H.R. 2473, the "Medicare Prescription Drug and Modernization Act of 2003"

It is particularly disappointing that at a time when the public is calling for a bipartisan meaningful prescription drug benefit under Medicare, our Republican colleagues have taken a sharp partisan ideological turn toward a policy that not only fails to meet the needs of our Nation’s seniors and those with disabilities for prescription drugs, but also takes a dangerous step toward dismantling all of Medicare as we know it.

Let us be clear. This bill is not the Senate bill – this is the gravest threat to Medicare since it was enacted in 1965.

In the last Congress, the Republican drug plan barely passed the House by a vote of 221-208. The criticisms of that bill were defined in our Dissenting Views on H.R. 4988. The most glaring problem of the plan was reliance on private insurers to provide a drug-only benefit, despite being told that insurers would not enter the market. For the first time, seniors and individuals with disabilities would not be permitted to get a benefit through Medicare but would have to enter the private insurance market to do so. Even those who wanted to remain in traditional Medicare would have to join a private insurance company or forgo a critically important benefit, prescription medicines. The plan had no backup method for providing drugs if insurers, in fact, chose not to participate in various parts of the country. Until this point, seniors and individuals with disabilities have had the choice to remain in traditional Medicare for their coverage or join a private plan – the Republican plan would take that choice away.

In addition, there was no requirement for a uniform standard premium or standard benefit. Even worse, the Republican plan had a huge gap in coverage. That gap, often referred to as a "doughnut hole," meant that seniors had to pay 100 percent of the costs of their drugs from $2,000 to $4,800.

This year’s version of drug benefits actually got worse. The only "coverage" under this bill, H.R. 2473, is for Republicans in Congress and the White House. The plan is still based upon a reliance on private insurance companies and continues to ignore the need for a backup plan of any sort. As President Bush’s Medicare Administrator Tom Scully has said, these drug-only plans "don’t exist in nature and won’t work in practice." Instead, the bill would bribe these private insurance plans to come serve seniors rather than just provide a guaranteed federal fall-back plan.

Seniors would be forced to go outside of Medicare to look for a private drug insurance policy, which could enter and exit the market from year-to-year. Seniors and individuals with disabilities would be subject to the full force of insurance market volatility with no protections to guarantee stability of coverage, benefits or costs. Once again, there is no premium specified in law, and premiums could vary wildly throughout the country. In Nevada, where drug-only insurance plans were tried, the monthly premiums were $85 in 2001. Similarly, insurers would be allowed to vary benefits and the drugs covered, making choices for seniors confusing at best, or incomprehensible at worst. The gap in coverage also grew – it is now from $2,000 to $4,900.

Middle income seniors earning between $60,000 and $200,000 would have to pay much more out-of-pocket for their catastrophic drug coverage – the first time we have ever related income to benefits in Medicare, a dangerous precedent for a social insurance policy in which all Americans participate. Given that wealthier beneficiaries have already paid more through the payroll taxes during their working years, this double taxation of Medicare benefits should be rejected. In addition, this is not really a true means-test. Under a normal means-test, you pay more to get the same benefit. Under this policy, you pay more to get less. And this misguided policy will require the Internal Revenue Service (IRS) and the Department of Health and Human Services (HHS) to share sensitive income data on beneficiaries for the first time. HHS would then have to give information to the plan to indicate the level of the benefit for each beneficiary, a de facto disclosure of income. It appears that beneficiaries who refuse to authorize the sharing of this information might be excluded from the drug coverage. It is an offensive invasion of privacy that undermines the social insurance nature of Medicare and it ought to be rejected.

Also, it is not at all clear that the IRS, HHS, or private insurance companies have the capacity to administer such a program. Levels of coverage would vary by individual within each plan, and individuals could petition the Secretary for a change of status. This would require significant expansion of existing bureaucracy. Private insurance companies who obtain this information would have an easier time cherry picking beneficiaries – selecting out the healthiest, less costly, participants. The more high income beneficiaries a plan can attract, the less benefits they must pay out. In addition, since there is a correlation between income and health, with lower-income seniors and individuals with disabilities tending to have poorer health status, HMOs, and PPOs would have access to handy information with which to avoid lower income (and thus more costly) Medicare beneficiaries.

Another attempt to provide health insurance companies the information needed to select out the healthiest beneficiaries for enrollment in private plans comes in the provisions allowing "discount cards" to be run by health insurance plans – HMOs, PPOs, and others. Between 2004 and 2006, private insurance companies can offer "drug discount cards" to beneficiaries, using this mechanism to gain valuable information about prescription drug use, health status, and illnesses of individual beneficiaries. When the drug benefit is slated to begin in 2006, these private insurance companies will have a host of critical information allowing them to target their marketing and enrollment material to only those individuals whose private information indicates they are low-cost, healthy, and not likely to pose a financial risk to the insurance company’s profit margin. An amendment offered to address this violation of privacy and gift to private insurers was defeated on party lines.

Republican Members of the Committee on Energy and Commerce and the President of the United States are fond of saying that Medicare beneficiaries should get the same choices as Members of Congress do with respect to prescription drug coverage. Unfortunately, on this point the rhetoric does not match the reality of this bill. Members of Congress get health insurance through the Federal Employees Health Benefits Plan like all federal employees, yet there is not a single plan option in FEHBP as bad as the one they are promoting for seniors in Medicare.

While Republicans purport to protect those on the lower-ends of the income scale, even those provisions fall far short. Help for even the poorest seniors – those with incomes below $8,980 – is contingent on meeting an assets test. This means that they will not get the extra help they need if they have even modest savings ($4,000 or more). Data suggest that more than one-third of otherwise eligible low-income beneficiaries would be excluded as a result of this hidden hatchet.

Moreover, the legislation would do nothing to stem the rising prices of medicines for the elderly and individuals with disabilities. It specifically includes language prohibiting the new Medicare Benefits Administrator, the overseer of private insurance plans, from taking actions to assist beneficiaries by reducing prices. The entire construct of the bill, fragmenting 40 million Medicare beneficiaries into small clusters in private insurance plans, will ensure that seniors will never be able to use their market clout. An amendment was offered in Committee that would have granted the power for the Medicare program to negotiate on behalf of the elderly and individuals with disabilities, but it was defeated.

In spite of the new 28 percent employer subsidy for retiree coverage in this bill, the Republican Medicare bill will still cause employers to drop retiree prescription drug coverage. According to Congressional Budget Office estimates, 32 percent of employers who are currently providing retiree prescription drug benefits will drop that coverage if this bill becomes law as written. We should be using this opportunity to reinforce the better coverage that is out there, not erode it.

The Democratic Members of the Committee offered amendments to address the major flaws in the prescription drug title of the Republican legislation: improved coverage by filling in the gap, protecting against exorbitant premiums, defining the benefit, eliminating means-testing, and providing coverage as generous as that received by Members of Congress; improved stability through a guaranteed Medicare plan and two-year contracts for private plans; eliminating the penalty for those with employer-sponsored coverage; and addressing rising prices of prescription drugs. All of these were defeated by overwhelmingly partisan votes.

But if this were not bad enough, the Republican bill is a stalking horse to fulfill the Republicans’ lifelong dream to privatize Medicare and turn a program that promises seniors an entitlement to their health care needs into a program that promises nothing more than financial support in buying health insurance. Medicare Part B has always been a shared program with the Government paying 75 percent and the beneficiary paying 25 percent. This new Republican proposal would fix the Government contribution and leave it to the beneficiary to pay the rest. This type of program, which goes under the names of premium-support, vouchers, or defined payment, is no program at all. It is an open invitation to begin the gradual destruction of Medicare, as the Government payment to seniors can be reduced year-to-year, while the seniors’ payment will be increased. (If anyone should doubt this, one need only look at H.Con.Res. 95, the Budget Resolution for FY 2004, which passed the House this year and would have required our Committee to reduce health care spending by over $100 billion in just the coming fiscal year.)

The concept of replacing Medicare with vouchers is not new to the Republican Party; the Republican-appointed members of the Medicare Commission all supported Chairman Thomas’s plan to voucherize Medicare as well. This year Representative Terry (R-NE) offered an amendment in Committee to immediately replace the existing Medicare program with a premium support/voucher program; however, he withdrew his amendment and Democrats were not allowed to show their antipathy toward such a program with a recorded vote.

The privatization policy, which can be found in Title II of the bill, would require Medicare, beginning in 2010, to "compete" with private plans. If Medicare costs more than the private plans, seniors would be forced to pay the difference. This would likely force seniors to choose between leaving their doctors and a system they know and understand, or paying increasing amounts to stay in the traditional Medicare system. Seniors’ health care costs could vary wildly across the country, and even from county to county.

Medicare is not more costly than private plans. To the contrary, every analysis from the Congressional Budget Office (CBO) and the General Accounting Office has determined that Medicare is far more cost-effective than private plans. The experience with HMOs under the Medicare+Choice program begun in 1997 has proven this point, and this bill acknowledges the fact by increasing private plan payments in 2006 to at least the fee-for-service rate in Medicare – in some instances payments to these plans will exceed what Medicare would have paid for a senior in the traditional program. With these additional payments, plans could offer supplemental benefits to lure seniors into them, thus fulfilling President Bush’s original desire for seniors to get their benefits (including drugs) through private plans, not traditional fee-for-service Medicare. By establishing private drug-only plans that will not work, increasing payments to HMO’s, and allowing only the private plans to offer extra benefits, and raising the premiums for fee-for-service Medicare, seniors may have no choice but to join HMOs if they want an affordable drug benefit.

And if that is not enough, analysts expect the private plans to cherry-pick the healthiest seniors, leaving the fee-for-service Medicare program with those who have the greatest medical needs, and thus pricing traditional Medicare higher and higher. An analysis by the Chief Actuary of the Health Care Financing Administration of a similar premium support system proposed by Congressman Thomas during the Medicare Commission found that premiums for those who remained in the traditional Medicare program would increase by 47 percent. While economists may believe that the reimbursement rates could be altered by "risk-adjustment," as was required in the 1997 law, the Government has never been able to implement the requirement, and in fact private insurance plans have fought such a system vigorously.

The end result will be that Medicare as we know it will "wither on the vine." The main argument for this risky plan is that it would save money and help the solvency of Medicare. We now know, however, that there are no significant cost savings from this radical experiment. According to CBO, this whole program is expected to save at best $1.6 billion over the next ten years, or less than one-half of one-tenth of one percent of Medicare spending over the same period. In spite of proclamations that this new private system is "reform" and will "save Medicare," it does not even add one year to the solvency of the Medicare Trust Fund.   In other words, this whole provision is an ideological experiment in which our Nation’s seniors are the guinea pigs, with no real cost-savings or improvement in Medicare’s outlook.

The Republican antipathy toward traditional Medicare is not matched by how our Nation’s seniors view the same program.  In a poll released by the Kaiser Family Foundation/Harvard School of Public Health on the very day our Committee considered this privatization scheme, 77 percent of all citizens aged 65 and over had a favorable opinion of Medicare.  Those seniors also preferred Medicare over private health plans by 63 percent to 19 percent.  While our Republican colleagues at the markup used terms like "antiquated" to describe Medicare, the Nation’s seniors continue to view Medicare favorably. While our Republican colleagues suggest that what our Nation’s seniors want is a choice of private insurers, what our seniors really want is their choice of doctors, which is what Medicare offers.

So what is our alternative? It is a straightforward, simple, honest, and affordable new voluntary drug benefit in Medicare. We propose a new Part D in Medicare, just like outpatient benefits under Part B. To be specific, our alternative – all of which is defined in law – will provide a benefit as follows:

• $25 monthly premium;

• $100 deductible;

• 80 percent coverage by Medicare of all drug costs up to $2,000;

• 100 percent coverage by Medicare of all drug costs over $2,000;

• No premiums or cost-sharing for those whose incomes are under 150 percent of poverty; and,

• Sliding scale of assistance for those whose incomes are between 150 percent-175 percent of poverty.

Our legislation granted the Secretary of Health and Human Services the power to negotiate better prices on behalf of Medicare’s 40 million beneficiaries.  And, as introduced (H.R. 1199), it closed loopholes in the "Hatch-Waxman" generic drug laws preventing drug companies from keeping less expensive alternatives from consumers. (This was not included in the Dingell Substitute as it was not germane to the Chairman’s Amendment.)

We offered our alternative during the Committee markup, and it was defeated by a party line vote of 25-27.  When denied the right to offer this alternative during the consideration of the Republican prescription drug bill last year, we offered it as a motion to recommit, and it was narrowly defeated by a vote of 204-223.

Does our alternative cost more money than the Republican bill? Of course it does since, unlike the Republican bill, it provides a comprehensive, affordable benefit for seniors. A preliminary estimate by CBO last year suggested a cost of over $900 billion compared to the cost of the Republican bill of $400 billion over 10 years. Can we afford the more expensive version? Of course we can.

Our Republican colleagues have chosen to place their priorities on tax cuts that primarily benefit the very richest in our country. Ironically, on the same day that our Republican colleagues voted down our alternative, they went to the House Floor to pass a permanent extension of the abolition of the estate tax. After defeating a substitute that would have protected all estates below $3 million for individuals and $6 million for couples, they voted to abolish the estate tax for those above that income level – approximately 200,000 of the richest families in the country. By abolishing the estate taxes for the richest few, the Joint Committee on Taxation estimates that it will cost the Federal Government $800 billion in the next decade.

The list of tax cuts appears endless. Earlier this year, House Republicans passed a $750 billion tax bill, that was subsequently reduced with a sunset provision at the insistence of the Senate, to $300 billion. Similarly, a Senate bill to provide a child tax credit to families below $26,000 in income, and costing just $3.5 billion (with additional paid-for child tax credit provisions raising the cost to about $10 billion) was amended by House Republicans to provide tax cuts for a total of $83 billion. The additional tax cuts passed just this year by House Republicans compared to their Senate colleagues would pay for the difference in the cost of our Democratic alternative. And this does not count the tax cuts of the last Congress that are likely to cost another $2 trillion over the next ten years.

It is ironic that after depleting the U.S. Treasury of more than eight trillion dollars through tax cuts for the wealthiest one percent of Americans (a $5.6 trillion surplus converted to a $3 to $4 trillion deficit in little over two years), Republicans have the audacity to argue that we cannot afford a decent, dependable prescription medicine benefit under Medicare that will benefit the 100 million seniors and individuals with disabilities projected to soon join the program as the baby boomers age.

We also must spend a few words on the recurring abusive processes in the House of Representatives which have sped this bill to the Floor.   On Friday, June 13, 2003, during the late afternoon and one day after Members had left Washington for their Districts, Democrats for the first time received a draft of the Republican Medicare bill.  On Tuesday, June 17, 2003, we received a revised version in the morning, and began the markup in the afternoon with opening statements only.   We were told we would be permitted just two days to amend the bill in Committee.   While the Chairman conducted a fair markup under the circumstances, permitting all amendments to be offered, the condensed time frame, which has become a regular feature in today’s House of Representatives, did not allow for reasonable consideration of the bill.  Despite our calls several weeks ago to have public hearings on the bill, as well as a markup in the Health Subcommittee, we were forced to consider these changes without the benefit of public input.  We, unfortunately, expect similar limitations in consideration on the House Floor. When our future colleagues and the public look back upon this bill and ask how the Committee could have reported such an assault on the Nation’s seniors, they must look to these procedures as a partial answer.

The following is a more detailed analysis of this flawed legislation as well as our alternative:

Title I – Prescription Drugs

1. RISKY, UNTESTED FRAMEWORK FOR PRESCRIPTION DRUG BENEFITS.

• No alternative but private insurance plans. The Republican plan, H.R. 2473, forces Medicare into private insurance plans in order to get prescription drugs. There is no option under the Republican bill for a senior to have Medicare provide coverage for their drugs like it provides coverage for doctor visits, hospital care, or other health services today. The bill vests private insurance companies with the power to determine what benefits get offered and for how much. This is dramatically different from Medicare today, where senior citizens and individuals with disabilities are guaranteed affordable health care.

• Flawed private-market model. The Republican plan relies on a model that is largely untested. The State of Nevada experimented with private drug-only insurance plans for low-income elderly and found that even with state subsidies, the $85 premium was not affordable for seniors. Drugs commonly used by seniors were excluded from plan formularies. Multiple benefit offerings were confusing to beneficiaries. Relying on a private insurance system will increase the costs to the beneficiary and the Government due to the additional expenses related to product development, marketing, administration, and profit, not to mention the "bribe"or subsidy it will take to get them to participate. Developing a new private insurance product market will be difficult in sparsely populated rural areas, where the need is greatest, risk pools are smaller, and costs often higher. Rather than use Medicare beneficiaries as guinea pigs, we should build on the Medicare model that we know works.

2. INADEQUATE BENEFIT.

• Pay more and get less. For most seniors in the Republican plan, the more you spend, the less coverage you get; about half of all seniors will fall into the "coverage gap" where they must pay premiums but receive no benefits. The design of the Committee bill forces the elderly to pay a higher percentage of costs as their needs increase. Once the initial $250 deductible is met, beneficiaries have to pay 20 percent of the cost until there has been $2,000 in drug spending. But then the beneficiary has to pay 100 percent after $2,000 in drug spending. Beneficiaries are forced to pay all of their drug costs for spending between $2,000 and $4,900, while continuing to pay premiums. (NOTE: The Republican $3,500 out-of-pocket cap translates into $4,900 in total drug spending.)

• Coverage Stops Mid-Year. Nearly 50 percent of Medicare beneficiaries will get no drug coverage for part of the year under the Republican bill -- and 60 percent of those never spend enough to get out of the gap. Beneficiaries with average spending ($263/month) will run out of coverage in August. Beneficiaries with above average spending ($5,000/year or $416/month) will run out of coverage in May. This falls far short of what seniors get today in Medicare and short of what we get as Members of Congress under our health plan.

3. NO GUARANTEED DRUG BENEFIT – NO PREDICTABLE COSTS.

• No guaranteed premium. Insurers determine what premium beneficiaries will pay. While Republicans claim that the premium will be $35, which is 40 percent higher than the premium in the Democratic plan, there is nothing in the legislation to support that claim. In fact, there are no limits or guidelines regarding the setting of the premium. This is a dramatic change from Medicare today where Part B premiums are set in statute as a percentage of program costs. Under the Republican proposal, premiums will vary by plan and place.

• No standard benefit. The benefits outlined in the Republican bill are merely suggestions. Private plans can vary the deductible and co-insurance as well as the premium in both the "standard coverage" option and in the "alternative coverage" option. In fact, there is not even a requirement in the Republican legislation that any plan offer the "standard" benefit package. This is an invitation for plans to design benefits that "cherry pick" low-cost, healthy enrollees.

It is also a recipe for beneficiary confusion. This model represents a retreat from the Medigap reforms of the early 1990s that standardized benefits, thus ensuring that plans compete on price and quality and not prey on consumer confusion. Finally, there is nothing in the bill that would ensure beneficiaries can depend on the plans remaining in their area or providing the same benefits from year-to-year. This invites the annual chaos that Congress has witnessed with the Medicare+Choice program in recent years.

• Not a real entitlement. The prescription drug benefit outlined in the bill is not a true Medicare entitlement. Under Medicare today, beneficiaries are entitled to a set of benefits defined in law, regardless of where they live or what it costs to deliver the benefits. For example, beneficiaries in Milwaukee and Miami pay a $100 deductible for Part B and 20 percent co-insurance for Part B services. Beneficiaries in Bakersfield and Boston are guaranteed the same coverage for hospital care and home health services. Under the Republican plan, there is no such entitlement.

• Limits access to specific drugs and pharmacies. Under the bill, private drug-only plans can refuse to cover needed medications. The private plans decide what specific drugs are on their formulary and whether to provide any coverage for non-formulary drugs. Plans are allowed to change the formulary during the year with "adequate" notice. Because the Republican plan uses the Medicare+Choice enrollment procedures, beneficiaries will be locked into the private plan for the entire year – even if the plan drops a needed drug or local pharmacy.

• Encourages Erosion of Employer-Sponsored Coverage. The bill strictly limits the dollars that count toward the out-of-pocket cap by specifying that only costs which are paid by the individual and are not reimbursed by another person count toward the out-of-pocket limit. In other words, if a beneficiary receives any assistance – other than low-income assistance – with his or her drug costs, those costs do not count toward the $3,500 limit. The definition of "true" out-of-pocket costs puts employers, unions, and others who provide retiree coverage in a bind. Employers would be forced to drop or cap coverage for retirees to supplement the Medicare drug benefit, because each dollar spent would not be counted toward catastrophic coverage. Retirees would lose a valuable benefit that many employers provide today. Seniors also could not purchase Medigap insurance to fill the gap, unless they were willing to forgo catastrophic drug coverage under the bill.

4. INADEQUATE INVESTMENT FOR PRESCRIPTION DRUGS.

• H.R. 2347 covers less than 20 percent of seniors’ drug costs over the next ten years. This is the exact opposite of the coverage seniors receive in Medicare Part B today where Medicare covers 80 percent of the cost of services. An actuarial comparison by the Congressional Research Service between the Democratic and Republican proposals found that the Republican bill has an actuarial value of only $1,900 and the Democratic bill has a value of $2,800, closer to the value of the FEHBP drug benefit at $2,700. Congress needs to act to make senior citizens a priority on the agenda. If seniors are a real priority, there is no excuse not to provide a comprehensive prescription drug benefit that meets the needs of seniors.

The Democratic alternative would have provided an affordable comprehensive benefit for seniors under Medicare. By rejecting the Dingell substitute, the Committee missed its opportunity to provide an affordable, comprehensive prescription drug benefit under Medicare. We urge the House to take a different position and pass a more comprehensive alternative.

Our plan is an entitlement that will guarantee all beneficiaries the option to purchase affordable, dependable, comprehensive prescription drug coverage at a uniform price. The program will be administered and managed through pharmacy contractors, much like carriers and fiscal intermediaries do for the rest of Medicare today. Starting in 2006, under our plan, beneficiaries would pay a $25 monthly premium, $100 annual deductible and not more than 20 percent co-insurance until they spend $2,000. After $2,000, the government would pay 100 percent of the drug costs.

Low-income beneficiaries receive additional assistance under our proposal. Those with incomes up to 150 percent of poverty ($13,470 for one person) will pay nothing. Those with incomes between 150-175 percent of poverty ($13,470 - $15,715 for a single person) will not pay any cost-sharing but will pay premiums on a sliding scale.

The Democratic substitute also substantially reduces the soaring costs that seniors currently pay for prescription drugs. Under our plan, the Secretary would leverage the collective bargaining power of 40 million beneficiaries to negotiate with manufacturers for lower drug prices. Secretary Thompson recently demonstrated the effectiveness of similar bargaining power when he negotiated an 80 percent discount off the list price of the antibiotic Cipro during the anthrax scare in 2001. Pharmacy contractors would also negotiate additional savings. The savings from these negotiations are required to be directly passed on to beneficiaries through lower prices. Pharmacy contractors will be held accountable for achieving promised discounts for beneficiaries.

The Democratic substitute guarantees senior citizens and those with disabilities the choices that matter – choice of drugs and choice of pharmacy. Under our plan, Medicare would pay toward the cost of every prescription drug. The Democratic substitute also assures access to pharmacies by prohibiting pharmacy contractors from refusing to contract with a pharmacy that agreed to meet its standards. These are the choices people want and need.

Most importantly, unlike the Republican plan, our plan will never force seniors into an HMO or similar private plan in order to get a prescription drug benefit. It preserves seniors’ ability to remain in traditional Medicare for all of their health care needs, including prescription drugs benefits.

Title II – Privatization of Medicare

The Republican bill begins a risky ideological privatization program that would end Medicare as we know it. The centerpiece of the House Republican Rx bill is its privatization of Medicare through private insurance plans that are supposed to provide benefits to seniors through a model called "premium support." Premium support breaks the fundamental promise of Medicare. Medicare will no longer be a shared responsibility with seniors. Instead, the government will only pay a fixed amount and the senior will have to pay the rest. The message to seniors is that even though they worked hard all their lives and paid into Medicare, they will no longer be guaranteed quality health care. Instead, they’ll get a fixed payment – a Medicare voucher – and have to fend for themselves in a market where they may not be able to find a plan that meets their needs at a price they can afford.

Under premium support, the Federal Government pays only a share of the premium costs of plans that participate in Medicare. There is no guarantee that this fixed share will be adequate to meet seniors’ needs. Because the Federal share of premiums is calculated regionally, not nationally, for the first time in the history of Medicare, seniors will pay different premiums for the exact same fee-for-service benefit. In some instances the fee-for-service premiums could vary locally as well. Seniors in one area might have to pay more to enroll in fee-for-service than seniors in another area. We are all familiar with the problems created by the geographic inequalities in Medicare+Choice payment rates. Just imagine what would happen if we were dealing with different payments for individual seniors instead of different payments for HMOs.

Seniors will have no way of knowing from year to year what kind of coverage this set premium will buy. The benefits they received will depend on which plans decide to participate each year, the type of benefits these plans decide to offer, and how much these plans decide to charge for their premiums. The consequences of premium support are profound. If HMOs, PPOs, or other private plans artificially depress prices by reducing services, then their average premiums drop – not because of greater efficiencies, but because seniors are denied coverage for the health care they need.

If only the healthiest seniors join HMOs, leaving the sickest beneficiaries in Medicare, then the premiums of HMOs will drop. Right now, Medicare premiums are 25 percent of Medicare costs. They do not go up or down based on what HMOs or PPOs charge in a given market. Under premium support, when HMO premiums drop, the Federal share of the premiums paid by seniors in Medicare will drop too – leaving older and sicker seniors to cover an increasing share of their Medicare premium costs. As a result, the Federal share of all premiums – including fee-for-service – will drop dramatically. In 1999, the Chief Actuary for the HCFA found fee-for-service premiums would increase 47 percent under the Medicare Commission’s premium support model. Quality coverage will be priced out of the reach of those who need it most – while HMOs receive ever-larger subsidies for providing health care coverage to the healthy.

In an extensive analysis of the impact of premium support on Medicare, Marilyn Moon of the Urban Institute found that moving to a premium support model would increase the Medicare out- of-pocket costs by 2025 for a typical senior who remains in fee-for-service by $1,657 a year in inflation-adjusted terms. Under a premium support model, this same senior in 2025 would pay 39.4 percent of his or her income for Medicare – as compared to 28.6 percent if we retain the current structure.

Premium support also encourages cherry-picking by private plans. If plans receive a fixed Federal allotment for premium support – regardless of the level of care provided – then HMOs have every incentive to use marketing tricks to try to enroll only the healthiest seniors, who use the lowest amount of health care services. Studies by the GAO confirm that managed care plans in Medicare tend to attract healthier seniors, leaving Medicare to provide care for those who need it most.

Starving the fee-for-service program not only harms beneficiaries – it hurts the institutions that serve those patients. HMOs are under no obligation to serve their communities through graduate medical education funding or support for sole providers in rural communities. When we cut the fee-for-service program, we deprive many of our Nation’s health care providers of the funds they need to survive.

HMOs reap the rewards of premium support – while seniors who remain in Medicare are left with its aftermath. The premiums that Medicare must charge to maintain a proper level of service for the seniors who remain in fee-for-service will necessarily increase. But the Federal share of that contribution will not keep pace, because it is tied only to a fixed payment of the average premium for all plans.

As a result, seniors who remain in Medicare will see their share of their premium payments rise ever more sharply compared to those in private plans. Seniors and people with disabilities may no longer be able to stay in traditional Medicare because it would become too expensive. Their "choice" of plan would be limited to the lowest-cost HMO or PPO in their community. Sicker seniors in these areas would have to pay more to preserve their "choice" of doctors and hospitals.

The result will be an ever-dwindling number of seniors in fee-for-service Medicare. According to an analysis done for the Kaiser Family Foundation, a premium support model would result in the percentage of seniors enrolled in fee-for-service Medicare dropping from 84 percent to just 47 percent over ten years.

Moreover, forcing seniors into private insurance plans will ultimately force them into the poor house. Social Security checks do not increase enough each year to meet the profit demands of private insurance companies. Millions of seniors survive solely on their Social Security checks, and receive very modest increases from year-to-year. In 2003, seniors’ Social Security checks increased only 1.4 percent.

Private plans, on the other hand, have no limits on what they can charge. Premium increases for private health insurance – even the Federal Employees Plans – have been skyrocketing, increasing at rates much higher than with Social Security.

Once privatization is complete, it will not take long before seniors are unable to afford their Medicare private plan premiums. Cumulatively, from 1999 to 2003 seniors saw a 15.9 percent increase in Social Security benefits; and had they been enrolled in FEHBP for example, they would have seen a 69 percent increase in premium costs, not to mention a reduction in benefits.

The only "choice" seniors will have under the Republican privatization scheme is whether or not they can continue to afford Medicare at all. The House Republican privatization scheme is a bad deal for America’s seniors.

Democrats offered an amendment to strike the privatization provisions and an amendment to protect seniors and individuals with disabilities from premium increases in fee-for-service. Both were defeated on partisan votes. We also offered an amendment to protect seniors in private insurance plans from facing higher cost-sharing than that charged in fee-for-service and an amendment to ensure beneficiaries in traditional Medicare had access to catastrophic coverage like those in private plans, which were likewise defeated.

Other Provisions of H.R. 2473

Title VIII of H.R. 2473 creates a separate "Medicare Benefits Administration" to oversee the Medicare Advantage program, the Enhanced Fee For Service program, and the new Part D prescription drug benefit. This entirely duplicative entity would administer the pieces of the Medicare program that are run by private, risk-bearing insurance companies, managed care plans, and PPOs. The only conceivable purpose of creating such an Administrator would be to prepare for phase-out of the traditional Medicare fee-for-service program, administered by the Center for Medicare and Medicaid Services, and a transfer of the Medicare program to the private sector.

While the Medicare program has always relied on private sector providers, there is a difference between the current structure and the one envisioned under the Committee bill. Since Medicare was enacted, private sector entities have delivered benefits to seniors and processed the program’s claims. The Medicare program itself, however, has always assumed the ultimate responsibility – and the ultimate financial risk – of caring for our Nation’s seniors and people with disabilities. The private sector entities overseen by the Medicare Benefits Administration will not only deliver and manage the program’s benefits and process the program’s claims, but will assume financial risk as well – meaning their profits are on the line if seniors cost more than they expect, giving strong incentives to reduce care and deny access to needed medicines or increase costs to beneficiaries.

The Medicare program was originally created because the private sector did not offer affordable and reliable health insurance to the elderly and those with disabilities. We see little evidence that the elderly and those with disabilities have become more attractive populations to insure, and we have serious doubts about the wisdom of the approach established in H.R. 2473.

We would be remiss if we did not comment on the other provisions in the legislation affecting provider payments. The legislation provides some assistance with physician reimbursement rates; however, the fix in the bill appears to be crafted for budgetary rather than policy reasons. Democrats offered an amendment in Committee that would have further increased physician payments according to MedPACs recommendation for the next two years. This amendment was defeated.

While not in this Committee’s purview, we do not support the cuts to hospital payments included in the legislation either and believe the assistance for rural providers is paltry, falling short of what was provided under the legislation passed out of the Senate Finance Committee. A Democratic amendment to improve the portions of the rural package in this Committee’s jurisdiction, including physician and home health payments, was defeated.

We maintain our belief that, like those in last year’s bill, the provisions pertaining to Medicaid disproportionate share hospital payments are also inadequate. In the Balanced Budget Act of 1997, Congress established limits on payments to the states for Disproportionate Share Hospitals (DSH). In the case of many states, there was a precipitous decline in dollars available over the five-year period. Institutions that are critical to providing services to low-income Medicaid beneficiaries and uninsured persons have already absorbed reductions in funding. Public hospitals, children’s hospitals, and private hospitals serving large numbers of Medicaid and uninsured people cannot weather additional reductions that are slated to take effect.

Three years ago, this Committee recognized that this decline in available dollars had to be stopped. We passed legislation that stopped the decline at the level established for FY 2000, and applied inflationary factors for the next two fiscal years and beyond. Unfortunately, the final legislation ended up with only a two-year fix, and an intention to resolve the problem before the original precipitous decline otherwise scheduled for FY 2003 could occur. Members on both sides of the aisle in this Committee have worked to rectify this problem, thus it was particularly disappointing to see the failure to fully restore DSH funding in the amendment approved by the Committee. We believe that a true solution to the DSH funding crisis should fully address the cuts and restore funding. We also believe we should address the issue of "low-DSH" states to enable them to provide adequate funding to their facilities that serve as a critical safety net for poor and uninsured individuals.

In sum, the Committee’s product provided an inadequate, privatized drug benefit, provided for unfair and ultimately damaging private plan competition with traditional fee-for-service Medicare, and missed opportunities to address provider needs. This is the result of ideological experimentation, coupled with a secretive and irresponsible process. We oppose it.

JOHN D. DINGELL
SHERROD BROWN
RICK BOUCHER
LOIS CAPPS
MIKE DOYLE
FRANK PALLONE, JR.
ALBERT R. WYNN
ANNA G. ESHOO
HILDA L. SOLIS
HENRY A. WAXMAN
KAREN MCCARTHY
TED STRICKLAND
ELIOT L. ENGEL
EDWARD J. MARKEY
GENE GREEN
PETER DEUTSCH
BART STUPAK
TOM ALLEN
EDOLPHUS TOWNS
JAN SCHAKOWSKY
BOBBY L. RUSH
BART GORDON
DIANA DEGETTE