to share our views.
Mr. Bilirakis. Thank you very much, Ms. Grealy.
Ms. Kennelly.
STATEMENT OF BARBARA B. KENNELLY
Ms. Kennelly. Thank you, Chairman Bilirakis and ranking
member Mr. Brown, and other distinguished members of the
committee. I am honored to be here to comment, and I thank you
very much for holding this very important hearing.
The national committee of which I am president is a
membership organization. It is a nonprofit, and it is
bipartisan. And I am here today to tell you a little bit about
it. We have a lobbying division. We have a grass-roots
division. But we also have a membership division, which
receives 600 calls a week. And this is what our members tell us
consistently.
Our members want preventive benefits which help keep them
healthy and out of the hospital. They favor reforms that keep
Medicare as a program in which everybody contributes, everyone
gets the same benefits, and those benefits are guaranteed.
The national committee supports a prescription drug benefit
that is universal, voluntary, and affordable. It should be
readily adjusted to account for inflation and offered as a
standard benefit under Medicare. We support chronic disease
management and preventive benefits, and, most importantly, we
are committed to preserving the social insurance nature of
Medicare.
We all want meaningful prescription drug coverage, yet it
seems when I look at what the administration is proposing that
this would not give seniors the assurances that they need.
Instead, it uses the promise of prescription drug coverage for
some to restructure Medicare, and eventually undermine its
social insurance principle.
We recognize that the country faces a deficit and fiscal
constraints. We also recognize the administration's suggestion
of spending $400 billion--and that is a lot of money--in 10
years, probably will not do it because we know CBO tells us
that $1.8 trillion will be spent by seniors on medications. But
we hope that Medicare is improved in a way that allows us to
build on this beginning and provide meaningful prescription
drug coverage to every senior who needs it.
Can private insurance models provide these seniors the
affordable, predictable, and reliable health coverage they say
they need? Let us examine this scenario. Beneficiaries in
different plans would have different benefits and costs. These
costs and benefits would have--could dramatically change, as
they have done in managed care plans in the past.
Your premiums and costs increase. Poor and sicker
beneficiaries might not be able to afford the same coverage as
others. So far evidence does not indicate that private
insurance can promise seniors that premiums will not fluctuate
substantially from year to year.
Our seniors, who like 85 percent of Medicare beneficiaries
enrolled in traditional fee for service Medicare, tell us how
much they depend on Medicare and on its quality care. The
administration's plan creates a new category of private
Medicare insurance to deliver prescription drug coverage, and
this could be problematic.
The shortcomings are well documented. We recently had one
of our members testify in front of another committee--Lucille
Bryson. She joined a Medicare+Choice program 5 years ago.
Paying $19.98 a month, she thought she really had a good deal.
Over 3 years, her premium increased to $80 a month, and her
benefits were cut. Mrs. Bryson is not unique.
I look at the proposals that claim to model the FEHBP plan,
of which I am a member, as a delivery model, which the
administration advocates. Also, we don't think that meets the
test of evidence. Seniors are much older and tend to have a
higher rate of chronic illness than the FEHBP working
population.
The average age of an FEHBP employee is 47, and the average
annual income is over $54,000. This is hardly comparable to a
senior over 65 years of age whose annual income is $22,000.
Chairman Bilirakis, I would also like to associate myself
with the remarks yesterday of Bruce Vladeck. I know you have
worked very closely with him on one of the bipartisan
commissions, and you have disagreed with him. But you also
understand that he is an expert, as Dr. Moon is an expert.
And I read his testimony last night, and I really would
like to associate myself with it, because he spoke eloquently
about the importance of the universality of Medicare. He also
said how this has to be a meaningful benefit. One-third of
those on Medicare have under $500 spent in a year on drugs. Ten
percent spend over $6,000. So the majority spend $2,500, and
they are the ones that really need the help.
We also--I read some interesting things that I hadn't even
thought of, that we really would find it very difficult to mean
test Medicare, because we are so unknown exactly what senior
incomes are, and so many seniors have low income.
And then, I look to Aetna here, Mother Aetna, who I live
right down the block from, and they are a wonderful company and
I want them to succeed. But they don't have a very good record
with seniors. We know so far they haven't saved any money for
Medicare. We know they don't work very well in rural areas. And
we also know that if they don't make a profit, they have to get
out of the business, because they have shareholders and they
have to make a profit.
So I come here this morning not as an expert but as an
advocate for 1.5 million seniors to say that I really think
Medicare has worked and will continue to work.
But, Chairman Bilirakis, what I really want to thank you is
for all of your hundreds and hundreds of hours of hard work. I
sit and look at you and think of the time you have spent trying
to solve this problem, and I say with Bruce Vladeck, as he said
yesterday, don't think about the ideology, don't think about
the philosophy or the theories. Take all of your knowledge and
put it together and fix Medicare with a prescription drug.
Thank you, Mr. Chairman.
[The prepared statement of Barbara B. Kennelly follows:]
Prepared Statement of Barbara B. Kennelly, President and Chief
Executive Officer, National Committee to Preserve Social Security and
Medicare
Good morning, Chairman Bilirakis, Ranking Member Brown and
distinguished members of the committee. I appreciate the opportunity to
comment today about proposals to change Medicare and what that means
for seniors. Thank you for holding this very important hearing.
The National Committee averages more than 600 calls per week from
seniors throughout the country. For our seniors, Medicare reform means
getting a comprehensive drug benefit under traditional Medicare, and--
like most seniors, who are living on fixed incomes--coverage that is
affordable and does not fluctuate substantially in price. They like
preventive benefits, which help keep them healthy and out of the
hospital. They favor reforms that keep Medicare as a program in which
everyone contributes, everyone gets the same benefits, and those
benefits are guaranteed.
The National Committee supports a prescription drug benefit that is
universal, comprehensive in coverage, affordable, regularly adjusted to
account for inflation, voluntary, guaranteed to all who want it
regardless of income or health status, and offered as a standard
benefit under Medicare. We support chronic disease management and
preventive benefits and advocate for such improvements. And, most
importantly, we are committed to preserving the social insurance nature
of Medicare.
Seniors are spending an average of $200 a month on prescription
drugs 1 and they need the assurance of meaningful
prescription drug coverage. This is something we all recognize and wish
to do something about. Yet the administration's Medicare proposal, as
well as other legislative proposals, would not give seniors this
assurance. Instead, they use the promise of prescription drug coverage
for some to restructure Medicare and eventually undermine its social
insurance principle--the same social insurance principle that now
assures all seniors a defined set of benefits and should guarantee all
seniors a defined prescription drug benefit.
---------------------------------------------------------------------------
\1\ ``Medicare and Prescription Drug Fact Sheet,'' Kaiser Family
Foundation, February 2003.
---------------------------------------------------------------------------
We recognize that the country faces a deficit and fiscal
constraints, just as we all recognize that the administration's
suggestion of spending $400 billion over 10 years for Medicare changes,
including drug coverage, covers a fraction of the $1.8 trillion seniors
will be spending on drugs over the next decade.2 But we hope
that Medicare is improved in a way that allows us to build on this
beginning and provide meaningful prescription drug coverage to every
senior who needs it.
---------------------------------------------------------------------------
\2\ ``Projected spending for prescription drugs by and on behalf of
Medicare enrollees,'' Congressional Budget Office, February 3, 2003.
---------------------------------------------------------------------------
Can private insurance models provide these seniors the affordable,
predictable and reliable health coverage they say they need? Let's
examine the scenario. Beneficiaries in different plans would have
different benefits and costs. Those costs and benefits could
dramatically change every year, as they have done in managed care plans
in the past five years, and seniors would not be able to plan for their
healthcare costs. If premiums and costs increased, poorer and sicker
beneficiaries might not be able to afford the same coverage as others.
So far, evidence does not indicate that private insurance can promise
seniors that premiums would not fluctuate substantially from year to
year.
Our seniors--who like 85 percent of Medicare beneficiaries who are
enrolled in traditional fee-for-service Medicare--tell us how much they
depend on Medicare and on quality care. There is an underlying
assumption operating in a number of Medicare proposals that private
plans give better care. Certainly this assumption is present in the
administration's plan, which creates a new category of private Medicare
insurance plans and uses private plans to deliver prescription drug
coverage.
That private plans give better care is unsupported by historical
evidence. The shortcomings are well documented, from the earliest
unsuccessful Medicare-risk HMO demonstration projects to today's
uncertain Medicare+Choice. Since the enactment of the Balanced Budget
Act of 1997 that created Medicare+Choice, managed care plans have
dropped more than 2.4 million seniors,3 many of whom
enrolled for the drug coverage the plans provided. When plans drop
seniors, there often is not another Medicare managed care plan in the
area, especially in a rural setting. Many in this position fall back on
traditional fee-for-service Medicare because other plans did not work
out.
---------------------------------------------------------------------------
\3\ ``Medicare Privatization: Bad for Seniors and People with
Disabilities,'' Public Citizens, February 2003.
---------------------------------------------------------------------------
Medicare+Choice premiums have increased dramatically, by 37
percent,4 compared to an 8 percent increase in Medicare Part
B premiums. For example, one of our members, Lucille Bryson, joined a
Medicare+Choice program five years ago, paying $19.98 a month. Over the
next three years, her premiums increased to $80 a month and she says
that her benefits are now being cut. Mrs. Bryson is not unique.
---------------------------------------------------------------------------
\4\ ``Average Out-of-Pocket Health Care Costs for Medicare+Choice
Enrollees Increase Substantially in 2002,'' Issue Brief, Commonwealth
Fund, November 2002.
---------------------------------------------------------------------------
Also, HMOs have spent, on average, between 10 and 15 percent of
their revenue on administrative costs,5 compared to
Medicare's 2 percent. The dramatic increase in premiums and sizable
administrative costs are further evidence that the private sector does
not have the track record to support the assertion that it can provide
seniors adequate prescription drug coverage for a reasonable cost.
---------------------------------------------------------------------------
\5\ ``Medicare Privatization: Bad for Seniors and People with
Disabilities,'' Public Citizens, February 2003.
---------------------------------------------------------------------------
Even now, managed care plans continue to ask Congress for more
money to run the Medicare+Choice programs or they threaten to no longer
cover seniors. When Congress did increase payments of $1 billion to
plans in 2000 through the Benefits Improvement and Protection Act, more
than 544,000 beneficiaries still lost coverage.
And, according to a recent Urban Institute study by Marilyn Moon,
private health insurance companies spend more per beneficiary than does
Medicare.6
---------------------------------------------------------------------------
\6\ ``Comparing Medicare and Private Insurers: Growth Rates in
Spending Over Three Decades,'' Health Affairs, March/April 2003.
---------------------------------------------------------------------------
This information gains significance when considering whether to
divert prescription drug coverage to the hands of private plans and
funnel beneficiaries to private Medicare plans. The administration's
plan could result in seniors who wanted more than just a drug discount
card leaving traditional fee-for-service and going to a private
insurance plan. Plans, if modeled after Medicare+Choice, could perform
in a manner similar to that of managed care: Evidence indicates that
they would be likely to participate in favorable risk selection by
offering Medicare beneficiaries low-cost, low-coverage plans that
attract younger, healthier seniors, leaving the sickest and oldest
unable to afford the more generous plans.
Proposals to use the FEHBP program as a delivery model, which the
administration has advocated, also do not meet the test of evidence.
Seniors are much older and tend to have a higher rate of chronic
illnesses than the FEHBP working population. The average age of an
FEHPB employee is 47 and the average annual income over $54,000. This
is hardly comparable to a senior over 65 years of age, with an average,
and usually fixed, annual income of $22,000.7
---------------------------------------------------------------------------
\7\ Federal Civilian Workforce Statistics: The Fact Book, Office of
Personnel Management, 2002.
---------------------------------------------------------------------------
The National Committee supports a prescription drug benefit that is
universal, comprehensive in coverage, affordable, regularly adjusted to
account for inflation, voluntary, guaranteed to all who want it
regardless of income or health status, and offered as a standard
benefit under Medicare. We also support disease management and
preventive measures, and we are pleased that Department of Health and
Human Services Secretary Tommy Thompson recently announced a three-
year, 10-state demonstration proposal for chronic disease management
for Medicare beneficiaries. According to the Centers for Medicare and
Medicaid Services, 73 percent of women and 65 percent of men who are
Medicare beneficiaries have two or more chronic
conditions,8, and many of them are among the six percent of
Medicare beneficiaries that account for more that half the program's
spending.9 Improvements such as care coordination, chronic
disease management and preventive services not only are very important
to keeping seniors healthy and out of the hospital, they also have the
potential to save the program a significant amount of money. These
improvements can be added to traditional Medicare right now. It's not
necessary to create private plans to implement them.
---------------------------------------------------------------------------
\8\ ``Characteristics and Perceptions of the Medicare Population,''
Centers for Medicare and Medicaid Services, 1999.
\9\ Medicare Chart Book, Kaiser Family Foundation, Fall 2001.
---------------------------------------------------------------------------
As we move forward, let us keep in mind that before Medicare, only
50 percent of seniors had health insurance. Today, 99 percent of
seniors are covered. Society has benefited and we are all better off.
This is what the social insurance principle, on which Medicare is
based, is all about.
Ultimately, if we want to improve Medicare, we have no choice but
to consider it in the context of the health care system of which it is
a part. That system has 41 million Americans under 65 with no health
insurance, and they are forcing hospitals to absorb costs and helping
to drive double-digit health inflation.10 We must look to
the source of everybody's inflation--the 41 million uninsured, new
medical testing and devices, and research and development--if we are to
improve the components of the healthcare system that the inflation
affects, including Medicare.
---------------------------------------------------------------------------
\10\ ``The Uninsured and their Access to Healthcare,'' Kaiser
Family Foundation, January 2003.
---------------------------------------------------------------------------
In conclusion, I want to thank Chairman Bilirakis, who has tried so
hard to address seniors' needs and continues to work to address the
needs of his constituents in Florida. And I want to thank all of the
members of this body and their staff who are carefully considering how
the Medicare proposals would impact seniors. I appreciate the
opportunity to appear before you today and I look forward to any
questions the distinguished members of this committee may have. Thank
you for your time.
Mr. Bilirakis. Thank you for that, Ms. Kennelly. You know,
this would be a much more interesting hearing I think if we
just allowed you all to debate to each other.
I have always wanted to do that, to be perfectly honest
with you.
Mr. Buddy, please pull the mike over, sir, and speak into
it, if you can.
STATEMENT OF ROBERT BUDDY
Mr. Buddy. Good morning, Mr. Chairman and members of the
committee. My name is Robert Buddy, and I am a highly satisfied
member of a Medicare+Choice health plan in Houston, Texas.
Mr. Bilirakis. We can't----
Mr. Buddy. Can you hear me? Okay. Not too well.
I would like to take this opportunity to thank the
committee for inviting me to participate in this hearing on
behalf of all seniors. It is a privilege and an honor to
attend, and I sincerely hope that my comments can make a
constructive contribution to the proceeding.
I will describe as concisely as possible how my wife and I
have benefited from the Medicare+Choice program and why I
believe this important program should be preserved.
While certain aspects of our experience are unique, the
important point is that millions of seniors have had similar
experiences. My objective, then, is to try to put a human face
on a Medicare program that is working for me and for millions
of other seniors who have chosen to join a Medicare+Choice
health plan.
My wife and I are now both 76 years of age. In 1993, when
we both turned 65, we became eligible for Medicare, and we were
relieved and delighted to become eligible for this benefit. We
purchased a Medicare supplement policy to supplement the
Medicare benefits at a combined cost of about $4,000 a year.
A year later we were introduced to the idea of a privatized
version of Medicare through an HMO. Today this program is known
as Medicare+Choice, soon possibly to be Medicare Advantage. The
advantages of this plan were the emphasis on early detection
and treatment of illness, its promotion of wellness, the
opportunity it provided us to become active participants in our
medical care with our primary care provider as a partner.
Because this approach resulted in a more efficient
utilization of resources, the plan offered broader benefits,
including both brand name and generic prescription drug
coverage at a lower cost--in fact, at no cost at all, in terms
of premium, that is.
The emphasis on early detection and treatment had
particular appeal to me because of what had happened to my
father. The traditional way of dealing with medical problems
was to wait until there were symptoms. Unfortunately, by the
time symptoms appear, it is usually very late and possibly too
late.
In my father's case, just when he was at the peak of his
career, he became severely disabled by an acute case of
glaucoma at the age of 55. There had been no symptoms
whatsoever. After a series of unsuccessful operations, he
became totally blind at the age of 63. He also suffered from
serious, but undetected and, therefore, untreated,
hypertension, the silent killer, and died of a massive heart
attack at age 69.
Thus, the lack of proper preventative medical care resulted
in his being blind-sided by a major disabling illness and the
resulting total destruction of his ability to lead a productive
life. Since both of these illnesses tend to be hereditary, I
assumed that I would suffer a similar fate at some time in the
future.
Thanks to the significant emphasis on early detection and
treatment inherent in the Medicare+Choice program, that fate
did not become a reality. Instead, my primary care physician
carefully monitored my progress and made periodic referrals to
appropriate specialists.
As a result of having the ophthalmologist monitor the
pressure in my eyes, I was able to get laser surgery in both
eyes which saved my eyesight. As a result of careful monitoring
of my blood pressure, my primary care physician has gradually
phased in three separate medications, and the pressure has
stabilized at a normal level with good control.
As a result of detecting an elevated PSA, prostate
screening, we were able to treat my prostate cancer in a timely
fashion, and the followup has shown stability of the PSA at a
very low level. As a result of detecting an abnormal-looking
lesion on my right leg, a malignant melanoma was detected and
treated immediately with an incision, and there has been no
recurrence in 5 years.
Had I not had the benefit of early detection and treatment,
I would either be blind or terminally ill, or perhaps both. So
this experience has, understandably, made a believer out of me.
However, this is not the only benefit. By using managed
care, my wife and I have saved an estimated $60,000 over the
years, taking into consideration the cost of Med sup premiums,
the cost of drugs, the benefits in the form of eyeglasses and
drastically reduced dental costs.
We have used some of these savings to invest in ourselves
with a wellness program, including a vigorous cardiovascular
routine and resistance training at the local YMCA, and a heart
healthy diet long on fresh fruits and vegetables, no fat dairy
products, with lots of protein and more exotic items like
veggie burgers and salmon burgers.
Most important of all, we have benefited from a very high
quality of medical care from our primary care providers, our
specialists, and our medical facilities. We believe that we
have benefited from an approach that emphasizes disease
management programs and enables patients to play a larger role
in their own care.
By making the necessary changes in our lifestyle, we have
attempted to monitor our progress through fitness through a
gradual process wherein we are partners with our physician and
our health, rather than relying on him after symptoms appear or
expecting a major bullet.
We are extremely fortunate to be living in a society that
has made such great strides in medical research, and we are
very grateful for Medicare. What we need to do now is
strengthen the Medicare+Choice program so that it continues to
provide incentives for prevention, so that seniors can hold up
their share of the bargain by being proactive in wellness and
early detection and treatment.
With adequate funding, the Medicare+Choice program offers
the potential for seniors to remain not only healthy but also
productive and active contributors to their families, their
communities, and to society as a whole.
Thank you for providing me this opportunity to testify.
[The prepared statement of Robert Buddy follows:]
Prepared Statement of Robert Buddy
Good morning, Mr. Chairman and members of the committee. My name is
Robert Buddy and I am a highly satisfied member of a Medicare plus
Choice health plan in Houston, Texas. I would like to take this
opportunity to thank the committee for inviting me to participate in
this hearing on behalf of all seniors. It is a privilege and an honor
to attend, and I sincerely hope that my comments can make a
constructive contribution to the proceedings.
I will describe as concisely as possible how my wife and I have
benefited from the Medicare plus Choice program and why I believe that
this important program should be preserved.
While certain aspects of our experience are unique, the important
point is that millions of seniors have had similar experiences. My
objective, then, is to try to put a human face on a Medicare program
that is working for me and millions of other seniors who have chosen to
join a Medicare plus Choice health plan.
My wife and I are now both 76 years old. In 1993, when we both
turned 65, we became eligible for Medicare, and we were relieved and
delighted to become eligible for this benefit. We purchased a Medicare
Supplement policy to supplement the Medicare benefits, at a combined
cost of about $4,000 a year.
A year later, we were introduced to the idea of a privatized
version of Medicare through an HMO. Today, this program is known as
``Medicare plus Choice.'' The advantages of this plan were its emphasis
on early detection and treatment of illnesses, its promotion of
wellness, and the opportunity it provided us to become active
participants in our medical care with our primary care provider as a
partner. Because this approach resulted in a more efficient utilization
of resources, the plan offered broader benefits, including both brand
name and generic prescription drug coverage, at a lower cost--in fact,
no cost at all.
The emphasis on early detection and treatment had particular appeal
to me because of what had happened to my father.
The traditional way of dealing with medical problems was to wait
until there were symptoms. Unfortunately, by the time symptoms appear,
it is usually very late and possibly too late.
In my father's case, just when he was at the peak of his career, he
became severely disabled by an acute case of glaucoma at the age of 55.
There had been no symptoms whatsoever. After a series of unsuccessful
operations, he became totally blind at age 63.
He also suffered from serious, but undetected, and therefore
untreated hypertension--the ``silent killer''--and died of a massive
heart attack at age 69.
Thus, the lack of proper preventive medical care resulted in his
being blindsided by major disabling illness and the resulting total
destruction of his ability to lead a productive life.
Since both of these illnesses tend to be hereditary, I assumed that
I would suffer a similar fate at some time in the future.
Thanks to the significant emphasis on early detection and treatment
inherent in the Medicare plus Choice program, that fate did not become
a reality. Instead, my primary care physician carefully monitored my
progress and made periodic referrals to appropriate specialists.
As a result of having the ophthalmologist monitor the pressure in
my eyes, I was able to get laser surgery in both eyes in time, which
saved my eyesight.
As a result of carefully monitoring my blood pressure, my primary
care physician has gradually phased in three separate medications, and
the pressure is stabilized at a normal level with good control.
As a result of detecting an elevated PSA (prostate screening), we
were able to treat my prostate cancer in a timely fashion and the
follow up has shown stability of the PSA at a very low level.
As a result of detecting an abnormal looking lesion on my right
leg, malignant melanoma was detected and treated immediately with an
incision, and there has been no recurrence in 5 years.
Had I not had the benefit of early detection and treatment, I would
be either blind or terminally ill--or perhaps both--so this experience
has understandably made a believer out of me.
However, that is not the only benefit. By using managed care, my
wife and I have saved an estimated $60,000 over the years, taking into
consideration the cost of Med-sup premiums, the cost of drugs, the
benefits in the form of eyeglasses, and drastically reduced dental
costs.
We have used some of these savings to invest in ourselves with a
wellness program, including a vigorous cardiovascular routine and
resistance training, at the local YMCA and a heart healthy diet long on
fresh fruits and vegetables, no-fat dairy products with lots of
protein, and more exotic items like veggie-burgers and salmon burgers.
Most important of all, we have benefited from a very high quality
of medical care from our primary care providers, our specialists, and
our medical facilities.
We believe that we have benefited from an approach that emphasizes
disease management programs and enables patients to play a larger role
in their own care. By making the necessary changes in lifestyle, we
have attempted to monitor our progress toward fitness through a gradual
process wherein we are partners with our physician in our health--
rather than relying on him after symptoms appear or expecting a magic
bullet.
We are extremely fortunate to be living in a society that has made
such strides in medical research and we are very grateful for Medicare.
What we need to do now is strengthen the Medicare plus Choice program
so it can continue to provide incentives for prevention and so seniors
can hold up their share of the bargain by being proactive in wellness
and early detection and treatment.
With adequate funding, the Medicare plus Choice program offers the
potential for seniors to remain not only healthy--but also productive
and active contributors to their families, their communities, and to
society as a whole.
Thank you for providing me this opportunity to testify.
Mr. Bilirakis. Thank you. Thank you, Mr. Buddy.
Well, I guess I would prefer a nice debate.
Mr. Buddy, you are, by your own admission, 10 years from
19--from when you turned 65----
Mr. Buddy. Yes, sir.
Mr. Bilirakis. [continuing] you are about mid-70's now.
Mr. Buddy. 76.
Mr. Bilirakis. Yes, 76.
Mr. Buddy. And so is my wife.
Mr. Bilirakis. You apparently feel that you are able to
make choice, you are able to study different--a variety of
plans. Is that what you did, you studied a variety of plans to
decide what plan would be best for you?
Mr. Buddy. Yes, I did. I have been in a health insurance
program for many years, and my wife is, too, and so we had had
some practical experience in the commercial area.
Mr. Bilirakis. All right. You had the experience.
Mr. Buddy. Yes, sir.
Mr. Bilirakis. Okay. Now, if you had not had that
experience, or let us say if you were 4 years older--I mean,
nobody knows when you are going to--what things will be 4 years
from now, but are you concerned, based on your personal
experience, not from your personal experience but experience
maybe with neighbors, with friends, and what not, who might be
older, who might be--maybe had the same background that you
have had, maybe the same education, and what not, are you
conserved that they may not be able to well determine what
choice they should choose, what plan they should choose, be
able to study the plans adequately, etcetera, etcetera? Do you
get my question?
Mr. Buddy. I do, and it is an excellent one. I think the
seniors are surprisingly sophisticated as a matter of
necessity. Health care at this age is such an urgent thing that
they can't afford to make a mistake, so they scrutinize these
plans relatively carefully.
And we have been able to exchange--communicate with perhaps
several hundred seniors through various programs, senior
programs. And I find that, generally speaking, they are very
rational in their choices, and they appreciate the benefits,
particularly of a Medicare+Choice plan. The one concern that is
experienced--it seems almost too good to be true. So if
anything, there is a little bit of credibility gap. But in
terms of the merits of the relative programs, they are
sophisticated enough to make rational and prudent decisions.
Mr. Bilirakis. So you feel that the average senior is
sophisticated enough and knowledgeable enough and would have
the wherewithal to be able to make an intelligent decision.
Mr. Buddy. Very much so. Yes, sir.
Mr. Bilirakis. Well, you should know, I would think.
Mr. Foster, do you feel that it is incumbent upon us to
make sure that Parts A and B remain separate, as Dr. Moon
indicated?
Mr. Foster. No, sir, I don't think it is necessary to keep
them separate. Legislative historians will recognize that the
two parts of Medicare were actually separate proposals way back
when, artfully put together by Wilbur Mills to consolidate
political support. The two parts are very different. There is
no particular reason they have to be that way. If Congress
chose to combine them, there is no particular reason not to.
Mr. Bilirakis. Thank you.
Coordination of care--certainly, a number of you have
placed emphasis on that. Certainly, Ms. Rawlings did when she
discussed her emphasis on wellness, preventative medicine, and
chronic disease management. Ms. Grealy, of course, referred to
it. I think it was Dr. Moon who made the comment that--I don't
know whether you were referring to Aetna or in general--managed
care plans would not do--or do not do a good job--I think those
are your exact words--regarding coordination of care.
So let us have a little bit of a--I don't have much time
left. But, Ms. Rawlings, respond quickly. I want to hear from
Ms. Grealy and maybe from Dr. Moon, too, if we have time.
Ms. Rawlings. I think--in fairness, I think private plans
historically have made efforts at coordination of care, but I
think there have been significant improvements over the last
several years as awareness of aging and awareness of what that
means to health plans and to beneficiaries as our customers--
what that means and how significant that is. And I know in
Aetna's case, in particular, we have made significant strides
in the last 2 years to significantly improve our coordination
of care efforts to improve the beneficiaries' experience of the
plan.
Mr. Bilirakis. And fee for service, there is no emphasis at
all on that, is that right?
Ms. Rawlings. Not to my knowledge. I am not exactly sure
how that would be constructed. There is not an infrastructure
there. It is more of an insurance--traditional indemnity
insurance type program.
Mr. Bilirakis. Ms. Grealy?
Ms. Moon. I agree that----
Mr. Bilirakis. All right. Since you have the mike in
possession----
Ms. Moon. I am sorry.
Mr. Bilirakis. Go ahead.
Ms. Moon. I agree that there are valuable plans that are
out there that do a good job of coordinating care. But if you
look at a large number of commercial plans that were put
together not necessarily to really coordinate care but to get
discounts from doctors and hospitals and operate in that
fashion, that has never been a strong suit of theirs, and it
has been a problem for many beneficiaries that are in those
plans.
Mr. Bilirakis. Can a good coordination of care--and this is
so very important. And believe it or not, that is part of our
discussions constantly when we talk about reforming Medicare.
So it isn't always concern about privatizing, etcetera,
etcetera. It is doing some real good things.
Can, under fee for service, we do that?
Ms. Moon. I believe that there are ways in which you can do
it. It is clearly harder than in a capitated world. There is no
doubt about it. But I believe that most people have
demonstrated that they prefer the fee for service world. And
the lack of ability of a lot of plans to do it that are
presumably HMOs suggests to me we should give that a try as
well.
Mr. Bilirakis. Ms. Grealy, very briefly, please. Thank you.
Ms. Grealy. Well, I think a critical distinction is we are
seeing these things in the private sector. And the ability to
quickly respond to consumer demand, consumer preference, is
something that we don't have in the existing Medicare program.
We see the existing Medicare program, I think, playing
catch up, seeing that disease management programs are
beneficial, and perhaps we should look at those, do a
demonstration project. So I think the real value of looking at
some of these private sector models, again, is how quickly they
can respond and the flexibility that they have to respond to
their customers, their beneficiaries.
Mr. Bilirakis. Thank you very much. Five minutes does go
awfully quickly.
Mr. Brown.
Mr. Brown. Thank you, Mr. Chairman.
Mr. Buddy, thank you for your comments especially, and I
hope that we can reform Medicare, that traditional Medicare can
offer that kind of preventive care and management of care and
coordination of care. So thank you for that.
There was an article in The Wall Street Journal about 2
weeks ago. I want to read one paragraph. ``The Congressional
Budget Office Chief tells Republican Senators the Medicare
overhaul plan could add hundreds of billions of dollars in
costs. Administration cost-saving claims for its plan also are
belied by early data from a demonstration project. Small
savings from encouraging seniors to opt for private plans are
offset by high administrative costs.'' Ms. Moon, the people
that argue for FEHBP tell us that seniors should have an
incentive to choose plans with lower premiums. That would save
the government money. Would restructuring Medicare in an FEHBP-
like program save Medicare from insolvency?
Ms. Moon. No, I don't believe that it would. I think that
it is very difficult to imagine that you can double the number
of people in this program for a product that people value and
which the costs we assume are going to continue to rise over
time will come about through any kind of greater efficiency
alone.
I also believe that we have to be very careful in making
the distinction between passing off higher costs on to
beneficiaries through higher premiums, higher out-of-network
expenses, and so forth, and referring to that as reform or as
improving the program necessarily.
Mr. Brown. So if, in fact, it would save money, you are
suggesting the cost--it would save the government money
ultimately, if, in fact, it would, you are suggesting that the
way that--the only way to really do that is to shift costs more
onto seniors?
Ms. Moon. I wouldn't say the only way. I think there are
modest savings that can be gotten from improving coordination
of care, and so forth. But that takes a lot of attention and
time, and the administrative costs are higher. And so to do it
well, you have to have higher administrative costs, sort of by
necessity.
So I have not seen evidence that suggests massive savings
from that kind of an approach, but, rather, more modest
savings.
Mr. Brown. Those who argue for privatization often talk
about their--I think it is an ideology more than it is a
practical decision based in--or practical suggestion based, in
part, on their belief that the private sector, by definition,
does things more efficiently than the public sector. I think
Medicare shows that is not really true.
You authored a paper recently that I would like to insert
in the record that arrives at a different conclusion. Would you
share that with us?
Ms. Moon. We used national health expenditure data over the
last 30 years, essentially said let us start with everyone at a
value of 100, private insurers at 100, Medicare is 100,
recognizing that on a per capita basis Medicare does cost more,
but really compare the rates of growth over time.
And the rates of growth on a per capita basis for Medicare
are better than the per capita rates of the private insurance
companies. That is even after you control for the differences
in what is covered, particularly by taking out prescription
drugs, for example, and on the Medicare side by taking out home
health and skilled nursing care.
Mr. Brown. Ms. Grealy, you mentioned Medicare's
administered pricing system. How does this system differ from
the way private health insurers pay providers?
Ms. Grealy. Well, I think this is a nice segue. And when we
are talking about the relative growth in the Medicare program
versus the private sector, it is very easy to control growth
when you can administer prices. I think throughout many of the
testimony that I read in preparation for the hearing today, we
see that Medicare is such a large presence. It is the, you
know, 500-pound gorilla. It establishes a price. Then, everyone
has to accept that price. There is no negotiation.
The difference between administered pricing and negotiation
in the private sector is just that word. There is a negotiation
that occurs, so that the providers at least have some power in
the private sector that you just don't find. And that is why we
are able to control growth in Medicare through things like the
Balanced Budget Act of 1997, which we are still continuing to
do givebacks because those cuts were so deep at that time.
So I would say the big distinction is administered pricing,
no negotiation on behalf of the providers.
Mr. Brown. Could we do the same kind of negotiation if
Medicare would use the 40 million beneficiaries to negotiate
prescription drug prices for beneficiaries?
Ms. Grealy. I am not sure that that is a negotiation. That
is establishing the price. I think it would be great if there
were some competition in the----
Mr. Brown. So it is a negotiation if it is private sector,
but it is price control if it is the public sector?
Ms. Grealy. Well, if there is true competition, and, yes,
you do have an ability to negotiate with the government, that
it is not we are going to establish the price, and you take it
or leave it. That is the distinction.
Mr. Brown. Thank you.
Mr. Bilirakis. Mr. Buyer. Eight minutes, 7 minutes, 7\1/2\
minutes.
Mr. Buyer. Thanks. Seven and a half minutes.
Mr. Bilirakis. Seven and a half.
Mr. Buyer. First of all, I would like to thank Mr. Brown
for placing in the record Figure 1. That helps correct the
fiction in his earlier statement.
That is reiterated by testimony presented by Mr. Foster on
page 3, the second paragraph, which is also very similar to
testimony provided to the U.S. Senate in year 2001. So I think,
Mr. Brown, what you have done by inference is compliment the
Congress in passing the Balanced Budget Act that would have, in
fact, saved Medicare. So I appreciate that, even though you
probably voted against it.
Let me move and ask--I want to exclude Mr. Foster and Mr.
Buddy. You are out of the political arena, all right? And I am
going to go down and ask a series of questions, and I don't
have the time to get into a whole bunch of discussion on them.
Some things that are in front of us with regard to proposed
changes come from many different sectors with Medicare, and
they have been discussed before the bipartisan commission and
Breaux and Thomas. One would be increasing the program's
eligibility age. When Social Security did this in 1983, it
moved it to age 67, it excluded Medicare.
Let me go right down the line whether or not you would
increase--support increasing the age to 67, and even if we were
to do it on a graduated scale. Dr. Berenson, would you----
Mr. Berenson. I would oppose it. If anything, one of the
major----
Mr. Buyer. That is all I need to know.
Mr. Berenson. Okay.
Mr. Buyer. Whether you oppose it or support it.
Ms. Rawlings?
Ms. Rawlings. Aetna does not have a position either way.
Ms. Moon. I would oppose it, because it doesn't save much
money.
Mr. Buyer. That is all I need to know.
Ms. Grealy?
Ms. Grealy. Speaking personally, it may be one of the tools
we might have to look at, personally.
Mr. Buyer. Yes. It is on the table.
Ms. Kennelly. I would oppose it, sir.
Mr. Buyer. Oppose. All right.
Next question is with regards to--Ms. Kennelly had brought
this up earlier about means testing. Someone yesterday used the
language ``income relation.'' Is this a discussion that we
should be having? Would you support this concept, for us to
look at this, into Part B on Medicare?
Doctor?
Mr. Berenson. No, I wouldn't.
Mr. Buyer. Ms. Rawlings?
Ms. Rawlings. We would be willing to discuss it.
Mr. Buyer. Dr. Moon?
Ms. Moon. No.
Ms. Grealy. Should examine it.
Ms. Kennelly. Not yet.
Mr. Buyer. Not yet. All right.
I understand and respect the universe--making sure that it
is universal, but obviously we also have to examine that there
are people who are lower income brackets that have been paying
into the system for over years and are subsidizing
millionaires, and we need to really self-examine that.
The other question I have is the increased beneficiary
cost-sharing. Part B coinsurance, 20 to 25 percent, and Part B
deductible, from 100 to make it comparable to private plans. Is
this something that we should be considering?
Dr. Berenson? May I have order? I can't hear.
Mr. Berenson. Yes, I think we should be looking at cost-
sharing.
Mr. Buyer. Thank you.
Ms. Rawlings. I think we need to consider it. Absolutely.
Mr. Buyer. All right. Thank you.
Ms. Moon. I think particularly the deductible you need to
look at. The other cost-sharing I believe is high enough.
Mr. Buyer. All right. Thank you.
Ms. Grealy. Yes, it should be looked at.
Mr. Buyer. Thank you.
Ms. Kennelly?
Ms. Kennelly. It should be looked at, but it should be
balanced when you look at the statistics of how many use the
100 and how many the 840.
Mr. Buyer. That is fair.
With regard to introduction of market-based innovations,
into the current key for service--fee for service program, such
as case management programs for heart disease, diabetes,
chronic pain, etcetera, is this an innovation that we should be
considering into the present model?
Mr. Berenson. Absolutely.
Mr. Buyer. Thank you.
Ms. Rawlings. Absolutely.
Ms. Moon. Absolutely.
Mr. Buyer. Thank you.
Ms. Grealy. Yes.
Ms. Kennelly. Yes.
Mr. Buyer. All right. With regard to the issues on major
structural reforms, Senators Breaux and Thomas had introduced
to the bipartisan commission the idea of combining Parts A and
B in the programs into a single $400 deductible. Is this
something that we should be considering?
Mr. Berenson. I don't have an opinion.
Ms. Rawlings. We believe it is worthy of consideration.
Mr. Buyer. Thank you.
Ms. Moon. I think it should be looked at as well.
Mr. Buyer. Thanks.
Ms. Grealy. I agree.
Ms. Kennelly. I still believe in trust funds, and I think
Part A is a trust fund. And if you put it into Part B, you lose
it.
Mr. Buyer. Put it in Part B. All right.
The other comment I have--Ms. Kennelly, you had made a
comment on the issue on means testing, and you cited the
difficulty in determining seniors' income was your statement.
The only currently operational system to identify income is the
IRS, that I know of.
The Senate version of the DBA had a proposed means testing
that went to conference, and it used a parallel system of the
IRS to be created through CMS to identify levels of income. If
we end up in that approach, should we turn to the IRS to be the
operator of that system, or should we create a separate
parallel system within CMS, or is that too bureaucratic? Your
opinion.
Ms. Kennelly. Well, Congressman, having seen the news last
night at how much we are now collecting through the IRS because
of, really, the changes that have happened over the last few
years, I don't want to put any more burden on them. But I am
afraid if we just rely on the IRS, we won't find out an awful
lot because so many seniors don't have an income high enough to
pay taxes. And that is one of the reasons it is so hard to find
out what the income is.
So if we ended up in this path, you would advocate not
having the IRS, but to create a parallel system within CMS that
turns to the IRS for the shared data, but it really should be
run through CMS.
Ms. Kennelly. I think my point was when I saw how Bruce
Vladeck explained how hard it was to find these income numbers,
the administration cost could go up because we were looking for
those numbers.
Mr. Buyer. Right.
Ms. Kennelly. And we won't get anything out of it.
Mr. Buyer. Well, I recognize that as a point. Sometimes I
have to decipher, is that a point or an argument? And I have--
no, I am just trying to say if we have this in front of us, how
do we work through it? And that is the point of my question.
Ms. Kennelly. I think that is my concern about income
related, because I think it is a slippery slope. You cut it off
at a certain point, and then later when things aren't good you
cut it off lower. And where does it start and----
Mr. Buyer. But when things are great, you increase it even
higher.
Ms. Kennelly. Well, you know, it was not that many years
ago that things were pretty great.
Mr. Buyer. Well, and that is the challenges that we have in
Medicaid----
Ms. Kennelly. Yes. Yes.
Mr. Buyer. [continuing] for example. States saw this money
coming and increased the percentage above poverty and
eligibility, and now they come to us to pay the bill.
All right. Thank you for your testimony.
Ms. Kennelly. Thank you, Congressman.
Mr. Buyer. Appreciate your service here.
Mr. Bilirakis. I thank the gentleman.
Mr. Buyer. I yield back.
Mr. Bilirakis. Let us see, Mr. Pallone.
Mr. Pallone. Thank you, Mr. Chairman.
I wanted to talk about the lack of a defined benefit. In
other words, if you change Medicare into a voucher system,
which is what I believe that the Republican leadership is
proposing, it would mean that seniors in different parts of the
country would pay different premiums and receive different
benefits.
For example, under the President's vision for reform, which
I think, again, is a voucher, Medicare would operate very
differently than it does today. Each senior would receive a
contribution from the government that can be used to help pay
the premium of the plan of their choice. In the Federal
employees' program, the government's contribution is equal to
72 percent of the average premium.
I guess what I am saying is that this geographic variation
in price could create equity problems if we restructured
Medicare into a voucher model. And I just wanted--I would ask
initially Barbara Kennelly, and then Mr. Berenson, what are
some of the problems that could result from a system where
seniors in different parts of the country pay different
premiums and receive different benefits? That is a concern, and
if you would comment. We will start with Barbara.
Ms. Kennelly. Well, I think we already know, Congressman,
that that is exactly what has happened and will continue to
happen, because of geography, because of all sorts of different
things. So I think that is one of the reasons that so many
seniors--you know, I listened to Mr. Buddy talk, and, you know,
his thing was perfect. It all worked out.
And, really, you know, many of the people that are in the
private plans like them. But I still have to come back to the
question of if it is so good across the--you know, across the
surface, why are only right now something like 11 or 12 percent
of the people in these plans? Why do we get these frantic
calls, people willing to spend out-of-pocket one-third to stay
in Medicare?
So I think that not being able--you know, I know that the
chairman said that, you know, was leading into that seniors can
make decisions and can understand choice, but what I----
Mr. Bilirakis. I didn't say that. Mr. Buddy said it.
Ms. Kennelly. Okay. And let me tell you, he could have sold
me my policy, just the few minutes we talked this morning. But
I just think consistency is what seniors are looking for. They
want to be able to rely on something, and that is why when they
do the polls that you people mention that they say they are
satisfied.
And they are willing to pay more because they want to be
sure that they have what they want. What they want in choice,
Congressman, is they want choice of their doctors. And we saw
that so dramatically when that--two sentences in the State of
the Union. Just our phones rang off the hook, so we know they
want choice of doctor. But I am not so sure they are asking for
choice of plan. I think they like their Medicare.
Mr. Pallone. Let me ask Mr. Berenson, and then we will go
back to Mr. Buddy.
Mr. Berenson. Very briefly, I came to HCFA in April 1998,
and by June plans started withdrawing from the Medicare+Choice
program. I didn't attribute that to my coming necessarily.
But what we faced in Medicare+Choice was dramatic
geographic variation in how much plans would get because of
this artifact of paying them based on how much private--I mean,
how much traditional Medicare was paying on the fee for service
side. It is still a problem. There are some parts of the
country where plans can provide very generous benefits and do a
good job, although the trust fund is losing money, and in other
places plans can't get in there at all and can't offer
benefits.
If you are trying to define a government contribution based
on these local variations in fee for service spending, you
would then formalize this kind of geographic inequity, and I
think you would have increased problems over what you have
today in trying to justify that kind of horizontal inequity
across the country.
Mr. Pallone. I know that Mr. Buddy had his hand up. I just
wanted to say one thing, though, and I hope nobody takes
offense at this, but I have to use my free lobster dinner
analogy.
When I--because I know Mr. Bilirakis raised the issue
about, you know, can seniors make choices? I mean, obviously,
seniors are able to make choices. Nobody suggests that they are
not. But there is just a lot of misinformation that is out
there.
I mean, I have said before the committee before, we had the
case where, you know, there was an ad in the paper, a free
lobster dinner if you came down and listened to the HMO. And I
had all of these seniors going down there and signing up, and
there is just a lot of misinformation and incentives that are
used. So even though people are, you know, intelligent, they
may not get the right information in terms of making those
choices.
If you want--you wanted to say something.
Mr. Buddy. Yes. I don't want to encroach too much on your
time. No. 1----
Mr. Pallone. Well, there is almost no time left.
Mr. Buddy. First of all, lobster dinners can be a lot of
fun, and I don't know if that alone is going to influence their
decision. I hope not. If I am right, that won't, but that is
not necessarily true.
Second, I would love to have Ms. Kennelly as a client. She
would make, I am sure, a very good----
Third, I would like----
Ms. Kennelly. I have Medicare.
Mr. Buddy. Okay. We need to talk. At any rate, the second
thing I would like to say is I perhaps spoke too quickly when I
responded to the chairman's first request for information as to
whether seniors are able to make rational decisions. I, too,
read that editorial since it, by pure coincidence, happened to
appear in The Houston Chronicle just as I was leaving.
I did write to the editor. I have never written a letter to
the editor before and probably never will again, but it was--my
ran five pages. And my wife says that now probably we will be
desubscribed from The Houston Chronicle. There were a number of
misstatements, and I think there have been some misstatements.
Your point is absolutely correct. Seniors do become
confused by misstatements, and there were a number of things in
that editorial--I am not trying to pillory The Houston
Chronicle, but I think unfortunately created a misperception
that--there are a number of them. I identified 4 or 5 in my
rebuttal, and I don't want that necessarily to be entered into
the minutes of this proceeding.
But one of the things that I think caused seniors to have
tremendous inhibitions about the Medicare+Choice program was I
don't think we can really necessarily fault the Medicare
carriers that have made a valiant effort on--you are well aware
of the 2 percent cap and the fact that Medicare expenses are
going at 10 percent. They have made a valiant effort to stay
the course and to make--become a viable option.
Unfortunately, that has proved to be very difficult, and as
a result there has been a steady deterioration of their
financial situation to the point where they had to evacuate the
market. And one of the principal reasons was not competition or
it wasn't a lot of other things. It was simply the fact that
the money wasn't there.
And I think seniors have become very apprehensive. There is
one HMO carrier that left the market. There are about 20,000
seniors who were in that program who now aren't, because they
simply have refused to believe anymore. And I think you are
probably----
Mr. Bilirakis. We have all had plans in our districts that
have----
Mr. Buddy. The same thing.
Mr. Bilirakis. [continuing] canceled out.
Mr. Buddy. And I think really----
Mr. Bilirakis. No question about that. If we were to do
anything like that, by gosh, we would have to make sure that
there are safeguards in some way or other. I will be darned if
I--that is why we hold those hearings, so we can learn.
Mr. Buddy. I do have a possible solution on that. Wellness
is bipartisan----
Mr. Bilirakis. Well, why don't you write it down for us and
furnish it, or possibly respond to maybe one of the other
inquiries.
Mr. Deal to inquire.
Mr. Deal. Thank you, Mr. Chairman.
Dr. Berenson, I would like to follow up on your last
comments about the disparaging--disparity between regional
plans that were offered. Would you elaborate on why you think
that exists, and how does it exist in a competitive
environment?
Mr. Berenson. The regional variations in payments to the
health plans in Medicare?
Mr. Deal. I was thinking you were talking about the
availability of services.
Mr. Berenson. Well, they run together. Basically, ever
since the TAFRA Act was passed in the early 1980's to set up
private plans, risk plans in Medicare, the basis for payment to
them has been based on how much the traditional program pays in
fee for service at the county level.
There are huge geographic variations in how much we pay. In
fact, to me, that is one of the unexamined questions, is how
the fee for service program can get some control over those
variations. But basically----
Mr. Deal. I agree with that, too.
Mr. Berenson. [continuing] if you are in a part of the
country where the traditional program has a lot of spending per
capita, if you are an HMO, you can come into that market, get a
pretty generous payment, although it is obviously decreasing as
rates have gone up only at 2 percent, and be able to, one, come
in and offer a product, and, two, offer pretty good benefits
such that somebody would leave traditional Medicare. And so
that is sort of basically a function of those payment levels.
Mr. Deal. I see. So you are saying that that is
precipitated by the variability in the fee for service schedule
by regions as it exists now.
Mr. Berenson. Yes. And then one of the problems, then,
for--on the financial side is plans will go into the generous
payment areas, not go into the other areas, and so, therefore,
we lose money. We are paying plans more in the one area, and
without an effective risk adjuster are paying even more, but
aren't getting the commensurate savings on the other side. So
the net is that the--we lose money on the Medicare+Choice
program.
Mr. Deal. Of course, you could make the same argument in
the fee for service, that that is the reason some physicians
are withdrawing from the program is because of those inadequate
reimbursements as well. So----
Mr. Berenson. Well, you know, and, in fact, I think it
has--that has gotten everybody's attention recently, which to
me is one of the countervailing pressures on administrative
prices. Medicare has to find the balance between paying prices
that will get providers to participate and not deny access to
beneficiaries.
And so I actually think that there are some protections.
And to restate what I said earlier, Medicare gets lower rates
than private payers do for the most part.
Mr. Deal. Dr. Moon, one of the comments that you made was
to take issue with the fact that under the alternate plans that
are available, Medicare+Choice, etcetera, that there were
variable premiums from plan to plan. And I presume those
variable premiums are in part based on the options that are
afforded under those plans.
Would you agree that that is basically the difference in
the fees that are charged?
Ms. Moon. Well, that is right. At the present time, private
plans can charge additional premiums and offer additional
benefits. They must, if they are providing just the basic
Medicare services, live within that rate. But otherwise----
Mr. Deal. Well, is that bad, that those who wish to pay
more premiums and get better services shouldn't be allowed to
do that? Is that your argument?
Ms. Moon. No.
Mr. Deal. So you favor that.
Ms. Moon. In answering the question about the variation or
the potentially high cost of services, my concern is that that
will be the mechanism that people use to save dollars for
Medicare, and that is have the government underfund the program
and then pass the higher premiums off pretty much universally
on to beneficiaries.
Mr. Deal. Well, I think that assumes quite a bit, to assume
that that would be the case.
Let me ask you about one comment that you had. It is--you
were talking about the fact that fee for service doesn't let
people spend as much time with the patients. And you say one
simple way to deal with that is to give the beneficiaries a
certificate that spells out the care consultation benefits. Are
you talking about just a certificate that will say you can
spend X amount more minutes or hours with your doctor just to
talk and feel good about it?
Ms. Moon. No. I am talking about the issue that people have
objected to the fact that it is very difficult for physicians
to spend the time with Medicare patients, because there is a
bias toward keeping the charges at a relatively low level and
not essentially allowing the really high levels to be
reimbursed periodically for beneficiaries.
I think that an assessment by a physician is a good idea
periodically. I don't think that you should just do it across
the board by raising fees to physicians, but, rather, think of
ways to get beneficiaries themselves to be interested in
saying, okay, I can go to you and have this expectation. It is
a contract that the two would have--would engage in.
Mr. Bilirakis. The gentleman's time has expired.
Ms. Capps for 8 minutes.
Ms. Capps. Thank you, Mr. Chairman.
A quick point to follow up on Mr. Buyer's questions about
means testing Medicare. Almost half--45 percent of the seniors
in Indiana, Mr. Buyer, are low income, meaning that they earn
less than $18,000 a year. It doesn't sound like there is a lot
of money to be saved in that State for means testing. You would
have to start charging people more money pretty low on the
income scale to get much savings.
A question for you, Dr. Moon. Medicare+Choice plans, in
much of my district, have cut benefits, raised cost-sharing,
and, in fact, pulled out entirely. This has happened all over
rural America. Do you believe that private plans can offer
current Medicare benefits, plus a prescription drug benefit,
plus preventive care services, to rural America for less than
or even the same as traditional Medicare?
Ms. Moon. No, I----
Ms. Capps. I know this is a big topic. If you could be
brief, because I have a couple more questions.
Ms. Moon. So I should just say no.
Ms. Capps. You can say no, but----
Ms. Moon. I believe that private plans can do a very good
job of trying to be efficient in the right circumstances. But I
don't think even very good private plans can provide
prescription drug benefits that now run in the hundreds of
dollars for the amount that Medicare pays, if they are being
paid appropriately.
They were able to do so in the past because the payments
were actually higher than what those plans needed to provide
basic Medicare benefits, and they offered extra benefits. So I
believe that realistically we have to assume that private plans
or traditional Medicare, if we are going to add prescription
drug benefits, we have to add dollars.
Ms. Capps. Thank you.
And, Dr. Berenson, this is your topic, too. Could you
address the same point? But also, you know, we are talking
about Medicare+Choice now not just as an option for
prescription drug coverage but as a way to try to update and
modernize a hopeless, outdated Medicare. And I don't agree with
that, but that seems to be what the administration is doing.
Would you respond to my rural district, and also talk about
how--some of the things you weren't able to do in your opening
statement.
Mr. Berenson. Yes.
Ms. Capps. Just also briefly, though, because I have one
more question.
Mr. Berenson. Let me just focus on the rural issue. One of
my jobs in the PPO I worked at was involved with negotiating
with physicians and hospitals, and we wound up paying lower
rates to Georgetown and George Washington than the few rural
hospitals we had, because they were the sole hospital out
there.
The only way that a private plan actually goes into rural
areas now in private fee for service plans is being able to use
the Medicare fee schedule, because they don't independently
have any negotiating leverage.
They don't have an infrastructure to do some of the good
stuff that managed care actually does, so my sense is that what
we would be doing is permitting a private plan to put in the
same rules that traditional Medicare has, but they take their 8
or 10 percent of administrative costs off the top. I am not
sure what advantage we have provided to anybody.
Ms. Capps. And this is rural America. Are there some other
parts of America that would face the same challenges?
Mr. Berenson. Well, again, this does go somewhat to the
issue of the function of a lot of private plans for private
employers is to negotiate rates. Some private plans only
survive--I mean, Medicare+Choice plans because for out-of-
network care they are able to use the Medicare fee schedule,
and on their own wouldn't be able to have any mechanism to not
be paying charges right now.
So it just doesn't make sense. There are private plans in
Medicare+Choice, like group and staff model HMOs, and certain
kinds of HMOs that truly do provide state-of-the-art disease
management which we should have in Medicare. We should figure
out how Medicare+Choice can be redesigned to do that.
But to bring in this whole variety, array of private plans
that are sort of there, would be there to figure out how to
create benefit packages to attract healthy people, serves no
useful purpose as far as I can tell.
Ms. Capps. Thank you.
Finally, Barbara Kennelly, from your days of being our
colleague here, I remember you speaking often about women
living longer, earning less, having less retirement security,
generally also going to the doctor more often. If we make
changes to Medicare that reduce stability in the program and
lead to different benefits and cost-sharing in different areas,
tell me--tell us, now probably not a lot of time remaining--and
this, again, is a big topic. But this is about women, widows
and others who----
Ms. Kennelly. Congresswoman, even though we have made vast
advances in the----
Mr. Bilirakis. Your mike, your mike.
Ms. Kennelly. Congresswoman, though we have made, you know,
incredible advances in the women--look at the women sitting at
this table--advances in who is college educated, women's life
experience has stayed pretty much the same. They still earn
less than men. They still--you know, they haven't found any way
for anybody but us to have the children. So we go in and out of
the workforce.
And I have got to tell you, Mr. Chairman, we women live
forever. So it is really important, the universality of the
Medicare, because you can't live too long for it. It stays
right with you until the day you die, and that is one of the
good arguments for staying with the fee for service.
Often women have much less money. As we know, one out of
four unmarried women only have Social Security, and they live
on it, and they have to take care of their health out of it. So
yes, I do still give those speeches of why it is so important
to have a universal program for Medicare and Social Security.
Ms. Capps. Thank you.
And I still have a little time left. I bet you, Mr. Buddy,
you would like to make a comment on this as well. And we
shouldn't be restrictive to women, should we?
Mr. Buddy. The reason she would make an excellent client is
that she----
Ms. Capps. Oh, you are not going to use my time to----
Mr. Buddy. She made a very interesting comment, and I think
it is very relevant. She said illness by seniors is a
bipartisan type of thing. And essentially, whether it is public
or private, I think it is very important that we stress the
wellness idea, which is a win-win deal for everyone.
And one of the things I should mention, the THI, the Total
Health Initiative sponsored by the YMCA, they have six pilot
projects that will make it feasible to implement, utilizing
their facilities and their staff. They would be receptive to a
joint venture with the government in terms of making it
feasible to make available to all people, whether private or
public, the wellness needs analysis and specialized treatment.
So I think the main thrust should be a bipartisan approach
to try to deal with things like disease management, which I
think can be beneficial to all segments of the population.
Ms. Capps. I know that consumers would wish that we would
be bipartisan as we respond to the needs to modernize Medicare.
I just have a few seconds. Ms. Rawlings, can you address
this issue of your own company's ability to stay in a rural
area?
Ms. Rawlings. I am glad you asked me. I think I would agree
with Dr. Berenson. I think there are challenges in the way we
contract with physicians and hospitals in those rural areas. It
is difficult to negotiate, and we do have abilities around
providing--using the Medicare fee schedule for some cost
protection.
I think the more critical issue, though, as you are
thinking about coordination of care is what is required in that
is an integrated delivery system. And many times, if your
enrollment in rural California----
Ms. Capps. Right.
Ms. Rawlings. [continuing] you don't have those integrated
delivery systems available to you. You might have to drive 80
miles to see a nurse for your, you know, geriatric exam. It
makes it very difficult to deliver comprehensive, coordinated
care in those markets. So I think that is a limitation for a
coordinated care system.
I think, however, private plans can provide value in
working with the government and finding ways to enhance the fee
for service programs in those areas, or maybe looking at hybrid
products that take the best of both worlds.
Ms. Capps. Can I get a yes or no from Dr. Berenson? I know
I am over my time.
Mr. Bilirakis. The gentlelady's time has expired. But if it
is important for you to get a yes or no, as long as it is not
followed by----
Mr. Berenson. Very briefly, I basically agree. My point is:
why have 3 or 4 plans trying to work with a physician to
coordinate care instead of a single plan, traditional Medicare,
working to do that, perhaps with private sector contracting.
Mr. Bilirakis. Yes or no.
Ms. Capps. I got my answer.
Mr. Bilirakis. All right. I am sure you liked that answer,
yes.
Mr. Strickland, 8 minutes.
Mr. Strickland. Thank you, Mr. Chairman. And I want to
thank the witnesses.
I was in the chamber of the House of Representatives when
the President gave his State of the Union address. And I
started to applaud--I applauded several times during that
address, but at one time I started to applaud and then I
stopped.
The President said something to the effect that if a senior
citizen likes traditional Medicare and wants to keep it just
the way it is, they should be able to do so. And I stopped my
applause, because I realized that traditional Medicare, just
the way it is, is without a prescription benefit.
And then, the President said that the Nation should take
control of our health care away from the bureaucrats, the trial
lawyers, and HMOs, and return it to doctors, nurses, and
patients, and I applauded. And then, the President described
his plan, and under his plan, as I understand it, if Medicare
or an older person is going to get comprehensive prescription
drug coverage, they are going to be forced into basically an
HMO, because if they stay in traditional Medicare what is
available to them is going to be terribly limited.
I think there were contradictions in what the President
said. I hope they weren't purposeful contradictions, quite
frankly, because they were basic and fundamental to what we are
dealing with.
I have here a publication from the Center on Budget and
Policy Priorities, and I would like to read this statement.
``The 75-year cost of the administration's tax cuts is more
than three times the long-term deficit in Social Security and
larger than the long-term deficits in Social Security and
Medicare combined.'' And that leads me to something that I said
yesterday in a hearing on prescription drug coverage. Our
problem is a value problem, not a monetary problem, because if
we truly were determined to make a prescription drug benefit
that was affordable to all of America's senior citizens, if we
truly were committed to that, we would do it. And we would be
cost conscious, certainly, but we wouldn't let the financial
obligations of doing so keep us from proceeding.
So I have a question for you, Ms. Kennelly. The President
argues that we really can't afford Medicare as it is, and
improve it, and make prescription drug benefit as a part of it,
and so on. People argue that we can't afford to spend more than
$400 billion for a prescription drug benefit.
However, this argument seems a little disingenuous when you
look at the size of the tax cuts the administration is
proposing. And as I said, according to the Center on Budget and
Policy Priorities, it is disturbing information. It seems that
there are--the people who are saying we can't afford to improve
and keep traditional Medicare for everyone are the same ones
who would divert our existing resources to tax cuts. In fact,
these tax cuts, I think, are going to jeopardize our ability to
preserve Medicare, let alone improve it.
If these tax cuts were enacted, we would be running up more
deficits instead of paying down the national debt. The interest
on these deficits would eat up precious revenue.
And my question to you, Ms. Kennelly, is, do you believe
that the administration's proposed tax cuts could jeopardize
the future of the Medicare program? And do seniors in your
organization--do seniors in your organization think that some
of these tax cuts should be used to add a drug benefit to
Medicare instead?
Ms. Kennelly. Well, Congressman, I have been known to use
that exact quote that you quoted recently, at a large
convention of elderly services in Chicago last week. What you
say is the truth. I had hoped we wouldn't get into this
discussion, because I understand the budget resolution passed
by the House. It does have a very large tax cut in it.
I am sure that I would probably--my organization is
bipartisan, but I am sure I will go back to my roots and say
yes, I think the tax cut is too large. Yes, I think the
sustainability of Medicare and Social Security will be
challenged if that tax cut passes at the height that it is
right now. There is no doubt about it. You just have so many
dollars, and right now we are in deficit situation, budget
deficit situation, and we will increase that deficit, if, in
fact, those high tax cuts are passed.
I also want to see a democracy, and I understand that the
President is the President, and the Republicans have the
majority in both the House and the Senate. So this is a
difficult situation.
And, yes, I can tell you, when you look at senior incomes,
and when you see that only 19 percent of seniors earn over
$40,000 or even have over $40,000, they are going to get a very
small tax cut. Obviously, that is the fact. And so, of course,
they would much rather have a prescription.
Mr. Strickland. Thank you.
I would like, if we could, just to go down the table,
beginning with Mr. Foster, if you could give me a brief
response, yes or no, or if you want to make it a little
longer--the same question.
Mr. Foster. I would pass on the desirability of the tax
cuts from offering an opinion either way. I would mention that
the primary source of revenue for the Hospital Insurance Trust
Fund is payroll taxes, which would be unaffected. The real
issue is the general revenue financing for Part B of Medicare.
The law provides for that revenue. How you get it is the
challenge, and that would be the real issue.
Mr. Strickland. But it is true that we have a limited
amount of resources. And if we chose, we could use some of
those resources to enrich Medicare beyond even the amount
available in the trust fund. I recall maybe 3, 4 years ago
members of both parties were pledging to use at least part of
the deficit to do that.
Yes, Dr. Berenson.
Mr. Berenson. My priority would be on Medicare and Medicaid
and not--I mean, Medicare, Medicaid, and Social Security,
rather than the tax cut. But my point would be that I think we
can find some savings, significant savings, in the traditional
Medicare program if the program had new authorities to do so.
And that we don't have to just assume that we have to spend
what we have to spend. We can add prescription drugs and find
offsetting--not fully offsetting but some savings.
Mr. Strickland. Thank you.
Ms. Rawlings. I would add that Aetna does not actually have
a position on that specifically, but I would comment on that I
do believe that whatever program is developed and evolved, we
believe if we can evolve the program and maintain a competitive
playing field that we can make it more effective from a cost
perspective and quality perspective as well.
Mr. Strickland. Thank you.
Ms. Moon. I believe that one of the important things to
think about is that there will be a need for additional
revenues. And my generation of baby boomers will be the folks
who are advantaged by the tax cut, and who should be
contributing to our future in terms of Medicare and Social
Security.
Mr. Strickland. My time is up. If just the two of you could
make a quick----
Mr. Bilirakis. Very brief, please.
Ms. Grealy. Well, I agree with Ms. Rawlings. Regardless of
what happens with the budget resolution, No. 1, there is money
in there for a prescription drug benefit. But more importantly,
we need to look at how we are going to sustain this program
over time. We need to bring competition and more efficiencies
into it.
Mr. Strickland. Mr. Buddy?
Mr. Buddy. I have to agree wholeheartedly. I think there is
definite room for improvement in the Medicare system, and so I
am enthusiastically in favor of that. The jury is out on the
other. I am not sure what we can afford, but I think that we
can all agree on----
Mr. Strickland. Thank you.
And thank you, Mr. Chairman.
Mr. Bilirakis. Mr. Shadegg.
Mr. Shadegg. Thank you, Mr. Chairman. Thank you for holding
this important hearing. I apologize I have not been here for
the entire testimony.
I want to thank our panelists. I appreciate their
thoughtful testimony.
Ms. Rawlings, I want to follow up on the questioning of my
colleague from Ohio. Have you studied the President's plan, or
looked at what the President proposed?
Ms. Rawlings. We have, yes.
Mr. Shadegg. Does Aetna offer both an HMO product and a PPO
product?
Ms. Rawlings. We do under the Medicare+Choice program
today, yes.
Mr. Shadegg. And there are substantial differences between
the HMO product and the PPO product, are there not?
Ms. Rawlings. Well, there is probably 2 or 3 key
differences. What we have done is, in our PPO--in the PPO
demonstration, which was just launched in January, as you know,
we offered in 21 counties and 3 States enhanced benefits,
including prescription drugs. We offered no referrals, out-of-
network coverage----
Mr. Shadegg. I want to stop right there. First of all, no
referrals means no gatekeeper.
Ms. Rawlings. That is correct.
Mr. Shadegg. So when he was talking about the President
would force you into an HMO product, in point of fact, one of
the things that makes HMOs very unattractive is you have to go
through a gatekeeper who decides whether you can go to a second
doctor. You are saying that in your PPO product you can go
straight to the doctor of your choice, is that right?
Ms. Rawlings. That is correct, yes. I would----
Mr. Shadegg. And then you were about to say the second
distinguishing feature.
Ms. Rawlings. Well, the one thing I wanted to add is I
think as we have heard and talked about today, the element of
coordination of care is not lost in the PPO. We still do our
health risk assessments. We have our comprehensive case
management units that are looking to work with these patients
in this product as well, so we get the additional benefit of
that.
But it is very--it meets the customers' needs, allows them
to travel, allows them to have direct access. They seem to like
it.
Mr. Shadegg. And it also allows them choice of doctors.
They can pick any doctor----
Ms. Rawlings. That is correct.
Mr. Shadegg. [continuing] in the plan, and that is covered.
And then, if they want to go outside the plan, they can do that
for a slight additional fee?
Ms. Rawlings. That is correct. It is a slight difference in
benefits. That is correct.
Mr. Shadegg. One of the things that I think is--and I would
encourage my colleague from Ohio to study the differences
between HMOs and PPOs. I think one of the things that was
underappreciate about the President's plan is the fact that
what he was proposing--enhanced Medicare--was a PPO and not an
HMO. And I think there is a world of difference.
Indeed, across America, more Americans are choosing now
PPOs than HMOs, precisely because of those very important
distinctions. And so I think that is an important part to
understand about the President's plan.
I also would echo what you said, and that is the PPOs that
I talk to tell me that they can manage care, they can improve
care and improve quality of care, without, for example, having
a gatekeeper that denies people care or some bureaucrat back in
an office that denies them care.
Ms. Rawlings. I think that is true, but I think the
critical thing to remember, too, is, you know, we are talking
about an aged and disabled population. You know, you
mentioned--Ms. Capps mentioned the women and aging, and, you
know, there is a significant social change and environmental
change when people age. You know, spouses of 55 years or so
die, and one is left alone, children move away, etcetera.
I think the critical thing to think about is it is
different when you are 25 and when you are 75. And some people
say, ``Well, gosh, I don't want to have anybody calling me. I
don't want any part of that.'' When seniors are sick, they need
help. They appreciate it. They respect it. And we have found
that we have--we develop excellent partnerships which really
improve quality, and we can get that on the PPO.
Mr. Shadegg. Mr. Berenson, I want to focus on this issue of
PPO with you. You indicate in your testimony that the PPOs you
dealt with did not want to work toward quality improvement.
Were any of those non-risk PPOs, or were they all risk PPOs?
Mr. Berenson. Well, most PPOs were non-risk PPOs that I
talked to. I mean, I----
Mr. Shadegg. They weren't insurance-based PPOs?
Mr. Berenson. Some were insurance-based and some were
rental or broker PPOs that did not manage risk. But I think
there is some history here that is illustrative and that----
Mr. Shadegg. I appreciate that. I would like to hear the
history, but I am going to run out of time, and I want to ask
Mr. Foster a series of questions.
Mr. Foster, we are being asked, or at least my--one of my
key goals is to reform Medicare and to make it more efficient.
One of the things I want to do is I am of the belief that by
adding prescription drug coverage to the current Medicare
program, you can, in fact, reduce overall cost by reducing both
doctor visits and hospitalizations.
Have you studied that question, or do you know of anyone
that has studied that question?
Mr. Foster. Yes, we have. Clearly, with the right
medications, people can stay out of the hospital in certain
circumstances or have lower costs than they would otherwise
have. The question is whether the availability of a Medicare
prescription drug benefit would generate some partial
offsetting savings through such actions?
We have not estimated a significant offsetting amount of
that type, in part because the great majority of beneficiaries
already have some level of drug coverage one way or another,
and in part because in the case of most folks, if you can stay
out of the hospital by getting a certain drug, you are going to
try very hard to get that, even if you don't have coverage.
Mr. Shadegg. Assuming that in fact, though, having--the
entire Medicare population have access to drugs would bring
down some costs. That means it would bring it down if it were a
benefit added both to fee for service and if it were a benefit
added to other options, for example, a PPO. Would that be
correct?
Mr. Berenson. Yes. The impact that you mention would apply
regardless of the setting.
Mr. Shadegg. Okay. The second question--and you heard Ms.
Rawlings refer----
Mr. Bilirakis. The time has expired.
Mr. Shadegg. I apologize. Could I ask the one last
question, then?
Mr. Bilirakis. Well, ask it, but a very brief answer.
Mr. Shadegg. Have you also looked at the question of
whether, because there is some element of managed care in a
PPO, have you tried to estimate what could be--what savings
could be achieved if people were encouraged to move from
traditional fee for service into a PPO-type structure?
Mr. Foster. Yes, sir. We have estimated both the management
savings directly and the savings potentially you could get from
having beneficiaries with a financial incentive to move from a
more expensive plan to a less expensive plan.
Mr. Shadegg. I would like to see that information. Thank
you for your testimony.
And thank you for your indulgence, Mr. Chairman.
Mr. Bilirakis. Thank you.
Mr. Stupak.
Mr. Stupak. Well, thank you, Mr. Chairman. I am sorry I
have been popping in and out, but we had a markup down in T&I
Subcommittee.
Mr. Bilirakis. Yes, I know we did.
Mr. Stupak. So I have been in and out, but----
Mr. Bilirakis. Have you had any votes down there yet?
Because I am stuck up here.
Mr. Stupak. No, but we had to do some amendments, so--but
thank you.
Dr. Berenson--and I know Mr. Brown put in The Wall Street
Journal article. I want to ask you just on this one paragraph
in particular where it says, ``The Congressional Budget Office
Chief tells Republican Senators the Medicare overall plan could
add hundreds of billions of dollars in cost. The administration
cost-saving claims for its plan also are belied by early data
from a demonstration project. Small savings from encouraging
seniors to opt for private plans are offset by high
administrative costs.'' Do you care to comment on that at all?
Mr. Berenson. Well, we do know that Medicare+Choice plans
typically have about 8 percent to 10 percent higher
administrative costs than traditional Medicare does. And there
is no--the way we would pay plans under the--the way we pay
plans under Medicare+Choice, again, results in a net loss to
the government.
The only way you can restructure this to save money would
be to fix the government contribution at a relatively low
level, so that people are paying out of their pocket for the
various choices. And we haven't seen the details, but there--I
think most people don't view that there are inherent
inefficiencies in most private sector alternatives to
traditional Medicare.
Mr. Stupak. Well, in these--if you go into a PPO, is that--
you went into a PPO, that is good for a year, right? The
contract you would enter into if you are a beneficiary, you
would sign up for the PPO----
Mr. Berenson. Well, presumably, if there was a 1-year open
season the way we do now--we currently in Medicare Choice have
a non-lock-in situation. We presumably have--that is another
issue that would have to be dealt with is whether we are
locking people in.
Mr. Stupak. And the benefits could change yearly, then?
Mr. Berenson. Presumably, it would be done on an annual
basis.
Mr. Stupak. See, the other problem I have with these PPO
and HMO--and I know Mr. Shadegg dwelled on it, so I want to
bring this up. The State of Michigan just went--used to be--
have a defined benefit plan for their retirees who are not in
Medicare. So they went to a PPO. And if your physician is part
of that PPO, they still pay the 80/20. You pay 20 percent out
of pocket.
Well, what happens up in my district, which is real
northern Michigan, none of the doctors are in the PPO. So if we
want to get the 80/20, 20 percent payout, we have to drive
hundreds of miles to find a doctor who is in the PPO. The issue
is really choice of doctors here. It is not necessarily PPO or
HMO. You want to stay with your doctor.
Since we don't have PPO physicians up in my neck of the
woods, we have got to pay a 50/50. They will pay 50 percent,
and we pay the other 50 percent. So it costs us more money
underneath the PPO for the beneficiaries, too.
Mr. Berenson. And that is one reason why the data from
recent years suggests that the differential between what
private plans are paying their network physicians and hospitals
are going up in relationship to Medicare, because networks are
simply not adequate, and to have an adequate network you have
to pay more.
Very briefly on the history of PPOs, the BBA set up PPOs as
a coordinated care plan and had to do quality improvement and
reporting. And the PPO industry said they can't do that, and
they came to Congress and got relief. So I don't think we have
a good track record of seeing that PPOs actually would be doing
the kinds of things we need for Medicare beneficiaries.
Mr. Stupak. Ms. Grealy, if I can ask you a question. You
were--Mr. Brown was asking you some questions, and he basically
said when the government does it, it is called control. When
private industry does it, it is called negotiations. And your
answer to Mr. Brown was, well, that is true competition. That
is really what you are looking for, right, was true
competition?
Ms. Grealy. Yes.
Mr. Stupak. Then, to have true competition, should we not
take away the antitrust exemption enjoyed by the insurance
industry? They are not subject to antitrust laws. Therefore,
you can put your rates anywhere you want.
Ms. Grealy. Highly regulated by the States, and I think
that is sort of the safety net.
Mr. Stupak. Well, you are really not highly regulated by
States, because you have got 50 different States who have
insurance commissioners. And if you look at the laws of
insurance commissioners, some of them are political appointees,
others are elected, some have strong regulations, some have
very little, like my State of Michigan. It is like a paper
tiger.
So shouldn't we really--if you really want to get true
competition, shouldn't we really take that exemption away, make
it nationwide, so the regulations are the same through all
States, and, therefore, we could really promote some
competition within the insurance industry?
Ms. Grealy. I think if you have that balance of Federal and
State regulation. I mean, what you don't want to do is withdraw
it in one area and yet leave in place those 50 different
mechanisms. I know on many issues that we work on we are
looking for those single Federal standards, whether it be the
HIPPA privacy regulation or whether it be in health care
liability reform.
So often times there is something to be said for having one
set of rules, so that we all know that we are competing
effectively and fairly.
Mr. Stupak. So if we took away that exemption, then it
would be easier because you would just have one set of rules
for all States. So you would be supportive of our legislation?
Ms. Grealy. As I said, if it is balanced with--I am not
there. It would have to look at what else is done in
conjunction with that, so I wouldn't be willing to put on the
record, ``Let us repeal the antitrust exemption'' without some
of those other qualifiers that I think are critical.
Mr. Bilirakis. The gentleman's time has expired.
Mr. Stupak. Thank you.
Mr. Bilirakis. Mr. Barton has just joined us.
Mr. Barton. Thank you, Mr. Chairman. I am not going to ask
any questions, since it is lunchtime. But I would yield to Mr.
Buyer.
Mr. Bilirakis. But it is still lunchtime, and yet you are
yielding.
Mr. Barton. This is my lunch.
But I will be happy to yield to Mr. Buyer.
Mr. Buyer. Thank you, Mr. Barton.
In an attempt to keep the record clear, I went back to see
if I could find the letter in 1995 from the trustees. I was
unable to. What I did find, and that I am going to ask to be
placed in the record, is the 1995 Annual Report from the Board
of Trustees of the Federal Hospital Insurance Trust Fund. The
communication to Congress was from the Board of Trustees of the
Federal Hospital Insurance Trust Fund.
I stand corrected. I used the word ``bankruptcy.'' They did
not. So I stand corrected. They used the word ``insolvency,''
and the threatened impending insolvency of the program, which
set in course our action that led to the BBA in 1997.
Referring to the testimony of Mr. Foster, again, on page 3,
his chart shows in 1995, 1996, and 1997, that expenditures
exceeded income. So I ask unanimous consent that the summary of
the Medicare trustees 1995 be placed in the record.
Mr. Bilirakis. Okay.
Mr. Barton. I would announce while we have been holding the
hearing that they are toppling the statues of Saddam Hussein in
Baghdad. At least the press is reporting that it is a liberated
city, so it has been a pretty eventful morning.
And I would yield to the chairman.
Mr. Bilirakis. Well, I just have--thank you for yielding.
Mr. Foster, regarding the Part B deductible of $100, that
hasn't changed in approximately 10 years, approximately, would
you say?
Mr. Foster. I believe it was 1991 or 1992. Is that right?
Mr. Bilirakis. Yes, so approximately 10 years. So would you
know, what would be the impact on Medicare's finances of simply
indexing that deduction for inflation?
Mr. Foster. If you indexed it prospectively, then the
existing amount, the $100 today, would keep pace, depending on
your index, either with something like the CPI or the level of
health care costs and would represent its--it would continue to
represent its current meaning or level, as opposed to gradually
being watered down over time, which would happen otherwise and
which has happened over the last 10 years.
If you would like we could estimate for you a specific
proposal, the financial----
Mr. Bilirakis. I guess if you have--do you have any dollars
in mind? What would be the impact in terms of additional
revenue coming into the program?
Mr. Foster. I can provide that for the record, sir.
Mr. Bilirakis. Okay. You don't know off the top of your
head?
Mr. Foster. Well, it is non-trivial, but it depends a whole
lot on the specific proposal. If you just index it, you don't
get a lot of savings because it takes considerable time for the
amount to vary from what it would have been. If you raise it
and index it simultaneously, that saves quite a bit more.
Just for comparison, if you took the original $50 amount
from way back when, and said what would that amount be today if
you had indexed it all the way along, if you had used the CPI,
then the amount is somewhere in the range of $250 to $300
today. If you had used per beneficiary Part B cost growth, the
answer is fairly staggering. It would be $1,500 today.
Mr. Bilirakis. Okay. I am not sure that I wanted to hear
that answer. Never ask a question you don't want to hear the
answer to.
Well, I think that completes our hearing. We will have
questions in writing to you. We would appreciate a timely
response to them.
Dr. Berenson, you talked about--you wanted to get into
savings that you think can be realized by reforming the
traditional Medicare fee for service system. You know, any
ideas like that are only helpful, and I raise that point to all
of you, any ideas you may have.
Mr. Buddy was chomping at the bit to go into something,
too, and, you know, I want you all to feel free to write us as
soon as you can. Help us out here, because you would be
surprised. Sometimes some of the information we get can be
helpful.
That having been said, thank you so very much. It was a
good hearing, and you made it so.
[Whereupon, at 12:10 p.m., the subcommittee was adjourned.]
[Additional material submitted for the record follows:]
Prepared Statement of The Alliance to Improve Medicare
The Alliance to Improve Medicare (AIM) is pleased to submit this
statement to the hearing record to the Energy & Commerce Health
Subcommittee. We applaud the Subcommittee and Chairman Bilirakis for
their continued attention to this issue. AIM has identified six
principles to guide Medicare modernization efforts and we are pleased
to share these with the Subcommittee. These principles seek to improve
both the administration of the Medicare program and the benefits
provided to program beneficiaries.
KEY PRINCIPLES TO STRENGTHEN AND IMPROVE MEDICARE
First, Congress should enact comprehensive, market-based Medicare
modernization as a mechanism for providing access to prescription drug
coverage. Prescription drug benefits should be offered to all Medicare
beneficiaries as an integral part of Medicare health coverage and the
benefit should be added as part of broader efforts to strengthen and
improve both the fee-for-service program and Medicare+Choice. Expanding
Medicare to include prescription drug coverage should be a stepping
stone toward comprehensive program reform with prescription drug
coverage as part of an integrated benefit package. Finally, a Medicare
prescription drug benefit program should ensure that private health
plans have flexibility in designing prescription drug benefits to
include proven, private-sector management tools to improve quality of
care and to better manage costs.
Second, Congress should ensure the long-term financial integrity
and solvency of the Medicare program when considering program reforms
and additional benefits. A stand-alone drug program should not be
simply layered onto Medicare. The program's financial and structural
systems must be strengthened to ensure adequate long-term financial
stability to meet the challenges presented by the retirement of the
baby boom generation and the projected doubling of the Medicare
population. Congress should address these problems first, or at least
concurrent with, adding a prescription drug benefit.
Third, Congress should address the financial crisis facing health
plans and providers in order to establish a solid foundation upon which
to build a better Medicare. Patient care has been adversely affected by
inadequate reimbursements to health plans, hospitals, doctors and other
providers. Further, these inadequate provider reimbursement levels have
directly undermined progress toward a modernized program. Congress
should ensure appropriate and timely payments for these providers and
plans to ensure appropriate care. Further, prescription drug benefits
should be designed with adequate financial support and effective
management tools to ensure reliable coverage and long-term success.
Fourth, an improved Medicare program should improve coverage
options through increased consumer choice and health plan competition.
Medicare beneficiaries should have the power to choose from a range of
coverage options similar to those available to Members of Congress,
federal employees and millions of working Americans under 65 years of
age. Options can include both fee-for-service Medicare as well as a
variety of private plans. The Medicare+Choice program seeks to provide
these types of private coverage options to seniors nationwide. However,
inadequate payments and excessive regulation of private sector
providers participating in Medicare+Choice have seriously constrained
the ability to expand coverage areas. Numerous plans have withdrawn
from areas where reimbursement was inadequate to cover even the costs
of basic care.
Fifth, a modernized Medicare program should improve coverage
through better coordination of care and the inclusion of health
promotion and disease prevention efforts. The traditional Medicare
program has not kept pace with private sector benefits and plans
offering disease management programs, preventive health care and
screening measures such as annual physicals, hearing and vision tests,
and dental care. Medicare beneficiaries, more so than other age
populations, can benefit from these preventive measures which help
reduce long-term costs and ensure appropriate, early treatment of
health problems. Medicare+Choice plans have the flexibility to provide
these measures as part of basic health care services whereas an act of
Congress has been required to provide routine screening tests under the
Medicare fee-for-service program.
Finally, an improved and strengthened Medicare program would
replace the current rigid and outdated benefit structure and
bureaucracy and ensure flexibility to make new health care innovations
more accessible. An example of efforts to ensure flexibility in the
program is H.R. 810, the ``Medicare Contracting and Regulatory Reform
Act,'' recently approved by the full Energy & Commerce Committee. AIM
members support this effort to create a more collaborative relationship
between CMS and the providers who serve Medicare beneficiaries, to
address provider concerns, and to improve beneficiary and provider
education. Additionally, the HHS Secretary's Advisory Committee on
Regulatory Reform has issued a final report and recommendations to
streamline regulatory burdens and improve Medicare and other HHS
programs. Congress should encourage the HHS Secretary and CMS officials
to continue to work toward reducing potential obstacles to patient's
access to care and improve communications with both beneficiaries and
providers. This effort should also seek to ensure that Medicare has the
flexibility to make new health care innovations and technologies more
readily accessible to beneficiaries. Quality health care for Medicare
beneficiaries requires these new technologies to be available for all
patients.
CONCLUSION
We appreciate the opportunity to submit this statement and we look
forward to working with the Subcommittee and other members to ensure
passage of Medicare prescription drug and reform legislation in the
108th Congress.