<DOC>
[107th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:73736.wais]
HAS MEDICARE+CHOICE REDUCED VARIATION IN THE PREMIUMS AND BENEFITS
OFFERED BY PARTICIPATING HEALTH PLANS? A REVIEW OF MEDICARE+CHOICE PLAN
PAYMENT METHODOLOGY
=======================================================================
HEARING
before the
SUBCOMMITTEE ON
OVERSIGHT AND INVESTIGATIONS
of the
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
__________
MAY 31, 2001
__________
Serial No. 107-39
__________
Printed for the use of the Committee on Energy and Commerce
Available via the World Wide Web: http://www.access.gpo.gov/congress/
house
__________
U.S. GOVERNMENT PRINTING OFFICE
73-736CC WASHINGTON : 2001
_______________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpr.gov Phone (202) 512-1800 Fax: (202) 512-2250
Mail: Stop SSOP, Washington, DC 20402-0001
COMMITTEE ON ENERGY AND COMMERCE
W.J. ``BILLY'' TAUZIN, Louisiana, Chairman
MICHAEL BILIRAKIS, Florida JOHN D. DINGELL, Michigan
JOE BARTON, Texas HENRY A. WAXMAN, California
FRED UPTON, Michigan EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida RALPH M. HALL, Texas
PAUL E. GILLMOR, Ohio RICK BOUCHER, Virginia
JAMES C. GREENWOOD, Pennsylvania EDOLPHUS TOWNS, New York
CHRISTOPHER COX, California FRANK PALLONE, Jr., New Jersey
NATHAN DEAL, Georgia SHERROD BROWN, Ohio
STEVE LARGENT, Oklahoma BART GORDON, Tennessee
RICHARD BURR, North Carolina PETER DEUTSCH, Florida
ED WHITFIELD, Kentucky BOBBY L. RUSH, Illinois
GREG GANSKE, Iowa ANNA G. ESHOO, California
CHARLIE NORWOOD, Georgia BART STUPAK, Michigan
BARBARA CUBIN, Wyoming ELIOT L. ENGEL, New York
JOHN SHIMKUS, Illinois TOM SAWYER, Ohio
HEATHER WILSON, New Mexico ALBERT R. WYNN, Maryland
JOHN B. SHADEGG, Arizona GENE GREEN, Texas
CHARLES ``CHIP'' PICKERING, KAREN McCARTHY, Missouri
Mississippi TED STRICKLAND, Ohio
VITO FOSSELLA, New York DIANA DeGETTE, Colorado
ROY BLUNT, Missouri THOMAS M. BARRETT, Wisconsin
TOM DAVIS, Virginia BILL LUTHER, Minnesota
ED BRYANT, Tennessee LOIS CAPPS, California
ROBERT L. EHRLICH, Jr., Maryland MICHAEL F. DOYLE, Pennsylvania
STEVE BUYER, Indiana CHRISTOPHER JOHN, Louisiana
GEORGE RADANOVICH, California JANE HARMAN, California
CHARLES F. BASS, New Hampshire
JOSEPH R. PITTS, Pennsylvania
MARY BONO, California
GREG WALDEN, Oregon
LEE TERRY, Nebraska
David V. Marventano, Staff Director
James D. Barnette, General Counsel
Reid P.F. Stuntz, Minority Staff Director and Chief Counsel
______
Subcommittee on Oversight and Investigations
JAMES C. GREENWOOD, Pennsylvania, Chairman
MICHAEL BILIRAKIS, Florida PETER DEUTSCH, Florida
CLIFF STEARNS, Florida BART STUPAK, Michigan
PAUL E. GILLMOR, Ohio TED STRICKLAND, Ohio
STEVE LARGENT, Oklahoma DIANA DeGETTE, Colorado
RICHARD BURR, North Carolina CHRISTOPHER JOHN, Louisiana
ED WHITFIELD, Kentucky BOBBY L. RUSH, Illinois
Vice Chairman JOHN D. DINGELL, Michigan,
CHARLES F. BASS, New Hampshire (Ex Officio)
W.J. ``BILLY'' TAUZIN, Louisiana
(Ex Officio)
(ii)
C O N T E N T S
__________
Page
Testimony of:
Berek, Judith, Administrator, Northeast Consortium, Health
Care Financing Administration.............................. 58
Blacknell, William........................................... 7
Dudley, Lois................................................. 6
Haggett, William F., Senior Vice President, Government
Programs, Independence Blue Cross.......................... 65
Harmon-Weiss, Sandra, Head, Government Programs, Aetna U.S.
Healthcare................................................. 70
Harrison, Scott C., Research Director, Medicare+Choice,
Medpac..................................................... 78
Kirsch, Ila M................................................ 6
Kopacz, Lynn, Resident Insurance Manager, Wood River Village. 8
Material submitted for the record by:
Saxton, Hon. Jim, a Representative in Congress from the State
of New Jersey, prepared statement of....................... 94
Tauzin, Hon. W.J. ``Billy'', Chairman, Committee on Energy
and Commerce, prepared statement of........................ 94
(iii)
HAS MEDICARE+CHOICE REDUCED VARIATION IN THE PREMIUMS AND BENEFITS
OFFERED BY PARTICIPATING HEALTH PLANS? A REVIEW OF MEDICARE+CHOICE PLAN
PAYMENT METHODOLOGY
----------
THURSDAY, MAY 31, 2001
House of Representatives,
Committee on Energy and Commerce,
Subcommittee on Oversight and Investigations,
Levittown, PA.
The subcommittee met, pursuant to notice, at 9:23 a.m., in
Bristol Township Senior Center, Levittown, Pennsylvania, Hon.
James C. Greenwood (chairman) presiding.
Members present: Representatives Greenwood and Deutsch.
Also present: Representative Hoeffel.
Staff present: Joe Greenman, majority counsel.
Mr. Greenwood. Good morning, everyone. I am Jim Greenwood,
and I have the honor of representing the 8th Congressional
District, which consists of all of Bucks County and some of the
better parts of Montgomery County in the District. I also have
the honor of chairing the Oversight and Investigations
Subcommittee of the U.S. House of Representative's Energy and
Commerce Committee. And I want to thank you all for attending
this official field hearing of the Oversight and Investigations
Subcommittee.
We are here, as I suspect you know, to learn about a
problem that affects senior citizens, Medicare beneficiaries,
and disabled Medicare beneficiaries with regard to the premiums
that they pay and the benefits that they receive under the
Medicare+Choice plan, which is, of course, the managed care
option under Medicare. I will make a few statements about that
in a moment.
To begin with, I want to thank the Bristol Township Senior
Center for hosting us this morning, and I want to thank all of
the local members of the Senior Citizen Center for joining us,
as well as seniors from around the region.
I want to also thank and introduce, as I will in a moment,
my colleagues who have come here to attend as well. We have to
my immediate left, Congressman Peter Deutsch. Peter Deutsch is
the ranking member of this subcommittee. That means that, as a
Democrat in the minority, he is the most senior member of the
minority party. He covets this gavel. As soon as he can push us
into the minority, then he will be the chairman. But he has
driven up; he left Washington this morning at 6 a.m. to get
here on time, and we are glad that he is here. To his left is
Congressman Joe Hoeffel. Congressman Hoeffel represents the
13th Congressional District of Pennsylvania, which is, I guess,
best described as the balance of Montgomery County, most of
Montgomery County. Mr. Hoeffel is not a member of the Energy
and Commerce Committee, nor of this subcommittee, but Mr.
Hoeffel represents constituents who have the exact same problem
that my constituents have, as they do in all of the suburbs of
Philadelphia, as well as elsewhere in the country. So I asked
Mr. Hoeffel if he would come and help out with this hearing and
listen to the testimony this morning.
The Chair asks unanimous consent that the record remain
open for 1 week so that additional documents and testimony may
be entered. And without objection, that is so ordered. The
Chair recognizes himself for 5 minutes. And it has been
suggested by my trusty staff that I turn on the microphone. I
will not start over. I am hoping that everything I said prior
to this is either heard or not worth repeating.
The reason that we are here is to look at inequities in the
Medicare system in our region. Medicare was created in 1965. It
was one of the most important things that the Congress and the
Federal Government has ever done. It has put a safety net under
retirees and disabled Americans in terms of their healthcare
for 36 years now. It has been a tremendous boon to the health,
and the longevity, and the wellbeing of our seniors.
Of course, when the program was created, it did not have a
prescription drug benefit, and I have been asked by the local
AARP folks to at this moment put on this little pin here, which
says, Pennsylvania Needs Affordable Prescription Drugs Now.
Wear this ribbon to show your support. So I am going to put
this pin on while Hal Lefcourt takes my photograph. He is the
AARP maven here. And as I showed Hal when I walked in, as of 1
week ago, I now carry an AARP card in my wallet. I am
officially the youngest member of the AARP in the country.
Medicare began as what we call a fee-for-service system.
Recipients receive their benefits card, they go to the doctor
and the hospital of their choice, and their bills are
reimbursed. Over time, Medicare developed a managed care
alternative so that seniors had a choice. They could choose a
plan that would instead of having Medicare, the Federal
Government, directly pay the bills, insurance companies would
serve as intermediaries and a flat fee would be paid to those
insurance companies, who would then pay the bills for the
recipients within the network.
Over time, we improved that system. We created--and you
will hear this from some of our witnesses--Medicare+Choice. And
that was to improve that system, to ensure the longevity of
Medicare, managed care, and it was, initially, a tremendous
opportunity for beneficiaries. I encouraged my mother and
father, who are still members of the Medicare+Choice Plan to
join because suddenly, when they did, they no longer had to pay
Medigap insurance. They were able to get a very good
prescription drug benefit at no premium. And additionally, had
better dental care, better eye care, access to hearing aids and
so forth that was not available to them under the traditional
Medicare fee-for-service system.
The problem has been that in the last several years, the
payments made by the Federal Government to the Medicare plans
in our region have not been sufficient. That has been partly
the problem of the Congress, it has been partly the problem of
the previous President of the United States. We had lots of
tough negotiations about that, and there is plenty of blame to
go around. The bottom line is that the plans have had to reduce
their benefits over time, and virtually, eliminating the
premium-free prescription drug plans, and they have had to
increase premiums.
To make matters worse, and to add insult to the injury, in
our region what has happened is that beginning in the first of
this year, the plans have charged a significant premium. I
think it is at least $59 in some cases, per month, to the
beneficiaries who happen to reside in the suburbs of
Philadelphia--in Bucks County, in Montgomery County, in
Delaware County, in Chester County--as well as across the river
in New Jersey, while beneficiaries in Philadelphia will not
have to pay this additional premium. That is not fair, that is
not right, and that needs to be fixed, and that is why we are
here this morning.
If it were fixable with a wave of a wand, we would have
done that when the first complaints started to come into our
offices some months ago. It is a complex problem and we are
going to try to understand that problem better than we do this
morning by hearing from our expert witnesses. And then we will
take that information back to Washington and try to fix this.
As I told one gentleman, we will not fix this any earlier than
January 1 of next year. That is, virtually, impossible. The
plans set their premiums and their benefits in the latter part
of the year. They go into effect in January 1. If we work very
hard, if we are very successful and somewhat lucky, we may be
able to improve this system throughout the course of this year
so that when the new fiscal year begins on October 1, the plans
will have enough funds to increase the benefits, and reduce
premiums by next year. No guarantees of that. It is going to
depend upon a lot of cooperation in the House and Senate and
with the President.
That is what we are here for this morning. A question has
been asked as to whether there will be questions allowed or
comments from the audience. I should tell you that that is
normally not possible in a Congressional hearing when those
hearings operate in Washington. We have a finite amount of time
and a finite list of experts from whom we can hear and then ask
questions. We have to be out of here in almost exactly 2 hours
from now, at 11:30, because lunch is served here then, and we
will need to do that. If there is time, if we have heard from
all of our witnesses, if the Members of Congress here at the
panel have had opportunity to ask all of the questions and have
them answered, and we have time, I will try to set up a system
where we can entertain for the balance of our time here this
morning questions and comments from the audience.
With that, I will now yield 5 minutes for an opening
statement to the gentleman from Florida, Mr. Deutsch.
Mr. Deutsch. Thank you, Mr. Chairman, and I won't take 5
minutes. I want to thank you for inviting me to your district.
I went to school not that far from here. I was an undergraduate
in Swathmore College in Delaware County. Representing south
Florida, those of us in south Florida, those who are from
Florida, I would like to say that there are two types of
Americans, those that live in Florida and those that want to
live in Florida. So I am sure some of your constituents will
become my constituents in the not too distant future.
This is, obviously, a very important issue. I am looking at
the numbers. I represent three different counties in south
Florida and we have the same sorts of disparities, so it is a
national issue. And I think it is, clearly, something we can
work together on, and Congress has been working together on it.
I want to thank the Chairman, and I think this community is
really very blessed to have, really, two outstanding Members of
the U.S. Congress who are the epitome of bipartisanship and
working together to try to solve the problems of America. And
knowing the constraints on time, I yield back the balance of my
time.
Mr. Greenwood. I thank the gentleman and recognize for an
opening statement, the gentleman from Montgomery County, Mr.
Hoeffel.
Mr. Hoeffel. Thank you, Mr. Chairman. I want to start by
thanking Jim Greenwood for inviting me. This is an unusual
occasion. I am not a member of this committee, and this is not
my District, and Jim has reached out in a bipartisan way to
include me, to ask me to provide a witness, and we will hear
from Lois Dudley in a minute, from Montgomery County. And I am
very grateful, and I am impressed, and this is the way Congress
ought to work, and it does not always work this way.
So I am glad to be here and glad to be here with Peter
Deutsch as well. And I was going to say before he did, that
many of my constituents will end up his constituents. I didn't
know you were smart enough to have gone to Swathmore, Peter. I
am very impressed with that.
Mr. Deutsch. I was a wrestler so----
Mr. Hoeffel. Oh, he was a wrestler, he says. All right.
Mr. Deutsch. I didn't get there on my brains.
Mr. Hoeffel. I am delighted to be here in Bucks County. I
want to acknowledge someplace in the back, State Representative
Matthew Wright.
Mr. Greenwood. Oh, I didn't know Matt was here.
Mr. Hoeffel. Yes. Wave your hand. I said hello to Matt when
he came in. I served with his father, Jim Wright, when I was in
the State Legislature, the same when Jim Greenwood was in the
State Legislature, and we are in the Jim Gallagher Memorial
Senior Center here, and I served with Jim as well. So I am
delighted to be here today.
My constituents have complained to me just as Jim
Greenwood's have complained to him, and Peter Deutsch's to him,
about the different premiums that they are charged by the
Medicare+Choice providers. I am sure we will hear today of the
disparity in the amount that Medicare pays the providers for
each Medicare beneficiary. In this region, effective March of
2001, Medicare pays providers in Montgomery County $560 per
month per beneficiary; they pay in Bucks County $623 per month
per beneficiary; and in Philadelphia County, $762 per month per
beneficiary, over $200 more than they pay for Montgomery
County.
Now, that may be a very legitimate difference in payments
based upon the cost of providing the service. Philadelphia has
a larger low income population, more teaching hospitals,
hospitals that have more poor people going there, and there may
be legitimate differences that require Medicare to reimburse
differently, county by county.
What Jim Greenwood is saying with his leadership today by
calling this hearing is let us see if we cannot level out the
premiums that are, in turn, charged to the beneficiaries. It is
fine for the Government to pay different rates to the providers
based upon the provider's costs, but it is not so fine in, for
example, the service area of Independence Blue Cross, or any
other healthcare insurer, for the beneficiaries, the customers,
to pay different premiums simply based upon where they live. We
ought to be able to figure out a way in Washington so that a
health insurer charges the same premiums every place within
that insurer's service area, whether it is one county or five
counties, when they are delivering the same product throughout
that entire service area. I think that is the focus of our
concern.
I, again, compliment Chairman Greenwood for holding this
hearing and inviting me, and I yield back the balance of my
time.
Mr. Greenwood. The Chair thanks the gentleman, and we are
delighted to have him join us. I was not aware that State
Representative Matt Wright is here, but I am delighted that he
is. The rules--I have checked with the counsel. The rules of
the House do not permit Mr. Wright to ask questions of the
witnesses, but I have checked; there is no objection to his
coming up and joining us at the panel. So Matt, if you would
like to, you are welcome to come on up here and have a seat at
the front table or you can--or not, as----
Mr. Wright. I am going to stay back here.
Mr. Greenwood. You will stay back with the real people?
Okay.
Mr. Hoeffel. That means he might heckle.
Mr. Greenwood. Okay. With that, we welcome our first of two
panels of witnesses. And they are Ms. Ila M. Kirsch from
Langhorne; Ms. Lois Dudley of Hatboro; Mr. William Blacknell of
Ben Salem; and Ms. Lynn Kopacz, who is a Resident Insurance
Manager of Wood River Village in Ben Salem, as well. We thank
you all for being with us.
You have probably been informed that the committee is
holding an investigative hearing, and when doing so, has had
the practice of taking testimony under oath. I need to ask you,
do you any of you have objections to taking testimony under
oath? So you are all going to be honest with us. That is good.
The Chair then advises you that under the rules of the House
and the rules of the committee, you are entitled to be advised
by counsel. Do you desire to be advised by counsel during your
testimony today? Usually, we are investigating bad guys; that
is why we have to ask these questions.
In that case, if you would please rise and raise your right
hand, I will swear you in.
[Witnesses sworn.]
Mr. Greenwood. Thank you. You are now under oath, and I
would invite, beginning with Ms. Kirsch, you to take 5 minutes
to summarize your testimony. Do the witnesses have microphones?
Ms. Kirsch. Is this okay?
Mr. Greenwood. This is perfect. Thank you very much for
being with us this morning. Can you hear back there now? Okay.
TESTIMONY OF ILA M. KIRSCH; LOIS DUDLEY; WILLIAM BLACKNELL; AND
LYNN KOPACZ, RESIDENT INSURANCE MANAGER, WOOD RIVER VILLAGE
Ms. Kirsch. I went with Aetna U.S. Healthcare 7 years ago,
and my premium was $30. That was fine. I had to get notice from
another doctor to see another doctor, but they canceled all
that out. And gradually, it built up to this year, which is
$50. Now, I can handle that; that is not bad. It is the
prescriptions that is giving me the problem. The first of the
year, Healthcare deleted it entirely. I have to pay 100
percent. It is $111 for 30 pills, and I take two different
prescriptions. It is quite a dig into my check and I can't see
any reason for it to be so high. I mean, it is just awful. I
just hope, you know, that our Government will help us--all the
seniors, not just me, but all of us--to try to get the drug
companies to realize, you know, what a problem this is. And
with your help, maybe it can be done. That is all I have to
say. It is not 5 minutes, but I am sorry.
Mr. Greenwood. When we are in Washington, no one has ever
spoken for less than 5 minutes before so we are delighted and
we will have some questions for you as we proceed.
Ms. Kirsch. Okay.
Mr. Greenwood. Thank you. Ms. Dudley, you are now
recognized for 5 minutes, or so much time as you choose to use.
TESTIMONY OF LOIS DUDLEY
Ms. Dudley. Thank you. Hopefully, mine will not be that
long either. As you can see, I have a tape here. When I was
asked to represent our district, I went back to my records. I
kind of keep a very detailed budget, and I went back and took
last year. And as I have written on this, you know, I started
out with a zero fee, as you had said, and now we are up to $50,
also, my husband and I. And when I spent over what I was
allowed--we always had a bank. It was $1,500 the first year, of
which it would be reduced as I used it. Then it got to $1,000,
then it got to $500, then it got to nothing. So we are doing
the total cost also. And I just looked, and I would have been
spending $675 for the prescriptions that we are using at this
point. We are now spending $2,973, along with the $1,200 fee
now for the two of us, and the $1,200 coming out of our
Medicare. So we have jumped extremely, you know, in our budget.
We are on a fixed income, and it is really very difficult.
Let me show you the problem I had. I said, all right. Now,
I am going to go out and see where I can get the least
expensive drugs. Well, as I wrote on my thing, the pharmacies
will not divulge the cost of the various medicines and is
preventing us from getting the best price. What happened is
when I would call the different pharmacies, they say, well, I
have to have your prescription. Well, I described everything
from the ones I already had. I didn't have a prescription at
that point to take to them, and to run to every pharmacy with
this prescription, then they would tell me what the cost was. I
had no way to prepare. So therefore, I am stuck with whoever I
am getting my medicine from.
Also, the experience my husband had was we went to--we do
not get the company. In other words, we do not have our
Medicare--I am with U.S. Healthcare, also, Aetna U.S.
Healthcare. It is not a company backed where some of my friends
are in it and they do get prescriptions. I do not and neither
does my husband. And so what happens is, not being able to get
the best price, we went with one drug company and they,
literally, told our doctor to change his prescription. Now, you
have a pharmaceutical company, or a prescription company,
telling my doctor what to give my husband. They wanted to
change it. Now, my husband was not able to take that particular
medicine, but it was one they made. And that is a problem when
your doctor is being told--to turn down the doctor's note, that
he could not use theirs, it was accepted, but there is a
problem. It could be sometime where maybe it wouldn't.
So I feel that--I hope I am not going over my 5 minutes,
but I do feel that it is very important that Congress realize
that where there is so much pharmaceutical power, and lobbying,
and money going into campaign, and all that sort of thing, and
they say, well, we need the money for research--let us get a
lot of money into the research and not into this false
campaigning, and let us get some prescription help from
Congress.
Mr. Greenwood. Thank you very much, Ms. Dudley. Mr.
Blacknell. Oh, I am sorry. Let me also recognize--I have been
just notified that State Representative Tony Melio has joined
us. Tony, where are you? Welcome. Thank you for joining us and
thank you for your interest. Mr. Blacknell.
TESTIMONY OF WILLIAM BLACKNELL
Mr. Blacknell. Last December, Congress voted $11 billion
for Medicare HMO's. We saw a rate decrease in our Keystone 65
premiums of $6. ``Congress was assured that every penny would
go to increase benefits and reduce premiums,'' says
Representative Pete Stark of California, a leading Democratic
spokesman on healthcare. With no formal amendment and just
before the bill was brought to the final vote, the wording
changed to allow HMO's another option for spending money. They
would be able to pay more to networks of hospitals and doctors
that provide care for their beneficiaries.
On average, plans can devote 70 percent or more to this
added option. To add to the mix, Keystone 65 says that
providing healthcare for Philadelphia compared to the four
surrounding counties, there is very little difference.
Philadelphia residents who are enrolled in Keystone 65 pay only
for the prescription part of the plan, which amounts to $35 for
generic brands or $65 for brand names. The surrounding counties
may pay an additional $59 per month on top of the 35/65 fee
paid by Philadelphia Keystone members. The HCFA, which
administers the program, has never explained why there is such
a disparity in funding. For example, HCFA funds $762 for each
Philadelphia Keystone member as opposed to only $559 for each
member in the suburbs.
I have been in contact with Representative Greenwood's
office over the past few months and have been told that they
are working on the problem. Why is there a difference in the
way HCFA funds Philadelphia versus the suburbs? Why after years
of zero cost to seniors enrolled in Keystone 65 do we now pay
$89 per month for a generic drug plan and Philadelphia pays
only $35 for the same plan?
Show us the formula that justifies the fee difference
because HCFA's imbalance of funding. This affects myself as
well as other seniors in the following examples. As of January
2001, the annual premium for an individual went from zero to
$1,068. the annual premium for a married couple went from zero
to $2,136, or as high as $2,556 if the brand name plan is
necessary. Not to mention, having a co-pay for doctor visits
and prescriptions.
I have a seasonal job. I am concerned about how I will
manage this financial burden if the day comes when I no longer
am able to work. I would be reduced to a fixed income and
having also to meet the obligations of paying almost $4,000 in
local property taxes. As of now, I don't qualify for State
programs such as PACE, et cetera, unless parameters are changed
to include seniors in my similar situation.
Thank you for allowing me to voice my concerns and opinions
on this very serious matter.
Mr. Greenwood. Thank you very much, Mr. Blacknell, for your
testimony. We appreciate it.
Just to explain the process here, you have asked a lot of
questions about why things are the way they are. In the next
panel, we will begin to get those answers as we ask those
questions of the Health Care Financing Administration and the
insurance company themselves.
Ms. Kopacz. And please speak as directly into the
microphone as you can so everyone in the back can hear.
Ms. Kopacz. How is this?
Mr. Greenwood. That is great. Thank you.
TESTIMONY OF LYNN KOPACZ
Ms. Kopacz. Good morning. My name is Lynn Kopacz. I am an
insurance manager at Wood River Village, a retirement community
in Ben Salem. What I do is help all the seniors at our facility
with their health insurance problems, issues with bills,
premiums, and different plans, which is the best for their
particular physical needs.
With U.S. Healthcare, with the difference in the premiums,
comparisons in premiums, I did find yesterday in Bucks County,
Aetna U.S. Healthcare cost $50 per month. That includes no
prescription drugs. In Philadelphia County, the same plan is a
zero dollar premium. In New Jersey, Mercer County, the same
plan is $93 a month. I did find out in Philadelphia they offer
an additional plan for $40 a month that will give you $500 in
annual prescription costs. However, if you multiply the $40 a
month times the 12 months, you are, actually, paying $480 for
them to give you $500 worth of coverage.
Mr. Greenwood. Less postage.
Mr. Kopacz. Right. When you add in your co-pays, you are
actually paying them. So that is part of the problem. I didn't
get the Keystone premium difference information, unfortunately.
One of the issues I wanted to talk about was the impact of
the decreased prescription benefits and the effect on seniors.
I have one resident that was paying a $30 co-payment for a non-
formulary brand name prescription. When her prescription
benefit was exhausted in April this year, the cost went up to
$130.28 for that one prescription, which was just one of maybe
seven or eight prescriptions she takes. Her total bill did go
to $827.21 for the month.
Another issue we have with the HMO's is the communication
problem. While these seniors here are--I consider them barely
even seniors. They are very young and capable. The average age
at our----
Mr. Greenwood. We are the politicians up here.
Mr. Kopacz. Sorry. The average age at our facility, I know,
last year was 88 years old. So what happens with an 88-year old
person is many other complications. For example, when they need
referrals or they need to compare prescription drug costs, they
cannot hop into their car and drive to Target, and CVS, and K-
Mart, and all the different areas to find different cost
differences. They are, basically, at our facility and have to
get the different pharmacies that we have that deliver to our
facility.
We also have an issue with safety with the many different
number of prescriptions that some of the seniors take. We use a
pharmacy that prepackages medications for them, and that way,
if they need help with their medications, a nurse can come up
on an a.m. and p.m. basis, give them the proper amount of
dosage and pills that they are supposed to take, which also is
an added cost to the seniors, too. And also, it doesn't allow
them to use mail order pharmacies, which can also be a big
savings.
The other issue I wanted to talk about was the
communication issue. Poor vision and poor hearing create
confusion when trying to deal with automated telephone systems,
voice mail, referrals, and pre-authorization requirements. A
situation I had when I was trying to help a resident was I
called Keystone 65, and I was told that all their
representatives were busy, I would have to leave a message, and
I would receive a call back within 24 hours. Three days later,
I got the call back. I was unable to take the call at that
time. They told me this is, basically, your chance, and if you
don't take it, you miss your opportunity, which, unfortunately,
I did. I had to go back through. They told me I had to call the
member services number again and go back through the whole
situation again, leaving frustration. Many of them are very
frustrated, as well as myself. I find it is very frustrating to
have to leave a voice mail message and hope that someone gets
back to you.
Also, there is questionable knowledge of the insurance
company representatives. I have found a situation where I have
called one of the particular HMO's four times on the same issue
and received four different answers. Keystone 65, one of the
problems is they don't have the automated referral system, so
the members are supposed to go to their doctor's office and
pick up their referrals, which is another problem.
And the last thing I wanted to say--I could go on, and on,
and on, because there are so many problems that the seniors are
having with this, with the HMO's. One is the ability to
understand the benefits and make an educated choice based on
the plan comparisons provided by the insurance company. The
information mailed out is lengthy, confusing, and overwhelming.
And I find that I know--I, at one time in my job I did, I used
to interpret contract language for different insurance plans
for union and salaried members, and the information in the
language that they send out in the packets of information does
not include a lot of the information that you need to know, and
there is a very big gray area regarding what is covered, what
is not covered, how to get it, and how to be eligible for the
benefits that you are guaranteed.
I know I have an issue with Keystone 65, someone that had a
hearing aid purchase, and they had to call through to get to
the phone. You first had to get on the phone to get somebody to
mail you out the form that had to be completed to send back in
to get reimbursed. And this took at least three phone calls for
me to get the form to be sent out.
And just one other thing I want to mention, too. I had a
resident who was 90 years old, was informed by her company she
was covered as a retiree for a company she worked for 30-
something years. She was informed this year that they can no
longer afford to supply their retirees with health insurance
benefits, that she would have to find new coverage. She was
paying $87 a month for coverage with prescription costs. We sat
down and went through all of the different Keystone plans and
U.S. Healthcare plans, got a prescription printout from her
pharmacy listing all of her brand name medications, her generic
medications, figured out the actual cost, if we had co-pays, if
they are on the formulary, if they are a preferred brand name
or a non-preferred brand name, and figured out with each
particular plan what the cost would be per month. I don't think
that this 90-year old woman would have been able to do it if I
had not helped her do it.
But interestingly enough, what I did find out as the actual
cost between all of the plans, with U.S. Healthcare included,
not paying any prescriptions was a difference of maybe $20 over
the whole month. So that is, you know--thank you.
Mr. Greenwood. Thank you very much for your testimony.
The Chair recognizes himself for 5 minutes for inquiry, and
let me address my question to you, Ms. Kopacz, if I may. A few
years ago, three or 4 years ago, it seemed to me to be a very--
as I said in my opening statement, a very excellent choice to
choose a Medicare+Choice plan because you saved the money that
you might may a Medigap policy. You get the prescription drug
plan you didn't have access to otherwise, and other health
benefits as well. As the prescription drug benefit has vanished
for most intents and purposes, and as the premium has now
climbed to $50 a month, help me with the math. At what point--
is it still advantageous for most beneficiaries to remain on
the managed care plan as opposed to going back to fee-for-
service where they would have no--they wouldn't pay the premium
but, of course, they would either have to go out and buy a
Medigap policy or take the risk of paying out of their pocket
for what Medigap covers should they need it? How do you advise
your residents as to whether they are better off on a fee-for-
service plan or a Medicare+Choice plan?
Ms. Kopacz. Well, actually, what I found is that each
individual person differs. And like I said, with this
particular woman, we had to--and this is what I have done with
everyone. I get a printout of all of their pharmacy costs for
the month. You have to compare how many generic they have, how
many brand name they have, what is the actual cost, are they on
the formulary, will it cost them $25, $10, $15, is there
unlimited coverage. Every person really differs based on the
amount of brand name prescriptions that they actually take.
Actually, it gets to the point of even how many specialists you
have to go to, a $20 co-pay versus a $10 co-pay. When you are
on a fixed income, $3 makes a big difference. And I find that
people are willing to change their insurance plan based on a $3
co-pay extra per month.
What I found with this particular one, like I said, that
she, even with no prescription coverage, the cost of her--which
is minimal. She takes a minimal amount of prescriptions. What I
am finding is the average cost per month with no insurance is
$500, I would say, average that seniors are paying. This woman,
in particular, only has seven medications. Her total was
$190.29 per month. So adding in the premiums, deducting her co-
pays, figuring out if it is generic formula, or nonpreferred,
or preferred, it came to a difference of $20 between plans.
However, with people that are on a high cost brand name
prescription usually exhaust the benefit in the first 2 months
of the year and end up, they are paying the additional premium
of $90, $130 in some cases, a month, plus they end up paying
for the last 10 months of the year the actual cost of the
plan--I mean, the actual cost of the prescriptions.
Mr. Greenwood. Thank you very much. And obviously, your
residents are very fortunate because they have you to, with all
of your experience and ability, to come and walk them through
this very complex process. The average senior out there may
find that an overwhelming process to make all of those
calculations and decide what is the best choice.
Let me direct a question to Ms. Kirsch, and I am going to
ask Ms. Dudley and Mr. Blacknell to answer as well. Can you
give us a sense of now that you are having to pay these
additional burdens, both for your premium and prescription,
what has that done to your budget at home? What are you doing
without that you might have enjoyed otherwise?
Ms. Kirsch. Well, what I do is I put it----
Mr. Greenwood. Before you respond, I am going to ask that
the microphone be sent down to you, and if you will speak
directly into it, some of my staff are hard of hearing and I
want to make sure that they can hear.
Ms. Kirsch. Okay. What I do is I put it on my credit card,
because with the two of them, it comes up to $254 a month.
Mr. Greenwood. What do you put on the credit card, the----
Ms. Kirsch. My prescriptions.
Mr. Greenwood. The prescriptions.
Ms. Kirsch. At the drugstore, I give them my credit card,
and then when my bill comes in, I pay half of it. And then the
next month, I pay the other half. That is the only way I can
see to do it. Then I don't put out all that money at one time.
Mr. Greenwood. But if I do the math then, what happens is
your credit card balance is going to grow month by month by
month.
Ms. Kirsch. Exactly.
Mr. Greenwood. So you are, basically, plunging yourself
into debt just to take the medications.
Ms. Kirsch. I just started doing that. I don't like to do
it. I hate it. It worries me. But what else can I do? I can't
expect my kids--I won't let my kids do this, you know. They
have their families, and I just won't do it. So I just try to
go along and do it that way. And also, I went with three
different mail order companies. And right now with Pace, the
price has not dropped one cent. It is still up to $101 for one
prescription. I thought with Pace I would get a break. NO.
Mr. Greenwood. Well, do you qualify for the Pace program or
the Pace net program?
Ms. Kirsch. Yeah, I have the card. I sent in my form. I
sent in everything that they needed, and I don't understand
that. Of course, there is no generic for what I take. I take
cholesterol and high blood pressure, and the doctor said I have
to take it, but there is no generic so I don't get a break on
the cost.
Mr. Greenwood. Okay. Ms. Dudley, can you comment? If you--
it is a fairly personal question, but I am trying to get a
sense of what this has meant to your lifestyle.
Ms. Dudley. Yes, it has changed mine, but I have taken it
out of many other funds and switched it into the medical fund.
And we don't know--I don't know if I have enough in there. I
have to wait until the end of the year to see how I am coming
up. But I agree with what you are saying, if you can't get the
generic--and I was on Brocardia and there was no generic. It
has just become generic, and so there is a huge difference in
the money on that particular--but I did want to answer when you
said about is it still advantageous to say in the managed care
versus going to fee. My husband told me that on his visit that
he has to take twice a year because he has a heart problem, it
is $250. So now, you take $250 twice, you have $500. He is
paying $600 into managed. And so that is just for those two
visits. That is not for anything when he goes to the heart
doctor. And so you can see, we stay in it just only for that
reason at this time. We haven't found that it would be--to drop
out. Otherwise, everything else is gone, the help for all kinds
of aid. Dental is definitely gone. There is nothing in that
line. So we do pay quite a high fee for that.
But that is what I had to do with my budget. I had to
really take from other things that I have allotted and put it
into the medical. And with the fuel, it is going to happen with
utilities also. So it does come out of food, it does come out
of entertainment, which we do very little of, and you wonder
where it is going to come from. And I am sorry to hear that you
have to put that on a credit card, because it is going to
snowball with the interest.
Mr. Greenwood. Thank you. Mr. Blacknell--would you pass the
microphone over--and could you respond to the same inquiry as
to how this has affected your family budget?
Mr. Blacknell. Well, as I mentioned, I have a seasonal job,
approximately, I work 6 months to 6\1/2\ months. What I tried
to do is I went to the Veterans Administration, and there you
can get 90 days supply for $6, except that they don't carry all
drugs. My cholesterol is great, but my good cholesterol is
low--it is always something. So anyhow, they don't have it, so
you have to go out and pay for it. And I won't mention the two
stores, but one was $76 for a month's supply and the other was
$65. So there is a disparity there, which sort of ties in with
what they are saying. And that is, basically, it for now. But
as I mentioned, when I stop working, I will be in a different
category.
Mr. Greenwood. That is great to shop around, but I think it
was one of these ladies--was it Ms. Dudley--said that if they
won't give you the information over the telephone, it is an
impossible task to drive to ten different pharmacies to find
out which one has the best price.
Mr. Blacknell. Well, as it happened with me, I just went to
one, and I paid for the prescription, and I just happened to go
to another one after the usage of that and found out it was
more advantageous to go to that drugstore.
Mr. Greenwood. Very well. Mr. Blacknell mentioned the
Veterans Administration. Of course, the problem is that if you
go to the, or call the VA in this area to schedule an
appointment at the Willow Grove Base, for instance, so that you
can qualify, because you have to get a physical, you are told
there is almost a year's wait before you can even get it. And I
want to let you know, let everyone know here, that this is
something I am very involved in. We have a meeting at 2, I
think it is this afternoon, or tomorrow afternoon at 2, with
the VA and with the Captain at the base, and some others, and
we are going to try to find a location where we can expand the
facilities at the base so that we can bring more nurses and
other personnel in there so we can get these physicals done
more quickly so we can get those who qualify for the VA
benefits on that prescription plan sooner rather than later.
Thank you all. And now we will turn to Mr. Deutsch for 5
minutes for his questions.
Mr. Deutsch. Thank you, Mr. Chairman. I am trying to get a
sense in this community, and I guess what I have heard is that
there are no Medicare+Choice providers that provide any type of
prescription drug coverage in this period?
Ms. Dudley. Unless you are with a company.
Mr. Deutsch. And when, just for whoever can answer, when
did that change?
Ms. Kopacz. The first of the year.
Mr. Greenwood. Don't forget to--I am sorry that we don't
have four microphones, but if you would just always pass the
microphone back so that the folks in the back can hear, please.
Ms. Kopacz. In our particular area, Keystone 65 does offer
four different plans, and each increase is, you know, premium
increases with the actual amount of benefit they give you for
your prescription drugs.
Mr. Deutsch. So that changed as of January 1, but what are
the four plans?
Ms. Kopacz. There are four different plans. The first plan
has no prescription coverage, is $59 a month. Drug Option 1 is
$89 per month, covers unlimited generic drugs with a $10 co-
pay, no brand name prescriptions. Unfortunately, most people
need the brand name prescriptions. Drug Option 2 is $124 per
month, unlimited generic, $10 co-pay, brand name prescription.
Here is the catch on this. $750 brand name prescription, $10,
$15, $25 co-pays with a formulary. It is limited to $375 every
6 months. Drug Option 3 is $136 per month. They give you
unlimited generic with a $10 co-pay, $1,000 in brand name
coverage, $500, broken down into $500 every 6 months, with the
$10, $15, $25 co-pays with the formulary. Formulary is very
confusing, it is very hard to understand. I, myself, cannot
even find half of the medications that the doctor orders on
there. I don't know if there is different names, or if they are
generic, or what the situation is with that.
Mr. Deutsch. So I guess the bottom line, though, is that if
you live here in this community, and you have high prescription
drug cost, and you are a middle class senior, you are in
serious trouble.
Ms. Kopacz. Yes, that is exactly----
Mr. Deutsch. I mean, that is the bottom line.
Ms. Kopacz. Yes.
Mr. Deutsch. And I mean, prior to January 1, you did have
an option, but you really don't have that option anymore?
Ms. Dudley. No.
Mr. Deutsch. And so I mean, as a practical sort of thing,
you know, what are you telling your friends, what are you doing
as choices? I mean, you are making the choice. You talked about
less entertainment, less food, putting things on credit cards.
I mean, are those the options that seniors--is practical? And
let me tell you again, I mean, one of the--in Philadelphia, if
the people here lived in Philadelphia, what would the choices
be?
Mr. Blacknell. It would be $35 for the generic or $65 for
the brand name.
Mr. Deutsch. And would that be total coverage for brand
name drugs, similar to prior to January 1?
Mr. Blacknell. Well, that is the question.
Mr. Deutsch. I mean, I don't want to, you know, recommend
anyone do something improper or illegal, but do you have
friends who are using addresses in Philadelphia to get
prescription drug coverage?
Mr. Blacknell. No, not that I know of.
Ms. Dudley. We don't like to do that.
Mr. Deutsch. I wouldn't recommend it to anyone but, you
know, given the choice of survival--I mean, I think seniors
start doing things that maybe we don't want them to do.
Ms. Kirsch. They catch up with you then.
Mr. Blacknell. Anything is possible.
Mr. Deutsch. Let me talk about that in a direct sense also,
because one of the things Congress is, in fact, you know,
addressing--and our committee, actually, has jurisdiction over
it--is the idea of having prescription drug coverage as a
benefit of Medicare, you know. Just to give people some sense
of that, you know, there are some interesting statistics about
Medicare. One is that prior to when it was created 36 years
ago--and there are two interesting statistics that I like to
mention, occasionally. One interesting statistic is the average
life expectancy for Americans 36 years ago was 65 years old.
The good news is 36 years later, it is over 80 years old. So in
a period of 36 years, we have had a real high class problem,
people living a lot longer. One of the reasons they are living
a lot longer is prescription drugs, as a variety of other
things as well. But one of the things that is clear is if we
were today creating a Medicare system, it is 100 percent
certain we would include prescription drug coverage. You
couldn't conceive of a healthcare system without prescription
drug coverage today.
I think the truth of the debate of what is going on is who
should that prescription drug coverage cover, and there have
been different proposals. And this is where I think, you know,
a real debate is going on in Congress because, unfortunately,
the President has made a proposal that limits that coverage to,
really, low income seniors. And the threshold level in many
cases is $15,000 a year as total income. Mr. Blacknell
mentioned, you pay $4,000 a year in property taxes. And
whatever else--if you are talking about your premium and other
things, I don't think--you know, at what level, you know, is it
appropriate. I mean, you know, what level is appropriate for--
my perception is that it should apply to all Medicare
beneficiaries, and I think that is really the debate.
So maybe if you can comment--I mean, if Congress does
implement the prescription drug plan, do you think there should
be an income standard for that or, I mean, should it be part of
Medicare as a whole?
Ms. Kopacz. I just want to comment that, actually, when
President Bush was running for president, he was stating that
they didn't feel that Government wanted--or the people didn't
want Government involved in their prescription drug plans. I
went back to Wood River Village and did a spreadsheet on how
many people, the people that lived at Wood River Village, which
is a retirement community. You have to have a little bit of
money to get in there. I did a comparison of how many people
actually did have prescription drug coverage. What I found was
that not including the HMO's, because they were at that time
giving prescription coverage, the people without coverage
worked out to about 65 percent of the people, of seniors, had
no coverage; 4 percent actually qualified for Pace; 22 percent
did have coverage through a private company, and they were all
government workers. It was the Federal employees, teachers, and
Bell Atlantic. And besides that, the majority of the people did
not have any prescription coverage.
Mr. Deutsch. Does anyone else want to comment? I mean, if
we are going to implement prescription drug coverage for
Medicare, do you believe there should be income standards?
Ms. Dudley. Absolutely. It should be every--and that is my
opinion. Because what happens when they put this cap on your
income, it is never in with the middle. It is always for some
very poor, which I would hope that they would be able to get
their prescriptions, period, without having to pay if they have
no money. And I am not asking for a free ride, and I don't
think many of us are. We don't mind contributing toward
prescriptions, but it has to be a reasonable, and it needs to
be to cover all the drugs. And I can understand how people are
running to Canada. I mean, Ananan printed their address, and
believe me, I saved it, of where in this country we can join
this group to go to Canada if it gets that bad. I don't want to
do that; we shouldn't have to.
Mr. Deutsch. I could tell you you can come to Florida,
because the HMO's there still provide a prescription drug
coverage. That is one more reason to move.
Let me mention, though, one final thing, and that is, you
know, this threshold amount of $15,000. I mean, do you consider
that, you know, a threshold amount that is appropriate in terms
of, you know, seniors. I mean, it is sort of if you have more
than $15,000, can you afford to pay for your prescription drugs
in terms of income? And it is actually--I think it is $17,000
for a couple. I mean, what does that mean in the real world of
seniors living in this community?
Mr. Blacknell. The VA, their threshold is $27,000. So there
is a $10,000 difference; they are in the real world.
Mr. Deutsch. Okay. All right. Thank you very much.
Mr. Greenwood. The Chair thanks the gentleman for his
questions. If I may insert an editorial opinion, what we are
likely to do in the Congress, and what the House of
Representatives did last year and the Senate didn't get to, is
pass legislation that would provide at the lower tier, 130
percent of poverty or thereabout, that it would, basically, pay
for everything. There would be no co-pays, there would be no
premiums, and the drug benefit would be covered. What we are
fortunate--and then above that, there would be more of a
sharing between what the Federal Government pays and what the
beneficiary pays. We are fortunate here in Pennsylvania because
we do have this very strong Pace program that right now is
focused entirely on the lower income folks of Pennsylvania. The
idea is that if the Medicare Program steps in and covers
entirely the lowest income residents of Pennsylvania, then the
Pennsylvania legislature and our Governor will be able to use
the lottery monies that are now used for the Pace to now pay
for the middle class to help make up the difference between
what Medicare pays and what the beneficiaries pay. So because
we have such a strong program in Pennsylvania, no matter what
we do in Washington, Pennsylvanians will probably fare better
than most.
The Chair recognizes for 5 minutes the gentleman from
Montgomery County, Mr. Hoeffel.
Mr. Hoeffel. Thank you, Mr. Chairman. I wanted to ask Ms.
Kirsch, Ms. Dudley, and Mr. Blacknell to respond to some of the
comments of Ms. Kopacz, who seemed to strike quite a nerve--I
saw lots of heads nodding up and down when she was talking--
regarding when you try to compare Medicare+Choice plans, you
get confusing information, automated messages, it is difficult
to communicate, bureaucratic hurdles, confusing differences in
plans. Have the three of you experienced something like that?
Ms. Dudley. We were in, as I said, Aetna U.S. Healthcare.
We wanted to make a change because we weren't--we were told we
weren't going to get the prescription coverage, or we were
having a reduced prescription coverage. So the man from
Keystone came out. He had his whole spread. None of my
husband's medications were on that, none of them. So that ended
Keystone.
Mr. Hoeffel. And most of the difficulty is over the
prescription coverage?
Ms. Dudley. That is absolutely right.
Mr. Blacknell. My wife is with Aetna, and on prescriptions,
she takes Libertore, and she received a letter asking her to
take the generic two times, and her doctor insists that
Libertore does the job for her. And the formulary and----
Mr. Hoeffel. What was the upshot of that? How did you
resolve that problem?
Mr. Blacknell. Well, it is still the same. She is taking
Libertore. They never got back again and said, you know--it is
a must.
Ms. Dudley. That wasn't even on Keystone.
Mr. Blacknell. Well, she is Aetna.
Mr. Hoeffel. And is that being covered?
Mr. Blacknell. Pardon?
Mr. Hoeffel. Is Aetna covering that?
Mr. Blacknell. Yes, but she had received two letters from
them stating she should be taking whatever, the generic or
whatever brand it was.
Ms. Dudley. Well, are they covering it now with the no
prescription----
Mr. Blacknell. Yes, they----
Ms. Dudley. Oh, then you have something different.
Mr. Blacknell. They never got back to her and said, you
know, you must change.
Mr. Hoeffel. So you felt some pressure from them, but they
have continued to cover it?
Mr. Blacknell. Right.
Mr. Hoeffel. All right. Ms. Kirsch?
Ms. Kirsch. I just take two pills, Flexeril and high blood
pressure. They are both over the counter drugs. And my doctor,
I asked him. I said, can I go generic? He said, I will tell you
the truth, there is no generic, so I had no choice. That is
what it has to be.
Mr. Hoeffel. Have you had problems trying to figure out
what coverage is best for you?
Ms. Kirsch. No. I only take the pills, I have no fatal
disease.
Mr. Hoeffel. I am glad to hear that.
Ms. Kirsch. I just went along with what they said.
Mr. Hoeffel. Let me ask the panel this question regarding
prescription coverage. There were two basic plans offered in
Congress last year, one that would have extra dollars given to
the insurance industry to encourage them to offer drug policies
that seniors could then evaluate and choose the policy that
provided them with the best prescription coverage. The other
plan was to simply put a prescription drug plan into Medicare
where it would be a universal plan, the same for everybody,
with significant co-pays. I don't want you to respond to the
differences in cost here. I am trying to determine what the
best method is, whether we should be encouraging the private
insurance industry to be providing drug only policies that you
could evaluate and choose or would you prefer a Medicare
prescription coverage that you would take your card to the
pharmacy and pay your share of that plan based upon the
economics, but not have to deal with private insurance
companies? Do the three of you have a view of that choice?
Ms. Dudley. I definitely have a view on that. Definitely,
absolutely, no question, it should be through the Congress
because, first of all, you have the profit making institutions,
and some how or other, that gets deteriorated. The money gets
allotted to things that it shouldn't be allotted to and it is
going to go and it is going to change. If it is mandated in
Congress for everybody, at least you have a chance.
Ms. Kirsch. Yes, I heartily agree with that.
Mr. Blacknell. I have never been in Medicare, so I don't
know as far as that. But I think if it was administered by the
Government, it would probably be better.
Mr. Hoeffel. All right. Thank you. I thank you very much
and I yield back my time.
Mr. Greenwood. The Chair thanks the gentleman, and we thank
the witnesses very much for coming here this morning and for
your testimony. It is very helpful and we will take it to
heart. You are excused and we call forward the next panel.
And they are Ms. Judy Berek, who is the Administrator for
the Northeast Consortium of the Health Care Financing
Administration; that is HCFA, Medicare; William F. Haggett,
Senior Vice President, Government Programs, Independence Blue
Cross; Dr. Sandra Harmon-Weiss, the Head of Government Programs
for Aetna U.S. Healthcare; and Dr. Scott Harrison, who is
Research Director for Medicare+Choice of MedPAC.
Thank you all for being here. I appreciate your presence
this morning. Let me, as I did with the first panel, note that
I am sure that you are aware that the committee is holding an
investigative hearing, and in doing so, has had the practice of
taking testimony under oath. Do any of you have objections to
taking testimony under oath? Hearing none, the Chair then
advises you that under the rules of the House and the rules of
the committee, you are entitled to be advised by counsel. Do
you desire to be advised by counsel during your testimony? The
answer is no. In that case, would you please rise and raise
your right hand, and I will swear you in.
[Witnesses sworn.]
Mr. Greenwood. So saying, you are now under oath, and you
will be recognized to give a 5-minute summary of your written
statement, and we will begin with Ms. Berek from the Health
Care Financing Agency. Thank you for being with us this
morning.
Oh, and let me, before I take your testimony, let me ask
unanimous consent to enter into the record the letter that I
sent to the Health Care Financing Agency requesting
reimbursement data in Bucks and Philadelphia Counties, and
HCFA's response to me, and the chart that I prepared on
Medicare+Choice spending to my left. Without objection, those
documents will be entered into the record.
[The documents follow:]
[GRAPHIC] [TIFF OMITTED] T3736.001
[GRAPHIC] [TIFF OMITTED] T3736.002
[GRAPHIC] [TIFF OMITTED] T3736.003
[GRAPHIC] [TIFF OMITTED] T3736.004
[GRAPHIC] [TIFF OMITTED] T3736.005
[GRAPHIC] [TIFF OMITTED] T3736.006
[GRAPHIC] [TIFF OMITTED] T3736.007
[GRAPHIC] [TIFF OMITTED] T3736.008
[GRAPHIC] [TIFF OMITTED] T3736.009
[GRAPHIC] [TIFF OMITTED] T3736.010
[GRAPHIC] [TIFF OMITTED] T3736.011
[GRAPHIC] [TIFF OMITTED] T3736.012
[GRAPHIC] [TIFF OMITTED] T3736.013
[GRAPHIC] [TIFF OMITTED] T3736.014
[GRAPHIC] [TIFF OMITTED] T3736.015
[GRAPHIC] [TIFF OMITTED] T3736.016
[GRAPHIC] [TIFF OMITTED] T3736.017
[GRAPHIC] [TIFF OMITTED] T3736.018
[GRAPHIC] [TIFF OMITTED] T3736.019
[GRAPHIC] [TIFF OMITTED] T3736.020
[GRAPHIC] [TIFF OMITTED] T3736.021
[GRAPHIC] [TIFF OMITTED] T3736.022
[GRAPHIC] [TIFF OMITTED] T3736.023
[GRAPHIC] [TIFF OMITTED] T3736.024
[GRAPHIC] [TIFF OMITTED] T3736.025
[GRAPHIC] [TIFF OMITTED] T3736.026
[GRAPHIC] [TIFF OMITTED] T3736.027
[GRAPHIC] [TIFF OMITTED] T3736.028
[GRAPHIC] [TIFF OMITTED] T3736.029
[GRAPHIC] [TIFF OMITTED] T3736.030
[GRAPHIC] [TIFF OMITTED] T3736.031
[GRAPHIC] [TIFF OMITTED] T3736.032
[GRAPHIC] [TIFF OMITTED] T3736.033
[GRAPHIC] [TIFF OMITTED] T3736.034
[GRAPHIC] [TIFF OMITTED] T3736.035
[GRAPHIC] [TIFF OMITTED] T3736.036
[GRAPHIC] [TIFF OMITTED] T3736.037
[GRAPHIC] [TIFF OMITTED] T3736.038
[GRAPHIC] [TIFF OMITTED] T3736.039
Mr. Greenwood. You are recognized for your testimony, Ms.
Berek. Thank you.
TESTIMONY OF JUDITH BEREK, ADMINISTRATOR, NORTHEAST
CONSORTIUM, HEALTH CARE FINANCING ADMINISTRATION; WILLIAM F.
HAGGETT, SENIOR VICE PRESIDENT, GOVERNMENT PROGRAMS,
INDEPENDENCE BLUE CROSS; SANDRA HARMON-WEISS, HEAD, GOVERNMENT
PROGRAMS, AETNA U.S. HEALTHCARE; AND SCOTT C. HARRISON,
RESEARCH DIRECTOR, MEDICARE+CHOICE, MEDPAC
Ms. Berek. Thank you, Chairman Greenwood, and Congressmen
Deutsch and Hoeffel, for holding this hearing. And thank you
for inviting me to discuss the Medicare managed care program,
Medicare+Choice.
Medicare+Choice offers Medicare beneficiaries a range of
health plan options and allows them to choose the types of
health plans that bet suit their individual needs. Both
Secretary Thompson and the new HCFA Administrator, Tom Scully,
will be placing a high priority on working with you and other
Members of Congress to revitalize the Medicare+Choice program.
Just this week, Secretary Thompson gave Medicare+Choice plans
the extra time they have been asking for to prepare and submit
benefit proposals and to make their participation decisions for
next year.
The Balanced Budget Act of 1997, which is often just called
BBA, and subsequent amendments to that law, have reduced the
substantial geographic variation in county payment rates that
existed under the previous Average Adjustment Per Capita Cost,
or AAPCC, which is the classic jargon term for how we pay
managed care plans methodology.
In the first chart, which my Vanna White has put up there,
you will see that in 1997, the county with the highest payment
rate in the country was Richmond County. And for those of you
who would like that decoded, that is Staten Island. Richmond
County is Staten Island, New York for those of you who want to
know where it is. And the lowest payment rate in the country
was Arthur County in Nebraska. And you will see that in 1997,
the ratio was 3.47. In other words, the rate was 3.47----
Mr. Greenwood. That microphone is very directional. You
might want to hold it in your hand, take it from its stand and
hold it in your hand, and that should make it----
Ms. Berek. Is it working now? Okay. Richmond County was
3.47 times higher than the rate in Author County. Now, in 2002,
we have reduced that variation so that although it is now $856
in Richmond, it is $500 in Arthur County. And one of the goals
of the BBA was to reduce that difference. This chart also
highlights how reductions within States were reduced, and you
will notice that in Nebraska, in 2002, the very highest rate in
Nebraska was $433, and the lowest rate in Nebraska was $221,
and it has now been narrowed so there is only a $53 difference.
And if you look at New York, you will see that the lowest
county, which is Lewis County, where the rate was $303 in 1997,
is now $500, and so the difference, again, was dramatically
reduced.
Although the BBA reduced payment variation in the
Medicare+Choice payment, the payment between counties still
varies. The second chart that Paul, AKA Vanna, is putting up,
shows you the difference between Bucks and Philadelphia
Counties and the underlying utilization difference between the
counties. And I hope this hopes to answer some of the questions
raised.
And if you look at in 2002, we have two ways of calculating
the rate. One is based on the demographics, which looks at the
age rates in the county, and if you look at Bucks and the
utilization, the cost in that way would be $629, and in
Philadelphia it would $769, where the difference is 22 percent.
We are, gradually, modifying the way we pay using a risk rate
where, if you look at Bucks County, the cost would be $586 if
it were risk adjusted and in Philly, it would $671, and the
difference is 14 percent. And those two rates are blended,
actually, in the payment rate.
But to look at the underlying reason for some of that
difference, you need to look at the lower half of the chart,
which shows you the utilization rate in terms of--and this
answers the question of why we pay more money in Philadelphia
County, because the formula requires us to pay based on the
historic costs, which are driven in this case by utilization.
And in fact, people in Philadelphia County use hospitals 27
percent more, they use home health agencies 60 percent more,
skilled nursing facilities 22 percent more, physicians 4
percent more, DME, Durable Medical Equipment, 50 percent more,
and interestingly, hospice services 13 percent less. But in
everything but hospice services, you will notice that the costs
are much greater than Philadelphia, and that is the underlying
reason.
The difference--we know the differences in payment rate can
be very frustrating for Medicare beneficiaries, but this is the
way the law is written. We have to use the data that produces
this in order to calculate the rates.
Before I conclude, I would like to briefly highlight some
of the resources available to help beneficiaries understand
health plan options. We have a wealth of resources available,
including a Medicare+Choice handbook, which is sent to all of
you annually. We have a toll free number, 1-800-MEDICARE. We
have information on our web site, which is an award winning
website called www.Medicare.gov, and all of those locations
will provide information to you. I know that our new
administrator is very committed to improving the quality of our
800 number and making it a 24-hour-a-day number, if possible.
We also have a State Health Insurance Counseling program,
which is run by grants from HCFA to the State of Pennsylvania,
and there are individuals available who will counsel people one
on one. For those of you who are here who have individual
personal questions, we have two people here from the
Beneficiary Services Branch in HCFA. They are Pamela Bragg and
Sue Pellella, and they are here to handle any questions you may
have, individually, after this hearing is over. We have two
people here from our managed----
Mr. Greenwood. Would those individuals identify themselves
in case there are questions? Okay. These two ladies in the
front row.
Ms. Berek. And we have two people here from our Managed
Care Branch, John Waylan and Sharon Graham, and they will also
be available to help anyone with any individual problems. And
to those of you who have some really technical questions that I
can't answer, Bob Donnelly, who is the Director of our Division
of Program Policy for Medicare Managed Care is also here with
me today. So if any of us can help you, we will be happy to.
[The prepared statement of Judith Berek follows:]
Prepared Statement of Judy Berek, Regional Consortium Administrator,
Health Care Financing Administration
Chairman Greenwood, Congressman Deutsch, other distinguished
members of the Subcommittee, thank you for inviting me to discuss the
history and current status of the Medicare managed care program,
Medicare+Choice. Medicare+Choice offers Medicare beneficiaries a range
of health plan options, including the traditional fee-for-service
Medicare program, and allows them to choose the types of health plans
that best suit their individual needs, according to the options offered
by the plans. It provides valuable alternatives to traditional fee-for-
service Medicare, and we are committed to strengthening this program.
Our new Administration, both Secretary of Health and Human Services
Tommy Thompson and Health Care Financing Administration (HCFA)
Administrator Tom Scully, will be placing a high priority on protecting
and improving Medicare+Choice. For instance, this week, Secretary
Thompson gave Medicare+Choice plans the extra time they have been
asking for to prepare and submit benefit proposals and to make
participation decisions for next year. Health care costs in recent
years have been less predictable, as have decisions by providers to
contract with Medicare+Choice plans. This action will allow plans more
time to collect information on their costs and determine the viability
of their provider networks before having to make decisions about their
benefit offerings and service areas for next year. We are committed to
working with you and health plans toward our goal of making more health
plan options available to our beneficiaries in all parts of the
country, while helping beneficiaries to better understand these
options.
Medicare has a long history of offering alternatives to the
traditional Medicare fee-for-service program to our beneficiaries. In
the 1970's Congress authorized Medicare risk contracting with managed
care plans, and in the 1980's Congress modified the program to make it
more attractive to managed care companies. Under that program, HMOs
contracted with Medicare to provide the full range of Medicare benefits
in return for monthly ``per person'' or ``capitated'' payment rates. In
the Balanced Budget Act of 1997 (BBA), Congress created the
Medicare+Choice program to correct perceived flaws in the risk
contracting program, including payment differences. Since then,
Congress has refined the Medicare+Choice program through the Balanced
Budget Refinement Act of 1999 (BBRA) and the Medicare, Medicaid, and
SCHIP Benefits Improvement and Protection Act of 2000 (BIPA).
Today, 64 percent of all Medicare beneficiaries have access to a
Medicare+Choice option; and about 5.5 million, or about 15 percent of
all Medicare beneficiaries, have chosen to enroll in a Medicare+Choice
plan. As was the case with the risk contracting program prior to the
BBA, payments under the Medicare+Choice program vary by county, and
plans have the option of varying their additional benefits or premiums
from county to county. The differences in benefits across the country
and between adjacent counties was an issue with the risk contracting
program, and remains an issue with the Medicare+Choice program today.
background
Medicare pays for the health care of almost 40 million
beneficiaries, involving nearly one billion claims from more than one
million physicians, hospitals, and other health care providers. As the
administrator of this program, the Health Care Financing Administration
(HCFA) oversees Medicare's various health care plan options, including
the Medicare+Choice program. For beneficiaries in Medicare+
Choice, we ensure access to providers, approve promotional materials,
and calculate capitated payment rates. Before the BBA became law in
1997, Medicare calculated capitation rates under a methodology known as
the Adjusted Average Per Capita Cost, or AAPCC.
Under the AAPCC methodology, we determined, for each county, the
average per person cost for fee-for-service Medicare beneficiaries
living in that county. Health expenditures were not attributed to the
county where services were provided, but to the county in which the
beneficiary lived. For example, if a beneficiary living in Bucks County
received a service in Philadelphia, that expenditure was included in
the AAPCC for Bucks County. The per capita amounts were then
``standardized'' to account for differences between the demographic
characteristics of Medicare beneficiaries in the county and the
demographic characteristics of Medicare beneficiaries across the
nation. Additionally, capitation rates were set at 95 percent of the
AAPCC, with the 5 percent reduction reflecting the assumption that
managed care plans could achieve savings through discounts and more
efficient management of health services. The following example
illustrates how payment was made:
----------------------------------------------------------------------------------------------------------------
Demographic Demographic Monthly county Monthly
Factor, Factor, capitation rate * payment per
Part A Part B factor person
----------------------------------------------------------------------------------------------------------------
Male, non-institutionalized, Age 65 to 69 1.15 1.10 Part A: $ 422.05 $651.55
Medicaid eligible Part B: $ 229.50
Female, non-institutionalized, Age 80 to 84 1.70 1.25 Part A: $ 623.90 $884.70
Medicaid eligible Part B: $ 260.80
----------------------------------------------------------------------------------------------------------------
Under the AAPCC method, Medicare capitation rates varied widely.
Since county fee-for-service costs were used to calculate county
capitation rates, the rates reflected differences among counties in
fee-for-service health service usage and payment levels. In addition to
the substantial variation in rates across the country, there were a
number of other concerns with the AAPCC payment method, including:
<bullet> Payment rates changed unpredictably from year to year in each
county, based on fee-for-service costs in each particular
county;
<bullet> Payment rates could vary widely across adjoining counties;
<bullet> Generally, rates were lower in rural areas; and
<bullet> Hospitals were concerned that HMOs did not compensate them for
medical education like fee-for-service Medicare.
recent changes to aapcc
In the BBA, Congress replaced the risk contract program with
Medicare+Choice. The BBA modified Medicare+Choice payment rate
calculations to address a number of concerns with the AAPCC
methodology. It broke the direct link to fee-for-service spending in a
county, and moved to reduce wide disparities in county capitation rates
by bringing both high and low payment rates closer to the national
average payment rate. In addition to adjusting the payment rates based
on demographic factors, the BBA required payment rates to be adjusted
for beneficiary health status, sometimes referred to as a ``risk
adjusted method'' of payment. It also provided direct payments to
teaching hospitals for Medicare+Choice patients to ensure these
hospitals were receiving appropriate medical education payments for
their Medicare managed care patients. The BBA also mandated that the
1997 AAPCC rates would serve as the basis for the Medicare+Choice
rates, and the rates for particular counties would be equal to the
largest one of three amounts:
1. Minimum 2 percent increase over the prior year's rates, which
protected high payment areas as the medical education
reductions and reductions in geographic disparities took
effect.
2. Minimum amount or ``floor'' amount that increases rates in
historically lower-rate counties where Medicare managed care
plans generally have not been offered. Beginning in 1998, the
BBA set the floor rate at $367; this floor has been adjusted
annually by the rate of growth of the overall Medicare program.
3. Blended amount, which is calculated by blending county and national
rates, thus increasing rates in historically lower-rate
counties while reducing rates in historically higher-rate
counties. Each year, from 1998-2003, a greater percentage of
the payment amount is based on the national rate, until a 50/50
blend is reached. The blend percentage for 2001 was 66 percent
county and 34 percent national rates. The ``national rate'' for
each county is calculated by adjusting the national rate by
each county's Medicare hospital wage index and geographic
physician practice cost index.
additional benefits and premium reductions
As was the case under prior law, the BBA requires plans to compute
whether their projected Medicare revenues, based on Medicare capitation
payments, will exceed their projected costs for providing Medicare
services (excluding Medicare deductibles and coinsurance). If revenues
exceed costs, the plan must use those funds to provide additional (non-
Medicare) benefits to enrollees at no additional cost to the enrollee.
In 2001, on the national level, Medicare+Choice plans are using an
average of about 19 percent of their Medicare revenues to provide these
additional benefits, such as routine vision care, dental care, and
prescription drugs, which are not available through fee-for-service
Medicare.
As was also the case under prior law, the BBA mandated that plan
premiums or other charges, such as copayments, for services covered by
Medicare may not exceed the actuarial value of fee-for-service
beneficiary cost sharing. For 2001, that amount is $100.66.
Medicare+Choice plans may also offer supplemental benefits that
Medicare does not cover, such as prescription drugs, and may charge
premiums for those benefits. Depending on the supplemental benefits
that a plan offers, this plan premium may exceed $100 per month.
Congress revised the BBA changes in 1999, through the BBRA, and
again in 2000, through BIPA. The BBRA included changes to the
Medicare+Choice program to make it easier for beneficiaries and plans
to participate, including giving plans more flexibility in their
benefits and cost-sharing, and increasing payments. The BBRA also
included incentives for plans to offer plans in areas without a
Medicare+Choice plan already in place. Similarly, BIPA increased
Medicare+Choice payments and expanded the incentive program for managed
care plans to offer Medicare+Choice in areas without such options.
Congress increased both the minimum percentage payment rate increase
for 2001 only (from 2 percent to 3 percent), as well as the payment
rate floor amount, to $525 in Metropolitan Statistical Areas with a
population of 250,000 or more, and to $475 in al other areas.
reduction in geographic variation
The BBA and subsequent amendments have reduced the variation in
payment rates at the national level. In 1997, the county with the
highest payment rate was Richmond County in New York and the county
with the lowest payment rate was Arthur County in Nebraska; their rates
were $767 and $221, respectively (Chart 1). The ratio of the Richmond
County rate to the Arthur County rate was 3.47, that is, the rate in
Richmond County was about 250 percent higher than the rate in Arthur
County. In 2002, the rates in Richmond and Arthur counties will be $856
and $500, respectively. The ratio of the rates will be 1.71, a dramatic
reduction from 1997.
This chart also highlights how variation within states was reduced.
In 1997, in Nebraska, the ratio of the highest to the lowest county was
1.96, that is, the rate in Douglas County was about 100 percent higher
than the rate in Arthur County. In 2002, that ratio will be reduced to
only 1.11. There will be a similar reduction in New York, from 2.53 to
1.71 in 2002. Thus, the BBA changes effectively reduced both national
and state level variation in payment rates.
philadelphia and bucks county
The second chart (Chart 2) looks specifically at Medicare payment
rates and utilization rates in Bucks and Philadelphia Counties. The
Medicare law requires payments to Medicare+Choice organizations in 2001
to be based 90% on the demographic method and 10% on the risk adjusted
method. The first row in the chart indicates that under the rates used
in 2001 for the demographic portion of payments, the rate for the
average beneficiary in Philadelphia County is 22 percent higher than
the Bucks County rate. The next row on the table shows the percentage
difference for rates under the risk adjustment method. For the risk
adjusted portion of payments, the rate in Philadelphia County is 14
percent higher than the Bucks County rate. The difference between the
risk method rates in the two counties would indicate that, on average,
beneficiaries in Bucks County are healthier than beneficiaries in
Philadelphia.
Turning to the comparison of the utilization of services in the two
counties, the table shows that beneficiaries in Philadelphia County
utilize more services than those in Bucks County. In particular, they
use more hospital, home health, skilled nursing facilities, and durable
medical equipment services than beneficiaries in Bucks County. The
greater use of these relatively costly services would be associated
with a population that is sicker and therefore has a greater need for
medical services. This higher use of services corresponds with the
higher 1997 base rate for Philadelphia County.
Differences in payment rates as well as in benefits and premiums
between adjacent counties were an issue prior to the BBA and remain an
issue today. These premium and benefit differences are influenced not
only by Medicare payment rates, but also by the ability of the
Medicare+Choice organization to negotiate favorable payment rates with
providers and the presence of other Medicare+Choice options in the
market area.
conclusion
We are working hard to ensure that Medicare beneficiaries receive
high quality health care, and have a variety of options to choose from
so their health plans most closely meet their individual needs. The
Medicare+Choice program is one important way we accomplish this goal.
As the name suggests, Medicare+Choice offers many beneficiaries a
guarantee of traditional Medicare fee-for-service benefits, as well as
a choice of other options, which vary from plan to plan. Congress has
made several important improvements to Medicare+Choice over the last
few years, and our new Administrator is strongly committed to working
with you and health plans to expand and revitalize the Medicare+Choice
program. Thank you for the opportunity to discuss this with you today,
and I am happy to answer your questions.
[GRAPHIC] [TIFF OMITTED] T3736.040
[GRAPHIC] [TIFF OMITTED] T3736.041
Mr. Greenwood. Thank you for your testimony. If you will
pass that highly directional microphone to Mr. Haggett, he will
now try to----
TESTIMONY OF WILLIAM F. HAGGETT
Mr. Haggett. Good morning, Mr. Chairman, Congressman
Deutsch, Congressman Hoeffel. Thank you very much for the
opportunity to represent Independence Blue Cross at this
hearing. It is also a pleasure to see many of our members of
Keystone 65, and Personal Choice 65 are here with us this
morning as well.
Just by way of context, I want to just underscore the
longstanding commitment that our company has to the Government
business, Medicaid, Medicare, and CHIP. We currently enroll,
through our various companies, a total of 900,000 Medicaid
managed care beneficiaries, 250,000 which are located in this
region, 25,000 CHIP members and, currently, about a little over
150,000 Medicare+Choice members. It has been a longstanding
series of programs that our company has offered. It is
something that we feel very strongly about. It is part of what
Independence blue Cross stands for. We are concerned, however,
about our ability to continue, specifically, the
Medicare+Choice program given the current trends and direction
in which we are heading.
One other point I would like to make is that under the
legislation that created the Medicare+Choice program, Congress
was looking for the opportunity to present choices to
beneficiaries. We have, since 1997, offered a PPO product,
Personal Choice 65, in this marketplace. It was the first PPO
that was brought in under the Medicare+Choice program. It still
continues to be a very viable--or popular product, I should
say. The viability of that product, however, is something that
we are very concerned about given the current rules and
direction.
I do and have submitted written testimony, so I won't focus
on some of the context and background beyond what I have just
mentioned, but would like to get to the heart of the matter.
January 2001, for us, was a very difficult time. We, at that
point, instituted significant price increases and benefit
adjustments related to the funding limitations that had been
put in place over the last several years. What that meant was
that many of our members no longer had as part of their base
medical plan prescription drug coverage that was available to
all of our members. However, it was available at an additional
cost. Annual limits on the drug program continued over the last
several years to be decreased, and the co-pay limits that were
passed onto our members have been increased as well.
We spent a lot of time last fall talking to our members. We
posted over 125 meetings in community centers such as this
throughout the five-county region, reached and talked to about
7,000 of our members. We serviced over 500,000 phone calls from
our members during the 4-month transition period. We provided
members with information about the State PACE program, about
the VA program, to make them aware of other programs that were
available, are available, and can assist them in meeting all of
their needs, not just those that are related to their specific
healthcare needs. But given the disproportionate and growing
portion of their budget that has to be allocated to either
prescription drugs, premium payments, and so forth, we feel an
obligation to provide as much information to our members as
possible to assist them in all of the aspects that are
converging on their tight budget dollars.
This marketplace has been one of the so-called 2 percent
markets. Since 1998, our increases in premium have been limited
to 2 percent during that period of time. Contrast that, though,
on the cost side of the equation, and specific to our Medicare
members in this market, the average increase in costs over that
same period of time was 12 percent each year. So during that,
and even with the additional bump that we got through the BIPA
dollars, a total of 9 percent increase in Federal funding,
contrasted with a 48 percent increase in cost of providing
services. That gap is what has caused the reduction in benefit
levels, the increase in co-payments, and most recently, the
significant increases that we have had to impose with regard to
monthly premium.
Additionally, this year we made the decision and struggled
with the decision to make a differentiation, or create a
differentiation, between pricing between Philadelphia County
and the four suburban counties. I think some of the members
who--beneficiaries, rather--who were up before, pointed to this
concern and to this issue, and you will hear, certainly, more
about that. For us, the published AAPCC's for this region are
Philadelphia to Bucks County, for example, an 18 percent
differential. For 2002, the specific dollars are $144 less for
Bucks County residents than they are for Philadelphia County;
there is an 18 percent differential. For our members in our
marketplace, the price differential, the cost of providing
services to our members is 8 percent. So it cost us 8 percent,
an aggregate 8 percent less for Bucks County residents than it
does for Philadelphia County. However, the Federal formula says
that that should be 18 percent; it is not for this marketplace
for our members. That has and continues to be the driving
reason for the differentiation in the Philadelphia/Bucks County
payment issues.
Another somewhat more technical issue has to do with the
extraction of the graduate medical education dollars. We are
fortunate in this region to be the location of a number of
medical schools, training programs, tertiary care facilities,
all of which receive additional dollars for the--to help
support these programs with the Medicare program. Those dollars
have been gradually extracted from the Medicare+Choice payment
levels, and the thought, I believe, was that our plans, plans
such as ours, would go back and work with hospitals to
renegotiate lower payment rates on a gradual basis, along
with--to coincide with, rather, the differentiation that was
being pulled out of the rates.
I can tell you that for us, that has not happened. In
talking to plans throughout the country, that has not happened.
Hospitals have not been willing to adjust their payment levels
to us based on these additional dollars. So they are able to
collect it directly from Medicare, it is being extracted from
our rates, and yet, we are not in a position to be able to
renegotiate with them to, you know, see a commensurate
situation. Again, our estimates put that impact for our
Keystone 65 business about over $30 million now since it is
fully phased in that is off the table as a result of that.
Just to give you an order of magnitude, the BIPA dollars
for us represented about a $7 million increase. The GME is
almost four times, a little bit over four times, that amount so
it is a significant issue that is specific to this marketplace
and many other similarly situated marketplaces throughout the
country.
The last point that I would just like to make, and I know
it is not the particular focus of this hearing, but the
regulatory burden and oversight imposed by HCFA continues to be
a burdensome one. And I think there has been, certainly,
recognition within the agency. There have been many steps
moving forward, but some of it is in statutes, some of it is in
regulations, some of it is trying to fit managed care into a
deeper service environment, and to require some of the same of
managed care, some of the same things which are in effect in
the fee-for-service program. The one size fits all approach
doesn't work in this case.
Again, we are very committed to this program. We are
committed to Medicare beneficiaries in this region. We also
offer Medigap coverage and we are concerned and believe that
managed care does continue to offer a viable alternative and
significant value added to our members. However, as we extend
and we look a year or 2, 3 years, out, it is going to be more
expensive to be in a managed care program than it will be to be
in a Medigap program. We are very concerned about that
eventuality and don't think it serves the best interest of the
Medicare beneficiaries, especially, in this region, and
likewise throughout the country. Thank you.
[The prepared statement of William F. Haggett follows:]
Prepared Statement of William F. Haggett, Senior Vice President,
Government Programs, Independence Blue Cross
Mr. Chairman and Members of the Sub-committee: I am William
Haggett, Senior Vice President for Government Programs with
Independence Blue Cross (IBC). As a participant in the Medicare+Choice
program since 1993, IBC is pleased to have this opportunity to present
testimony to the committee on the current state of Medicare+Choice in
the southeastern Pennsylvania region.
By way of background, Independence Blue Cross is a Pennsylvania
non-profit hospital plan corporation licensed to provide financing for
health care coverage to residents in this region. IBC has a subscriber
base of 2.8 million members in southeastern Pennsylvania and another
1.6 million subscribers in other regions. Our company has a long-
standing history as an active participant in government business--
Medicare, Medicaid and CHIP.
Through our family of affiliated companies, IBC currently provides
healthcare coverage to 900,000 Medicaid members, 24,000 CHIP members
and 152,000 Medicare+Choice members. In short, our company has a long-
standing and active commitment to these government programs and the
members they serve.
With regard to the Medicare program, IBC offers coverage to 277,000
beneficiaries--125,000 through Medigap coverage and 152,000 through
Medicare+Choice products. The first and largest Medicare+Choice product
is Keystone 65, an HMO program which enrolls 122,000 in southeastern
Pennsylvania. The second is Personal Choice 65, a preferred provider
organization product, which has 18,000 members in southeastern
Pennsylvania. This is the first PPO offered through the Medicare+Choice
program. The third product is offered in southern New Jersey under the
name of AmeriHealth 65. Approximately 12,000 are enrolled in that HMO
product.
Our membership enrolls voluntarily in our products. The average
length of enrollment is nearly four years and growing each month.
Disenrollment by members on a voluntary basis has been well below
national averages for many years. More than 80% of our members reside
in households with annual incomes under $25,000.
Members of our plans repeatedly rank our programs as providing high
quality and value and producing high satisfaction levels. The results
of formal surveys such as the Consumer Assessment of Health Plans
(CHAPS), Health Outcome Studies (HOS), Health Employer Data Information
Set (HEDIS) and various self-assessments completed as part of national
accreditation processes, all document this high level of satisfaction
and quality of care.
Our members, too, enjoy wide access to a substantial network of
providers in this region. More than 10,000 physicians and 65 hospitals
are participating providers. Members with congestive heart failure,
diabetes, respiratory illness and complex medical conditions have
access to and participate in successful care management programs. Here
are some examples of those programs:
--Congestive Heart Failure Care Management Program--Studies have shown
that for members enrolled in this program, the numbers of
inpatient hospital days decreased and members reported higher
daily living indicator scores--Several hundred of our Medicare
members received $150 reimbursement for health facility dues as
part of their wellness program benefit.
--Pre Surgical Outreach Program--Members whose physicians request
authorization for surgery are contacted by our care management
nurses. In cooperation with the member's surgeon, a
comprehensive readiness review is completed. For example,
discharge planning and placement is completed prior to the
admission to assure that appropriate care is in place.
--Health Risk Assessments--All new members receive, and more than 75%
return, health risk assessment questionnaires. The data from
the questionnaires allow us to identify high risk members who
are contacted by our care management nurses. Assessments are
completed and coordinated care plans are developed in
conjunction with the member, their family and their physicians.
I want to also note that these value-added services are an integral
part of the managed care approach our company takes. They are not
available in a fee for service environment.
Keystone 65 and AmeriHealth 65 are both accredited at the excellent
level by the National Commission on Quality Assurance (NCQA).
Additionally, Personal Choice 65 was recently reviewed and granted full
accreditation as a PPO by NCQA. The significance of these ratings
cannot be understated--they represent the highest ranking possible from
the national accreditation agency for our industry.
In short, our members report high satisfaction levels, our outreach
efforts and specialized programs are well subscribed and proven
effective and the national accreditation agency has awarded our
programs with the highest level of recognition. Strong programs--
satisfied members.
Our ability to continue these products, however, is at significant
jeopardy. The challenges we now face are several. The most urgent,
however, relates to funding levels afforded under the current law and
regulation governing the Medicare+Choice program.
January 2001 saw significant increases in monthly premiums paid by
our members. The increases were unlike any we have had to institute
since the program inception. Since the enactment of the Balanced Budget
Act in 1997, we have also been forced to reduce the level of benefits
offered to our members, most specifically related to prescription drug
coverage. Annual coverage limits have been decreased, co-payments for
each prescription have increased, and most recently, prescription drug
coverage has been dropped from our basic medical plan. These changes
are the result of the limitations placed on federal funding for the
Medicare+Choice program.
Those decisions made about 2001 premium increases were not easy
ones. We worked very long and hard at fully explaining the reasons for
these increases to our members both through annual notification
mailings as well as more than 120 community meetings hosted by IBC last
Fall. These meetings provided an opportunity for our Medicare staff to
fully explain and take questions from our members on the changes
necessitated in 2001. The number one question asked was why the
significant premium increases and why the difference between
Philadelphia and the surrounding counties.
Because of the impact health care premiums are having on their
tight budget dollars, we found it even more important than in past
years to provide information to our members regarding other sources of
support for prescription drugs, assistance in premium payments, and
other general needs (e.g., utility payments).
Even with this assistance, several thousand of our members have had
to cancel their membership with IBC and transfer back to fee for
service Medicare. They are not able to afford the new 2001 premium
payments. We are concerned about these members as most report that they
will have to take their chances with traditional Medicare coverage, not
sure how the copayment and coinsurance amounts will be paid. With the
current trends, more and more Medicare beneficiaries will be impacted
like these vulnerable members.
With the implementation of the provisions of the Balanced Budget
Act of 1997, IBC has received 2% increases in funding since 1998. With
the onetime increase to 3% provided by the Benefits Improvement and
Protection Act (BIPA) of 2000, that totals 9% over four years. During
that same period of time, the cost of providing our members with the
care and services they are entitled to increased an average 12% each
year. For the same four year period, that represents a 48% increase in
the cost of providing care. The substantial gap between funding levels
and costs is having a significant impact. This gap has resulted in
lower benefit levels and higher member copays and monthly premium
payments.
Reimbursement to Medicare+Choice plans is based on county level
average adjusted per capita cost (AAPCC) figures and, more recently,
risk adjustment factors. The payment amounts are determined by HCFA
each year. Prior to the Balanced Budget Act of 1997, the AAPCC
calculation was the government's estimate of 95% of the projected
Medicare payments for the fee for service costs in a given county.
Since the 1997 AAPCCs are the basis of the current payment levels in
the 2% counties, this reduction is built into the base figures. The
adjustments made since 1997 have been national percentage adjustments,
not actual cost adjustments.
In addition, since plans are paid based on the AAPCCs which were
established in 1997, this does not take into account marketplace
conditions--provider consolidations, dramatic changes in patterns and
sources of care.
Additionally, the impact of legislation since 1997 has distorted
even more the relationship between Medicare+Choice and Medicare fee for
service payments. By way of example, with Congress' action, the floor
payment levels paid in any county throughout the country was raised
several times and will be $500 for 2002. When compared to the fee for
service costs in many of those counties, the new Medicare+Choice
payment level is 119% of the cost of fee for service members (according
to the Medicare Payment Advisory Commission). Contrast that with the
so-called 2% counties (those who have been limited to annual increases
of 2% since 1998), where the Medicare+Choice payments are less than fee
for service costs. This means that plans like Keystone 65 are being
paid less than what it would cost the Medicare program if those members
received their services through the fee for service program.
Alternately, Medicare+Choice plans in floor counties would be paid 19%
more than the fee for service costs.
An additional complication for this and other similar markets is
the significant variation in payment levels from county to county. The
current Medicare+Choice payment methodology uses counties as the unit
of payment. In this region, there is a significant discrepancy in the
AAPPCs of Philadelphia County and the four surrounding suburban
counties. By way of illustration, the 2002 AAPPC for Philadelphia is
$785. The 2002 AAPPC for Bucks County is $641. The Bucks County rate is
$144 or 18% lower than that of Philadelphia.
(Note: These figures are the aged AAPCCs. The AAPCCs for disabled
members also differ by county, but the difference is 10% rather than
18%.)
On the cost side of the equation, the variation between Bucks
County and Philadelphia County is 8%. That means for our Medicare
members, the cost of providing care is 8% less for Bucks County members
than it is for Philadelphia County members. The payment we receive for
Bucks County members, however, is 18% less.
The unfortunate result is that our Bucks County members are forced
to pay higher monthly premiums than their Philadelphia counterparts do.
That is why in 2001, for identical products, Bucks County residents pay
$59 per month compared to $0 per month for Philadelphia County members.
Historically, there has been some level of variation between those
counties. However, with the changes and adjustments made by Congress to
the Medicare+Choice program over the past several years, the variations
have grown.
These payment issues are urgent to our members and to the future of
IBC's ability to participate in the Medicare+Choice program. So where
do we go from here?
First, attention needs to be paid to the 2% funding limitations in
place in many parts of the country. Specifically, there are hundreds of
counties, which have been kept at the 2% funding increase level since
1998. Our entire marketplace fits into that category. Unless there is
relief provided, Medicare+Choice will be eliminated from this market
within the next two years. Companies will be unable to support even the
most basic Medicare benefits at the funding levels provided. We support
the establishment of payment levels which are not lower than an
established percent of a county's fee for service costs (e.g.,
Medicare+Choice payments will not be less than a specified percent of
fee for service payments).
Second, the disparity between urban and surrounding suburban
counties needs to be remedied. The 18% variation I mentioned earlier
between Philadelphia and Bucks County payment levels is problematic
when imposed on a health care system that is a regional enterprise. In
all other lines of business, our pricing and costs are blended across
the natural healthcare delivery marketplace. The funding approach
currently in place for Medicare+Choice plans runs counter to
marketplace conditions and establishes artificial pricing arrangements
to the detriment of members in suburban counties. We strongly support a
regional funding approach, which accounts for the cost of providing
care in the actual marketplaces (e.g., SMSA) in which Medicare+Choice
plans operate.
Third, the Philadelphia region enjoys a rich fabric of health care
facilities, medical schools and training programs. As such, this region
has been disproportionately impacted by the elimination of graduate
medical education from the Medicare+Choice rating structure. The
initial intent in removing this category of expenditure was, we
believe, to allow providers to recoup the costs of these educational
programs costs directly from the Medicare program. Plans would then
recoup, through negotiations with those facilities, the dollars lost in
their federal reimbursement. This has not happened--neither here in the
Philadelphia region nor in other parts of the country. This GME ``take
away'' needs to be corrected.
Fourth, HCFA's regulatory oversight is unnecessarily burdensome.
Since last fall, our company alone has undergone four audits, six
surveys conducted by HCFA contractors, three biennial comprehensive
site visits and responded to several hundred assorted HCFA inquiries.
This is in addition to our transitioning our members to the 2001 level
of benefits and premiums, which resulted in an unprecedented number of
phone calls, enrollment transactions, and inquiries. We are fully
appreciative of the oversight role HCFA is required to play, in fact we
support that oversight function.
Much of the Medicare+Choice program is inextricably woven to the
fee for service program. In fact, many of our requirements are based
upon those in place in the fee for service program. Acknowledgment
needs to be made that a managed care program is very different than a
fee for service program. We strongly urge that the national managed
care industry standards be acknowledged as viable approaches to
achieving the needed beneficiary protections, quality outcomes, and
provision of services beneficiaries deserve and should depend on. A
one-size fits all approach has not and cannot work going forward.
Our concern is not with the what but rather the how and how much.
Significant organizational energy is diverted to responding to the
numerous, often overlapping regulatory requirements and requests. That
energy would be better spent on educating and servicing our members.
In summary, I want to reiterate our company's strong commitment to
and hope that we are able to continue with the Medicare+Choice program.
We are fully cognizant that Medicare+Choice is not the answer for all
beneficiaries. However, we strongly believe that a viable
Medicare+Choice program provides significant value to the beneficiaries
who have made that choice. It is a choice that needs to be maintained
and extended to even more Medicare beneficiaries throughout this
country.
Mr. Greenwood. Thank you very much, Mr. Haggett. And now
for her testimony, Dr. Harmon-Weiss, I will remind the
audience, who is the Head of Government Programs for Aetna U.S.
Healthcare.
TESTIMONY OF SANDRA HARMON-WEISS
Ms. Harmon-Weiss. Thank you, Mr. Chairman and members of
the committee. I am Dr. Sandra Harmon-Weiss, a family physician
and geriatrician, working for Aetna as Head of Government
Programs and Medicare Compliance Officer.
I am testifying today on behalf of Aetna. Aetna is the
Nation's largest health benefits company and offers
Medicare+Choice plans in five States, covering 278,000 Medicare
beneficiaries. Aetna has offered a Medicare managed care plan
in Pennsylvania since 1985. Currently, there are more than
100,000 Aetna Golden Medicare Plan enrollees in Pennsylvania
and more than 15,500 enrollees in Bucks County, some of whom we
heard from this morning. I am pleased to have served Medicare
beneficiaries in Pennsylvania as a geriatrician and family
physician in private practice, as well as in my role at Aetna
since 1985, when the Medicare managed care plan began.
The Medicare+Choice program was created by the Balanced
Budget Act of 1997, replacing the former Medicare Risk
contracts. The Medicare+Choice program was adjusted with
legislation in 1999, the Balanced Budget Refinement Act, BBRA,
followed by BIPA in 2000, the Benefits Improvement and
Protection Act. I want to share some of our principal concerns
with the Medicare+Choice program in its current state.
Aetna is concerned about the low Medicare+Choice
Organization payment rate increases, the limits on the annual
increases in capitation rates to plans, even though approved by
BIPA, continue to pose a threat to the continued success of
Medicare+Choice program. Program rules must allow payment rates
that recognize and adjust for the actual costs of providing
healthcare and complying with the increased administrative
burden stemming from BBA. The payment options of the blended
capitation rate, minimum county rate, or the 2 percent increase
in the AAPCC rates, despite the additional 1 percent for 10
months only in 2001 do not meet the current threshold of
medical expenses in 2001, which are expected to increase
approximately 10 percent from our viewpoint.
The practical result, based upon actual Medicare+Choice
enrollment, is that the organizations serving the majority of
the Medicare beneficiaries receive rate increases of 2 percent
per year, with the exception as noted in 2001. Aetna suggests
that the annual increases in Medicare+Choice payment rates be
sufficient to cover medical inflation as experienced in local
markets.
Aetna has concern about the risk adjuster impact. The risk
adjuster impact was introduced in 2000. It reduces payments to
Medicare+Choice Organizations. HCFA has released data on the
risk adjuster impact on health plan payments with a phase-in of
a 10 percent risk adjusted rate and 90 percent demographic
rates. The net impact was a reduction of, approximately 1
percent in premium for health plans in 2000 and a reduction in
payment for health plans in 2001 of 1 percent. The risk
adjuster is based upon inpatient hospital encountered data
projected on a model based in Medicare fee-for-service
experience in 1995. This model is not reflective of the current
managed care experience of providing access to the most
appropriate care in the most appropriate setting.
The BBRA clearly noted in the report language in Section
511 the Congress intent that the risk adjuster be implemented
in the budget neutral basis for 2000 and beyond. To date, HCFA
has chosen to ignore the direction of Congress reflected in
this report language. This takes medical benefits away from
Medicare+Choice enrollees.
In my written testimony, I describe concerns about the
requirements to collecting counter data on all beneficiaries in
outpatient hospital settings and for physician-related
services. I applaud the responsiveness of the Government to our
concerns. On May 29, 2001, we received a letter from HHS
Secretary Thompson, suspending collection of outpatient
encounters and physician encounter data until July 2002.
Secretary Thompson further promised to examine the risk
adjustment methodology with interested parties to find a better
system for this purpose. Aetna is extremely pleased with this
positive move on the part of the Government to work
collaboratively with the managed care industry.
The low payment rate increases for Montgomery for
Medicare+Choice impact Medicare beneficiaries in Bucks County.
In 1998, Aetna was able to offer a zero premium plan in
southeastern Pennsylvania, which included a $5 co-pay for
primary care physicians and for specialist visits. The
comprehensive benefit package included pharmacy coverage of
$1,800 in prescriptions with a nominal co-pay of $12 per
script. Other benefits included eyewear coverage of $70, as
well as a hearing aid allowance of $500--and those of you know,
Medicare doesn't cover hearing aids, wellness programs for
healthy eating, healthy breathing, and fitness.
Because of cutbacks in reimbursement attributable to BBA,
including legislated user fees, and added regulatory burden
over the past 3 years, Aetna has had to move in the opposite
direction. Member premium has been introduced in Bucks County;
currently, it is $50 per month. Primary care physician co-pays
have risen to $10, and specialist co-pay visits have risen to
$20 per visit. There is no pharmacy program available, except
for discounts on prescription drugs of up to 40 percent off
retail. Aetna can no longer offer eyewear reimbursement to
those who need glasses or lenses.
The average rate of monthly HCFA capitation payment in
Bucks County in 2001 is $554, a scant 3 percent greater than in
2000. This lags far behind the real medical inflation rate of,
approximately, 10 percent.
Aetna has additional concerns about Medicare+Choice
oversight, as you heard from my colleague. The current
oversight infrastructure for Medicare+Choice plans by HCFA
includes three separate HCFA centers, which often results in
fragmented unnecessarily complex policymaking. Consolidating
Medicare+Choice program administration within one HCFA division
would go a long way toward improving partnerships between HCFA
and the plans.
Aetna, last, strongly encourages repeal of the enrollment
lock-in. BBA provided that beginning in 2002, beneficiaries are
allowed to switch Medicare plans outside the annual enrollment
period only one time per year. Previously, there were no limits
on switching. Allowing beneficiaries to switch plans when they
are dissatisfied allows market forces, rather than increased
layers of regulation, to encourage Medicare+Choice
Organizations to provide coverage for quality care and quality
service. It also allows beneficiaries to continue with their
chosen physician if their physician leaves the plan's network,
thereby, impacting continuity of care.
In closing, Aetna believes that the opportunity exists now
to create a regulatory framework that will assist
Medicare+Choice in fulfilling its promise of preserving and
expanding healthcare choices for all Medicare beneficiaries. If
Congress is to make adjustments to the program, it really has
to act now; time is wasting.
Thank you for the opportunity to appear today. I will be
happy to answer questions.
[The prepared statement of Sandra Harmon-Weiss follows:]
Prepared Statement of Sandra Harmon-Weiss, Head of Government Programs
and Medicare Compliance Officer, Aetna, Inc.
Mr. Chairman and members of the Committee, I am Dr. Sandra Harmon-
Weiss, a family physician and geriatrician working for Aetna, Inc. as
Head of Government Programs and Medicare Compliance Officer. I am
testifying today on behalf of Aetna.
Aetna is the nation's largest health benefits company and offers
Medicare+Choice plans in 5 states, serving 278,000 Medicare
beneficiaries. Aetna has offered a Medicare managed care plan in
Pennsylvania since 1985. Currently, there are more than 100,000 Aetna
Golden Medicare Plan enrollees in Pennsylvania and more than 15,500
enrollees in Bucks County. I am pleased that I have served Medicare
beneficiaries in Pennsylvania as a geriatrician and family physician in
private practice as well as in my role at Aetna since 1985 when the
program of Medicare managed care began.
In March, 1999, I had the opportunity to testify before the House
Ways and Means Subcommittee on Health on the implementation of the
Medicare+Choice program. I am pleased to have this opportunity to
discuss further the Medicare+Choice program and the developments in
this program over the past two years. I want to share a few of our
principle concerns. Aetna believes that the Medicare+Choice program
represents an essential component of the government's effort to help
ensure the financial survival of the Medicare program and to meet the
health care needs of the baby boom generation as we move into the 21st
century. However, our experience with Medicare+Choice up to the present
suggests that Congress has additional work to guarantee a viable
Medicare+Choice program. To ensure the promise of the reform in the
Balanced Budget Act of 1997 (BBA), the Balanced Budget Refinement Act
of 1999 (BBRA), and the Benefits Improvement and Protection Act of 2000
(BIPA), and to facilitate beneficiary choice under the Medicare
program, additional legislation and policy modification must be made.
concerns about low medicare+choice organization payment rate increases.
1. Limits on Annual Increases in Capitation Rates and Concerns
Regarding the New Risk Adjustment Methodology Threaten the
Continued Attractiveness of the Medicare+Choice Program to
Beneficiaries and Providers.
a. Most Plans Have Experienced Cost Increases From Medical
Inflation That Exceed Payment Increases During the Coming Year.--
Perhaps the greatest threat to the success of the Medicare+Choice
program is the collective impact of changes in Medicare's payment
methodology enacted by the BBA. In order to achieve a successful
partnership between the federal government and Medicare+Choice
organizations, program rules must: (1) allow payment rates that
recognize and adjust for the actual costs of covering quality health
care services and complying with the increased administrative burdens
imposed by the BBA, BBRA and BIPA, and permit necessary investment in
clinical and operational improvements, and (2) incorporate financial
incentives to reward those Medicare+Choice organizations that achieve
the government's economic, quality and operational objectives.
As set forth in Section 1853(c) of the BBA, Medicare+Choice
organizations will be paid the greater of:
(a) a blended capitation rate, which is the sum of a percentage of the
area-specific capitation rate and a percentage of the national
Medicare+Choice capitation rate (the percentage balance will
change over time until it reaches a 50/50 blend in 2002); or
(b) a minimum amount, which is $475 per enrollee per month in 2001
(from BIPA); or
(c) a minimum percentage increase equal to an increase of 2 percent of
the 1997 Adjusted Average Per Capita Cost (AAPCC) rate for the
particular county for 1998, with increases of 2 percent in each
subsequent year.
The practical result, based on actual Medicare+Choice enrollment,
is that Medicare+Choice organizations serving a majority of Medicare
beneficiaries enrolled in such organizations receive rate increase of
the minimum 2 percent. For most, if not all, of these organizations,
this 2 percent increase is not sufficient to cover the increased cost
of covering basic Medicare and additional services, given projected
medical inflation.<SUP>1</SUP> This, combined with the fact that many
Medicare+Choice organizations experienced significant losses in 1998,
1999 and 2000, forecasts continuing trouble for the program.
---------------------------------------------------------------------------
\1\ The budget for fiscal year 2000 included funding for original
fee-for-service Medicare that reflects anticipated increases in medical
costs over a five year period of 27% and an increase in the Federal
Employee Health Benefit Program of about 50%. Estimates of the likely
growth for Medicare+Choice plan payments in high paying counties for
the same period is less than 10%.
---------------------------------------------------------------------------
Indeed, inadequate reimbursement rates for 1999, 2000 and for 2001
largely were responsible for the retrenchment of Medicare+Choice plans
over the past three years. Congress passed the BIPA legislation in 2000
which added 1% to the payment rates for 10 months of 2001. Most health
plans (70%) used this money to ensure or stabilize access to services
for beneficiaries by paying additional money to contracted providers
for this purpose.
Since Medicare+Choice began in 1999, numerous health plans have
terminated or reduced their contracts. Of 309 Medicare+Choice plans
serving Medicare beneficiaries at the end of 1999, 99 plans terminated
their contracts or reduced the number of counties they served in 2000
and 118 plans terminated or reduced service areas for the 2001 contract
year. These withdrawals affected approximately 328,000 enrollees in
2000 and nearly 1 million enrollees in 2001.<SUP>2</SUP> These
withdrawals can mean higher out-of-pocket costs and be disruptive for
those beneficiaries who lost access to relatively inexpensive drug
benefits or must switch health care providers. To put this into
perspective, HCFA averaged two Medicare risk contract cancellations per
year from 1993 through 1997.
---------------------------------------------------------------------------
\2\ Medicare+Choice: Plan Withdrawals Indicate Difficulty of
Providing Choice While Achieving Savings (GAO/HEHS-00-183), September
2000.
---------------------------------------------------------------------------
Aetna strongly believes that additional adjustments beyond BIPA are
necessary to attract and maintain the number and diversity of
Medicare+Choice organizations necessary to establish a sound and
attractive market-based alternative to the traditional Medicare fee-
for-service program.
Accordingly, Aetna urges Congress to reconsider the artificial and
arbitrary limits on capitation rate increases set forth in the BBA and
BIPA. Specifically, Aetna suggests that annual increases in
Medicare+Choice payment rates be sufficient to fully cover medical
inflation experienced in the local markets. Because local employer
health plans and other commercial customers have a tremendous incentive
to keep costs down, they will positively affect the inflation rate in
each market. Under the current structure, more Medicare+Choice
organizations have found it necessary to withdraw from areas served and
beneficiaries enrolled in the remaining plans will again experience
premium increases or reduced benefits. Finally, as Medicare+Choice
plans leave the market, the original Medicare program (with its higher
per capita costs) will have more beneficiaries and put additional
strain on both the Part A Trust Fund and the budget.
b. The New Risk Adjustment Methodology Will Substantially Reduce
Payments to Medicare+Choice Organizations.--Change in the
Medicare+Choice payment methodology is all the more necessary because
the risk adjustment process which HCFA is implementing will
substantially reduce aggregate payments to Medicare+Choice plans while
adding additional administrative requirements and expenses. According
to HCFA estimates, total Medicare+Choice revenues for the year 2000
were $200 million less than they would have been under the Average
Adjusted Per Capita Cost (AAPCC) payment method. As a result, most
plans saw even their minimum two percent increase eroded in 2000 as the
risk adjustment methodology was phased in. Thus, what began as a well-
intended effort to compensate plans for the health care costs of their
particular members did, in reality, result in an overall reduction in
funds to Medicare+Choice organizations.
This development runs counter to Aetna's understanding of
Congressional intent, i.e., that the savings resulting from the
percentage reduction in plan payments for years 1998 through 2002 was
intended to be in lieu of any net program savings from risk adjustment.
(Indeed, the Congressional Budget Office did not score any projected
savings in connection with the risk adjustment program under BBA 97).
The new methodology, and huge projected revenue reductions, underscores
Aetna's concerns regarding the inadequacy of plan payments under
Medicare+Choice. To the extent that the proposed HCFA risk adjustment
methodology translates into a significant overall decrease in payments
for the Medicare+Choice program, it is an additional deterrent to
program participation. Accordingly, Aetna urges Congress to require
HCFA to modify the risk adjustment methodology so that aggregate
payments to Medicare+Choice plans for 2000 and beyond are based on
aggregate BBA adjustments, making the risk adjustment process budget
neutral.
c. The User-Fee ``Tax'' on Medicare+Choice Organizations for
Beneficiary Education is Inequitable and Reduces Even Further Payments
to Medicare+Choice Organizations. <SUP>3</SUP>--Aetna strongly supports
educating and informing Medicare beneficiaries about all coverage
options, including the Medicare+Choice program, and supplying
beneficiaries with straightforward, unbiased information to help them
choose appropriate coverage. That said, we are concerned that the BBA,
to support beneficiary education activities for all 37 million
beneficiaries, placed a ``user fee tax'' on Medicare+Choice
organizations only. The educational campaign is a benefit to all
Medicare beneficiaries. Indeed, initial information suggests that the
toll-free number HCFA established in 1999 with funds from the $95
million dollar ``tax'' assessed upon Medicare+Choice organizations
primarily fielded calls from beneficiaries seeking information about
the fee-for-service program. Considerations of equity dictate that the
educational program which informs beneficiaries about basic program
benefits and requirements be funded from the Medicare Trust Fund, or
another broad-based source of revenue, as are other such essential
program functions.
---------------------------------------------------------------------------
\3\ Medicare+Choice organizations essentially pay a ``head tax''
(i.e., an amount based on the number of Medicare+Choice enrollees in
their plan) to support the public information program.
---------------------------------------------------------------------------
This ``user fee tax'' equaled .355% of the total monthly payments
to each Medicare+Choice plan in 1999 and .34% in 2000. While BBRA
reduced the ``user fee tax'', it remains a factor in the erosion of
monthly payments to Medicare+Choice organizations.
d. The Bucks County Experience and the Pennsylvania Experience.--
Aetna examined the type of coverage we provided previously to Medicare
beneficiaries. As recently as four years ago (1998), Aetna was able to
offer a ``Zero Premium'' plan in Southeastern Pennsylvania which
included a $5 copay for Primary Care Physician and Specialist visits.
The comprehensive benefit package included pharmacy coverage for $1800
in prescriptions with a nominal copay of $12. Eyewear coverage of $70
was included as well as a $500 hearing aid allowance (not covered by
Original fee-for-service Medicare) and Wellness Programs for Healthy
Eating, Healthy Breathing and Fitness (not covered by Original fee-for-
service Medicare). This was a great plan for more than 14,400 seniors
and disabled Medicare beneficiaries in Bucks County.
Because of cutbacks in reimbursement attributable to the Balanced
Budget Act of 1997 (BBA) and new legislated fees on Medicare+Choice
organizations and added regulatory burdens over the past three years,
Aetna has had to move in the opposite direction. Aetna has been forced
to introduce premium in Bucks County ($50 per month), raise Primary
Care Physician copays to $10 and Specialist copays to $20. There is no
pharmacy program available except for discounts on prescription drugs
of up to 40% off retail. Aetna no longer can offer eyewear
reimbursement to those who need glasses or lenses. As such, the Aetna
Golden Medicare Plan <SUP>TM</SUP> is less attractive to Medicare
beneficiaries and the enrollment has dropped by 500 over the past year.
Aetna has been forced to withdraw from certain areas in
Pennsylvania. The counties where we withdrew were those where our
medical expenses, not even counting administrative expenses, exceeded
the reimbursement provided to us by the Health Care Financing
Administration (HCFA) and where we determined that we could not offer a
plan with sufficient benefits at a competitive price. No
Medicare+Choice organization, or any company in any sector of the
economy for that matter, can keep doing business as usual when there is
not enough revenue even to start covering administrative expenses. In
the areas where we have remained, we had to increase premiums and
reduce benefits in order to try to cover those basic medical and
administrative costs. We do not make these changes lightly, nor do we
make them without the involvement and approval of HCFA.
It is a useful exercise to examine more closely the monthly HCFA
premium in Bucks County for 2000 and 2001 for each Medicare beneficiary
enrolled in Aetna. The chart below outlines the HCFA premium payment
rates on a per member per month basis. Following the multiple
adjustments to the rates, the final average rate of monthly payment in
Bucks County for 2001 is $554, a scant 3% greater than in 2000. This
lags far behind the real inflation percentage reflecting the true
medical trend which is approximately 10%. From 2000 to 2001, it was
necessary for Aetna to raise the member premium in Bucks County from
$10 to $50, raise co-payments for Primary Care Physician visits (from
$5 to $10) raise co-payments for Specialist visits (from $10 to $20)
and eliminate the pharmacy benefit (except for discounts on each
covered prescription). This benefit package remains more valuable than
an equivalent Medicare with Medigap coverage package. The Medicare with
Medigap coverage includes fewer benefits with higher premiums.
Bucks County--HCFA Premium Per Member Per Month
------------------------------------------------------------------------
2000 Jan- 2001 Jan- 2001
Dec Feb March-Dec
------------------------------------------------------------------------
Published HFCA monthly payment rates 611 623 629
Aetna monthly payment rates as a 544 554 560
result of demographic adjustments
(age, sex).........................
Aetna monthly payment rates as a 539 548 554
result of Risk Adjustment..........
Aetna monthly payment rates as a 537 548* 554*
result of ``user tax.''............
------------------------------------------------------------------------
*Assessment of user fee is less than $1 per month ($0.42) as a result of
new methodology.
One of the important changes in HR 3075 (the Balanced Budget
Refinement Act of 1999 ``BBRA'') was a change that could lead to lower
premiums and better benefits for seniors. In the report language to
Section 511, it clearly notes that Congress intends the risk adjuster
to be implemented in a budget-neutral fashion; that is, that money
taken away from plans with younger, healthier populations be kept
within the Medicare+Choice program and be channeled directly to plans
with older, sicker populations. The language goes on to urge HCFA to
revise the risk adjuster to implement it on a budget-neutral basis in
2000 and beyond. HCFA has, to date, chosen to ignore the clear
direction of Congress reflected in this report language, thereby,
taking medical benefits away from Medicare+Choice enrollees.
in many places the regulations are overly rigid and demanding so they
become an impediment to all medicare+choice organizations.
1. The Proposed Risk Adjustment Policy is Ill-conceived.
On March 1, 1999, HCFA reported to Congress on its methodology for
implementing the risk adjustment mandate set forth in BBA. While Aetna
believes that improved risk adjustment is an appropriate and essential
long-term goal for the program, we have serious concerns regarding the
current HCFA proposal, which calls for the initial use of only
inpatient hospital data. During the Administration's proposed phase-in
period, plans would receive capitated payments based on a blend of
payment amounts under the current demographic system and the interim
(PIP-DCG) risk adjustment methodology. For the year 2000, for instance,
the HCFA plan included separate capitated payment rates for each
enrollee based 90% on the demographic method and 10% on the risk
adjustment methodology.
By 2004, payment rates would be 30% based on comprehensive risk
adjustment using full (i.e., inpatient and other) encounter data and
70% on the demographic method. By 2007, payment rates would be based
solely on comprehensive risk adjustment from encounter-based data with
no demographic adjustments. HCFA estimates a much greater negative
impact on Medicare+Choice plan revenues, on average, with the switch to
full encounter data risk adjusters. Aetna's concerns are both practical
and programmatic.
First, the practical. The timeframe for implementation outlined by
HCFA is simply far too short. Given the significant technological
considerations involved, it is unreasonable for the agency to require
that all Medicare+Choice organizations be able to provide physician,
outpatient hospital, skilled nursing facility and home health data
beginning as early as October 1, 2000. The collection, verification,
transmission, acceptance and analysis of ``representative'' encounter
data is a complicated endeavor. Capturing these data in a valid,
accurate and transferable manner is a major challenge for M+C
organizations.
The process by which information is communicated to, and received
by, HCFA presents significant technological problems as well. Aetna has
experienced, and continues to experience, problems in ensuring that
accurate inpatient hospital data is transmitted via Medicare fiscal
intermediaries to HCFA. Long delays in uploading information into the
Common Working File, poorly responsive fiscal intermediary contractors,
technical difficulties because of using a system meant to pay fee-for-
service claims to collect HMO data, all have added enormous expense and
resource consumption to Medicare+Choice plans.
Difficulties have occurred as HCFA attempts to manipulate
significant amounts of data for the PIP-DCG risk adjustment model. The
methodology developed by HCFA is complicated and requires numerous
steps. HCFA faces a monumental task in getting the PIP-DCG system to
work. To date, HCFA is unable to accept all inpatient encounters for
current Medicare+Choice enrollees.
As if all this were not reason enough to delay implementation,
Aetna has significant programmatic concerns regarding the proposed risk
adjustment model. First, Aetna is concerned that variations resulting
from excessive payments under the original Medicare fee-for-service
program have been incorporated into the risk adjustment calculation.
Additional, unnecessary hospitalizations that have occurred within the
original Medicare Part A fee-for-service program, despite HCFA's
attempt to fight this, are still significant. As a result,
Medicare+Choice organizations will receive lower payments through the
proposed risk adjustment methodology. HCFA should not penalize the
managed care portion of Medicare for the program's failure to limit
certain false or fraudulent claims and medically unnecessary
hospitalizations. One approach to avoid this would be to limit the use
of risk adjustment so that the total amount paid to all Medicare+Choice
plans is not reduced but instead redistributed among Medicare+Choice
plans only.
Second, recognizing the fact that most federal agencies rely on
sampling, HCFA's expectation of reported data on all individuals seems
excessive. Given that even the more comprehensive risk adjuster will
not be able to fully reflect all differences, Aetna believes that
Congress should require HCFA to re-examine the use of plan-based
sampling to reduce the administrative burden on the plans, reduce the
potential for errors in the early phases, and increase the privacy of
each individual's sensitive medical information.
Third, Aetna strongly believes that is poor public policy to base
risk adjustment, even temporarily, on inpatient hospital data only.
Such an approach rewards Medicare+Choice plans that, through inferior
utilization management or poorer quality, experience excessive hospital
use, and penalizes plans that have more effectively reduced inpatient
hospitalizations and focused on providing more care on an outpatient
basis and improving quality through preventive care. The incentives
created by a risk adjustment methodology based exclusively on inpatient
hospital data would inevitably result in increased inappropriate
hospital use, increased avoidable costs, and a setback in the effort to
realize greater efficiency and quality in the health care system.
Beneficiaries enrolled in plans with a relatively high proportion of
members who receive care for expensive chronic illnesses outside the
hospital setting would be particularly harmed.
For all these reasons, Aetna urges HCFA to consider less burdensome
alternatives that meet the goals of risk adjustment.
2. Improve Partnerships Between HCFA and Medicare+Choice Organizations
by Establishing Single Administrative Unit for Medicare+Choice
Program Oversight.
Aetna recognizes that HCFA has many competing demands and
responsibilities. However, the current oversight infrastructure for
Medicare+Choice which involves three separate centers has often
resulted in fragmented and unnecessarily complex policy making which
has been problematic for Medicare+Choice organizations and
beneficiaries. We believe that consolidating Medicare+Choice program
administration within one HCFA division, which has a Director who
reports directly to the HCFA Administrator, would go a long way toward
improving the partnerships between HCFA and plans.
3. Create Consistency Between HCFA Central and Regional Offices.
Medicare+Choice organizations across the country frequently receive
different instructions and policy interpretations for the ten HCFA
Regional Offices and the HCFA Central Office. This has a large impact
on national plans such as Aetna with Medicare+Choice organizations
overseen by three HCFA Regional Offices. HCFA Regional Office
Administrators and HCFA Center Directors report directly to the HCFA
Administrator with no direct authority on the part of the Centers to
require consistent implementation of Central Office policies in the
Regions. HCFA should establish communication procedures to help ensure
that the Agency and its regional offices speak with one voice.
4. Set Priorities for Policy Making Based on the Costs and Benefits of
Different Regulatory Options.
The costs of compliance are opportunity costs borne directly by
Medicare beneficiaries. For every dollar Medicare+Choice organizations
spend on regulatory compliance, there is one dollar less to spend on
enrollee benefits. Adding or changing program regulations should be
considered in this context. Also, periodic assessments should be made
to ensure that the benefits of compliance requirements exceed their
costs.
The frequency and content of new regulatory and policy changes has
increased staff time and resources considerably. In 2000, HCFA issued
15 new Operational Policy Letters (OPLs) two revisions of one OPL, and
the final Medicare+Choice regulations. Inconsistencies between HCFA
Regional Offices and Central HCFA add to the strain of regulatory
interpretation, particularly for national health care organizations
such as Aetna.
5. Improve the HCFA Review of Marketing Materials.
The new marketing and member communication requirements,
particularly the 45-day review period, make it very difficult to get
materials finalized in a timely manner. This can prove particularly
problematic for employer group marketing materials. The 45-day period
has had a particular impact on our ability to communicate product
changes with our members in a timely manner, often leading to confusion
for those who hear about changes in media reports, but then fail to
receive notice until much later. In some markets, we hear from the
reviewers that they do not plan to comment on the materials until the
end of the review period. If they ask for changes on day 44, the 45-day
review period begins all over again. Moreover, the prescriptive nature
of the review often requires the materials to be very generic, taking
away our ability to make statements reflecting our unique attributes.
6. Repeal the Enrollment Lock-In.
Congress should immediately repeal the enrollment lock-in provision
of the Balanced Budget Act of 1997.
BBA provided that, beginning in 2002, beneficiaries are allowed to
switch Medicare plans outside the annual enrollment period only one
time per year. Previously, there were no limits on switching.
Allowing beneficiaries to switch plans when they are dissatisfied
allows market forces, rather than increasing layers of regulation, to
encourage Medicare+Choice organizations to provide coverage for quality
care and quality service. It also allows beneficiaries to continue with
their chosen physician if their physician leaves the plan's network,
thereby impacting continuity of care.
Enrollment rules in the Medicare+Choice program are extremely
complex. HCFA's regulatory guidance exceeds 100 pages! Adding lock-in
rules to the current rules will significantly increase the confusion of
beneficiaries, beneficiary advocates and the Medicare+Choice
organizations. It will, without doubt, result in unhappy beneficiaries,
pressure for more and more ``special enrollment'' opportunities, an
even more complex and bizarre set of enrollment rules. In addition,
implementing the enrollment lock-in will require both Medicare+Choice
organizations and HCFA to make system changes and adopt costly and
burdensome new administrative procedures, all for little or no gains in
enrollee well-being or Medicare+Choice program functioning.
summary and conclusions
If the Medicare program is to be sustained for the next generation
of beneficiaries and beyond, it is crucial that the federal government
employ every strategy appropriate to enhance quality health care
options for beneficiaries and encourage the development of lower cost
options rather than relying on burdensome regulations which will reduce
choice and funnel more people into the highest cost option, fee-for-
service Medicare. The Medicare+Choice program already is at a crossroad
where improvements can allow it to flourish but neglect of necessary
change will doom it to failure. It would be wiser, in the long run, for
the government to employ market-oriented strategies to ensure that
there are Medicare+Choice options available to beneficiaries and to
create incentives for private health insurers and providers to deliver
value in the context of the Medicare program. Because it is a critical
building block in this market-based strategy, Medicare+Choice must be
successful.
In summary, Aetna believes that the prospect for success will be
greatly improved if the following steps are taken with respect tot he
Medicare+Choice program:
<bullet> Adjust the payment structure so that increases cover medical
inflation;
<bullet> Delay and revise the proposed risk adjustment model to reduce
the cost of reporting and system development;
<bullet> Modify the role of risk adjustment so that overall revenues to
the Medicare+Choice program are not reduced, but simply
reallocated among Medicare+Choice plans based on the health
status of enrollees;
<bullet> Issue revised regulations to reduce costly administrative
burdens on all Medicare+Choice plans;
<bullet> Streamline the HCFA oversight on Medicare+Choice
organizations; and
<bullet> Repeal the enrollment lock-in.
The opportunity exists now to create a new regulatory framework
that will assist Medicare+Choice in fulfilling its promise of
preserving and expanding health care choices for all Medicare
beneficiaries. If Congress is to make adjustments to the program, it
should act now.
Mr. Greenwood. Thank you for your testimony. We now turn to
Dr. Harrison. For those in the audience, let me explain who he
is, because it may be a little confusing. Several years ago, 3
or 4 years ago, the Congress created MedPAC, which is the
Medicare Payment Advisory Commission. It is a group of experts
that we rely upon to study the cost of Medicare and the
policies involved and give us, the Congress, some advice as to
what is the best policy. And we are delighted to have you with
us, Dr. Harris.
TESTIMONY OF SCOTT C. HARRISON
Mr. Harrison. Thank you, Chairman Greenwood, Congressman
Deutsch. I am Scott Harrison, Research Director at MedPAC. I am
pleased to be here this morning to discuss the Medicare+Choice
program. My testimony draws on the recommendations and analysis
in MedPAC's march 2001 report to Congress.
MedPAC is concerned about the sometimes large differences
in payment to Medicare+Choice plans between adjacent counties
within healthcare markets. The situation here in the
Philadelphia Metropolitan area is a good example of local
county payment rate differences. In Pennsylvania's five-county
area, the highest county payment rate is about $200 per month
higher than the lowest rate. Many of the residents of the lower
rate suburban counties, as you have heard today, are concerned
about having to pay an extra $700 a year for a plan compared to
their follow beneficiaries across the county line in
Philadelphia.
These payment rate differences arise from differences in
Medicare per-beneficiary spending under the traditional fee-
for-service Medicare program. In our March report, we
recommended that the Secretary of Health and Human Services
study the differences in spending under the traditional
Medicare program to determine its causes and to make
recommendations on how and whether the differences should be
incorporated into Medicare fee-for-service and Medicare+Choice
payment rates.
Also in the report, we recommended that the Secretary
consider using payment areas with more Medicare beneficiaries
than are typically found in counties in order to raise the
reliability of the spending data on which the payment rates are
calculated. However, the Commission did not feel it was ready
to recommend using metropolitan areas, specifically, because of
concerns that such areas might be too large to represent
homogenous healthcare markets. Instead, MedPAC is interested in
seeing the results of ongoing work dedicated to finding better
criteria to delineate healthcare market areas.
Despite all of the recent changes to the Medicare+Choice
rate-setting formula, the percentage differences in the payment
rates among Bucks, Chester, Delaware, Montgomery, and
Philadelphia Counties remain as they were in 1997. All five
counties have received the annual minimum update since then,
and thus, the relative payments have not changed.
While there is a lot that MedPAC does not know about the
reasons why Philadelphia rates are least 19 percent higher than
the rates of most of the suburban counties, some factors are
known. Between $35 and $55 of the difference in rates can be
traced back to the higher spending for graduate medical
education related to stays in Philadelphia teaching hospitals.
Half of these differences will be removed as counties move to
blended rates, but the removal may yet take several years, as
none of the counties have received blended rates yet. Another
factor that partially explains why Philadelphia has higher
spending is its health risks, according to the risk adjustment
model that HCFA uses. If that risk adjustment model were fully
implemented, the payment rate differences between Philadelphia
and the rest of the area would shrink by $45 to $75 per month.
And what effect do the higher payments in Philadelphia
have? Clearly, there are differences in plan availability and
benefit packages between Philadelphia and the suburban
counties. There are seven plans available in Philadelphia and
only three plans available in most of the other counties. In
Philadelphia, there are several plans that do not charge a
premium, including some that cover prescription drugs. The
lowest premium charged by a plan in Bucks County is $50 per
month, and the only basic plan that offers prescription drug
coverage there charges a premium of $114 a month.
However, the differences are not always consistent. Of the
three plans operating in Bucks County, all have the same
benefits across the county lines. One plan, actually, does
charge the same premium in Bucks and Philadelphia, and the
other two charge, as you have heard, $50 and $59, respectively,
in Bucks, while not charging anything in Philadelphia.
MedPAC has recommended that Medicare+Choice payment rates
be set equal to fee-for-service spending in the local market.
The best way to define these local markets, however, awaits
further research. If local interest felt that the local rate
differences were not appropriate, they could petition their
State's Governor, who has the power under current Medicare law
to redefine payment areas. Allowed options include a single
statewide payment area and a metropolitan based system where
each metropolitan area would be a separate payment area, and
all rural counties in the State would be grouped together in
one payment area.
Any redefinition, however, must be budget-neutral across
the State as a whole. Now, if we took, as an example--if the
five-county area had been designated as a single payment area
for 2001, the rate would have been about $670 per month. That
would have meant an increase of about $100 per month for
Chester and Montgomery Counties, an increase of about $25 to
$40 for Delaware and Bucks Counties, and about $100 decrease
for Philadelphia. So you have your work cut out for you.
Thank you, and I look forward to your questions.
[The prepared statement of Scott C. Harrison follows:]
Prepared Statement of Scott C. Harrison, Research Director, Medicare
Payment Advisory Commission
Chairman Greenwood, members of the Subcommittee. I am Scott
Harrison, research director for Medicare+Choice issues at the Medicare
Payment Advisory Commission (MedPAC). I am pleased to be here this
morning to discuss the Medicare+Choice (M+C) program. My testimony
draws on the recommendations and analysis in MedPAC's March 2001 report
to the Congress.
MedPAC is concerned about the sometimes large differences in
payments to Medicare+Choice plans between adjacent counties within
healthcare markets. The situation here in the Philadelphia metropolitan
area is a good example of local county payment rate differences. In
Pennsylvania's five-county metropolitan area including Philadelphia,
the highest county Medicare+Choice payment rate is $200 per month
higher than the lowest rate. Many of the residents of the lower-rate
suburban counties are upset at having to pay an extra $700 a year for a
plan compared with their fellow beneficiaries across the county line in
Philadelphia.
These payment rate differences were created by differences in the
Medicare per-beneficiary spending on behalf of county residents in the
traditional fee-for-service Medicare program. MedPAC, in our March 2001
Report to the Congress, recommended that the Secretary of Health and
Human Services study the variation in spending under the traditional
Medicare program to determine how much is caused by differences in
input prices and health risk and how much is caused by differences in
provider practice patterns, the availability of providers and services,
and beneficiary preferences. He should report to the congress and make
recommendations on whether and how the differences in use and
preferences should be incorporated into Medicare fee-for-service
payments and Medicare+Choice payment rates.Also in the Report to
Congress, the Commission recommended that the Secretary consider using
payment areas that contained larger numbers of Medicare beneficiaries
than are typically found within counties to raise the reliability of
the spending data. However, the Commission did not feel it was ready to
recommend using metropolitan areas specifically because of concerns
that such areas might be too large to represent homogenous healthcare
markets. Instead, MedPAC is interested in seeing the results of ongoing
work dedicated to finding better criteria to delineate healthcare
market areas.
Setting Medicare+Choice payment rates
Before the Balanced Budget Act of 1997 (BBA), county payment rates
(per beneficiary per month) were based on the fee-for-service (FFS)
costs of Medicare beneficiaries in that county. The BBA established a
new payment method, under which the county Medicare Choice(M+C) rate is
the maximum of:
<bullet> a floor rate
<bullet> a minimum update applied to the previous year's rate
<bullet> a blended rate
The floor rate was set at $367 for 1998 and is increased by an
update factor based on the projected growth in Medicare expenditures
per capita each year thereafter. As a result, the floor payment was
$380 in 1999 and $402 in 2000. The Medicare, Medicaid, and SCHIP
Benefit Improvement and Protection Act of 2000 (BIPA) raised the floor
rate to $475 for 2001, and established a new floor rate of $525 for
counties in Metropolitan Statistical Areas (MSAs) with a population
greater than 250,000. The minimum update is 2 percent, with BIPA adding
a one-time increase to 3 percent for 2001. The blended rate combines a
national rate and the local rate. (The local rate is the 1997 payment
rate trended forward by a national update factor.) The intent of
blending was to reduce the variation in payments across the country by
lowering the highest rates (subject to the minimum update) and
increasing the lowest rates. Blended rates are being phased in over six
years. In 1998, the blend was 10 percent national and 90 percent local.
As of 2003 and thereafter, the blend is 50-50 national and local. The
actual computation of blended rates is complicated by several factors
and the application of those rates is limited by a budget-neutrality
provision. The provision limits total payments in the M+C program to
what total spending would have been if county payments were based on
strictly local rates. Because the floor payment rate and the minimum
update percentage are set in law, total projected payments may
nonetheless equal or exceed the budget neutrality limit. When this
happens all counties either receive the new floor rate or last year's
rate raised by the minimum update and no county receives a blended
rate. The budget neutrality provision resulted in no blended rates
being applied in 1998, 1999, and 2001. Other factors that complicate
the blend calculation are:
<bullet> The graduate medical education (GME) adjustment. Local rates
are decreased by a percentage of 1997 GME spending beginning
with 20 percent in 1998 and increasing by 20 percent a year to
100 percent by 2002. (Teaching hospitals will be paid
separately for the teaching costs associated with M+C
admissions).
<bullet> The update factor. Local rates for each year are calculated by
multiplying the previous year's local rate and the update
factor mentioned above. The BBA decreased the update factor by
0.008 in 1998 and by 0.005 from 1999 to 2002. The Balanced
Budget Refinement Act (BBRA) changed the reduction to 0.003 for
2002.
The national rate is the average of the local rates weighted by the
number of Medicare beneficiaries in each county. According to the
phase-in schedule, that national rate is input-price adjusted and
blended with the local rates to come up with the blended rate per
county. If the budget neutrality provision permits, that rate becomes
the blended rate per county that is then compared with the floor rate
and minimum update to determine the actual county M+C payment rate.
Differences in payments across the five-county-area
Despite all of the changes to the Medicare+Choice rate-setting
formula, the percentage differences in the payment rates among Bucks,
Chester, Delaware, Montgomery, and Philadelphia counties (as high as 36
percent) remain as they were before the Balanced Budget Act of 1997
created the Medicare+Choice program. All five counties have received
the annual minimum updates of 2 percent (3 percent in 2001), thus
relative payments have not changed. None of these counties have yet
received a blended rate update because their local rate components are
above the national rate components that would be used for the blend.
While there is a lot that MedPAC does not know about the reasons
why the Philadelphia rates are at least 19 percent higher than the
rates of the suburban counties, some factors are known. Between $35 and
$55 of the difference in rates can be traced back to the higher
spending for graduate medical education related to stays in
Philadelphia teaching hospitals. Half of these differences will be
removed as counties move to blended rates, but the removal may yet take
several more years. Similarly, some of the difference may reflect
higher disproportionate share (DSH) payments to Philadelphia hospitals,
which are more likely than suburban hospitals to get those payments for
treating low income patients.
The special teaching and disproportionate share payments to
hospitals follow the patients who use the hospitals. Because
beneficiaries are most likely to use hospitals in their counties of
residence, counties that have these facilities are more likely to have
higher spending associated with the special hospital payments. For
example, MedPAC staff found that residents of Philadelphia
overwhelmingly went to Philadelphia hospitals. Medicare beneficiaries
who live in Levittown, however, went to Philadelphia hospitals only
about 10 percent of the time.
The health risk of the Medicare population is another factor that
partially explains why Philadelphia has higher per capita spending than
its suburbs. According to the risk-adjustment model that HCFA uses to
adjust payments to Medicare+Choice plans, the per capita Medicare
spending in Philadelphia would be expected to be 10%-13% higher than in
the suburban counties because the Medicare beneficiaries in
Philadelphia tend to have greater health risk.
What effect do the higher payments in Philadelphia have?
Clearly there are differences in plan availability and benefit
packages between Philadelphia and the suburban counties. There are
seven M+C HMO plans available in Philadelphia, and only three HMO plans
available in most of the other counties. In Philadelphia, there are
several plans that do not charge a premium (in addition to the standard
Part B Medicare premium), including some that cover prescription drugs.
The lowest additional premium charged by a plan in Bucks County is $50
per month, and the only plan that offers prescription drug coverage
there charges a premium of $114 per month.
However, the differences are not always consistent. Of the three
plans operating in Bucks County, two have exactly the same benefits and
premium that are offered in Philadelphia, even though the plans receive
$140 less per month in Bucks County. The third plan charges no premium
in Philadelphia and a $59 premium in Bucks County.
If the plans did not face different costs in the different counties
in relation to the payment rates they receive from the Medicare
program, how could they afford to offer the same benefits for the same
price? One way is for the plan to set the price higher in Philadelphia
so that the higher profits there would offset lower profits (or losses)
in the suburban counties. Another way is for the plan to become more
efficient in managing the benefit by serving a larger number of
beneficiaries than it could attract if it were only in Philadelphia.
Or, the plan may simply view the entire five-county area as one market
instead of five.
MedPAC staff briefly examined the Medigap market in the five-county
area and found that the insurers generally charged the same rates
across all five counties. This suggests that they viewed the area as
one market with similar costs. One should remember, however, that
Medigap insurers are not responsible for the special payments
associated with teaching and DSH hospitals because they only pay the
standard hospital deductible, not the DRG payments made by the Medicare
program.
Options
MedPAC has recommended that Medicare+Choice payment rates be set
equal to the expected Medicare fee-for-service per capita spending in
the local market. The best way to define local markets, however, awaits
further research. State governors may redefine payment areas in the
state under a provision of the BBA. Allowed options include a single
statewide Medicare+Choice payment area, and a metropolitan-based system
where each Metropolitan Statistical Area is a separate payment area and
all rural counties are grouped as one payment area. Any redefinition
must be budget-neutral across the state as a whole. If the five-county
area had been designated as a single payment area for 2001, the rate
would have been about $670 per month. That would have meant an increase
of about $100 per month for Chester and Montgomery counties, an
increase of about $25-$40 for Delaware and Bucks counties, and about a
$100 decrease for Philadelphia.
Mr. Greenwood. Thank you very much for your testimony.
The Chair recognizes himself for 5 minutes for questions.
And let me turn my first question to Ms. Berek from the Health
Care Financing Administration. We have heard from Mr. Haggett
of Independence Blue Cross that yes, it is more expensive to
provide healthcare to Philadelphians. They tend to be less
healthy than the beautifully robust healthy people that we have
here in Bucks County. They tend to demand more healthcare, and
that healthcare is more expensive per unit, the doctors charge
more, the hospitals charge more, the home health services
providers more. What he tells us, though, is that the
difference is 8 percent, that it costs on average 8 percent
more to provide healthcare to someone from Philadelphia than it
does from Bucks County. Yet, the payments to Philadelphia are
18 percent more rather than 8 percent more. I am not blaming
HCFA for that because Congress, essentially, locked that
formula in, and you haven't had time to adjust it.
My question is isn't the theory of adjusting these
payments, having a different payment for different counties
around the country, supposed to result in, basically, no
apparent difference to the beneficiaries. Isn't it the case the
beneficiaries should all, basically, be, in a region like ours,
ideally, and in theory, should be getting the same benefits,
the same prescription drug benefits, for instance, paying the
same premiums. The only difference is that we would--that
Medicare would pay insurance companies a little bit more to
make up the difference in providing those benefits. Isn't that
the way this thing is supposed to work?
Ms. Berek. That is the theory of the original formula for
calculating the AAPCC. I mean, that was what it was supposed to
bring us in terms of information. That, at this point, is a
1997 number, and we are in the process, and I know June is only
tomorrow, but we hope early in the month of June to have
definitive data on what 1998 and 1999 information would be for
calculating what the actual costs were. Now, again, that is
still formula driven and it is not going to be perfect, but we
will have more current numbers.
Mr. Greenwood. Is that nationwide, you are doing that?
Ms. Berek. Nationwide, yes. We are about to--one of the
things that was asked for in BIPA was that we recalculate those
numbers, and we are a little bit behind schedule.
Mr. Greenwood. And when do you expect to have those
calculations completed?
Ms. Berek. In briefing me for this hearing, I was,
actually, told that they might be able to tell them to me
yesterday, and my answer was, if they are not public, don't
tell them to me. But my guess is they will be public sometime
next week, or at the latest, the week after. And I think that
will help us look at the question.
The other thing which HCFA doesn't calculate and look at is
the difference in the actual structure of the healthcare system
in a locality, which is the difference in a managed care plan's
ability to negotiate rates. And depending on how competitive
the marketplace is, the managed care plan can or cannot
negotiate discounts and rates, and depending on their
penetration in the market. And our formulas don't account for
that at all, and that is one of the variables which--and I
can't speak to this region, but I know if the New York
Metropolitan area, which has similar problems between the urban
center, Richmond, as was on the chart, and Nassau, Suffolk, and
Westchester, which are suburban, it has exactly the same rate
problems. And a lot of that is based on the ability to
negotiate rates and market penetration in terms of not just
cost. So I think those are the two factors.
Mr. Greenwood. Thank you. I want to address another
question, and I am going to ask our other three witnesses to
respond to this. There are a couple of ways we can fix this
problem. One of them is to update the formula, and we just
heard that we are going to have new calculations on the average
area per capita cost, and if Congress wanted to, Congress could
go back to that system and we would probably get the 8 percent
variation between Bucks and Philadelphia instead of the 18
percent, and we would have an equalization in benefits and
premiums throughout the region, which would be good.
There is another way to go about this. And the reason it
has been suggested is because what we really want to guarantee
is we want to guarantee the availability of Medicare+Choice
managed care Medicare throughout the country, and we want to
make sure that the payments to the companies are sufficient so
that the beneficiaries can go back to the good old days of just
a few years ago where they had really excellent coverage at
really low premiums, or no premiums, and were very happy there.
The way that has been suggested, one way has been suggested
to do that, is instead of using these very complex formulae,
where you have to gather all this data and hope that it is
accurate, and then make a different calculation for every
county, is as was suggested under the Breaux-Frist proposal,
would basically be say to the companies, you come in and bid on
these plans. What do you need in terms of premiums in order to
provide benefits, and we are going to have several companies
come in and compete against each other, and then Medicare will,
essentially, decide what is the best deal, and then pay the
premium based on that competitive bidding as opposed to this
formula.
Could each, Mr. Haggett, Dr. Harmon-Weiss, and Dr.
Harrison, comment on what do you think is the better of those
two fixes or a third fix if you think it is best yet?
Mr. Haggett. I believe the whole competitive bidding issue
is one that we have looked at and are, I guess, conceptually,
not opposed to. We are concerned about what the details are, as
you would expect. One of the issues that is in play in this
marketplace, and I suspect many other marketplaces throughout
the country, is really the competitive aspect of the
Medicare+Choice marketplace. When you have a county like
Philadelphia County, and four suburban counties where there is
a significant difference in payment rates, you also have
companies--we have got competitors that operate only in
Philadelphia. So they are at an advantage to that extent, that
their service area is different than ours. And I am not sure if
that would be a concern when you go into a competitive
situation, you know, would it be a county by county type of
situation, and would we, in effect, use a different methodology
to get to the same results, where, you know, unless the
underpinning fee-for-service, or whatever the base costs are,
were modified to acknowledge that type of thing.
I think, also, one of the aspects in terms of updating the
formula, the data that is currently being used is 1997 data.
Significant changes have happened, certainly, in this
marketplace, other marketplaces throughout the country,
provider consolidations, you know. There are many more separate
hospitals, many more of the physician practices were
independent. They are now all wrapped together and our ability
to negotiate is very different than it was 5 years ago when
this data, upon which we are paid now, was collected and used.
So to your point, I think the concept of competitive
bidding is something, you know, that we are not necessarily
opposed to. It is something, however, that there are a lot of
component parts to that that really need to be thought through
to really get to the result that looks at more natural regions.
To us, when we look at the--and we rate any of our other
business, it is on a regional basis. Healthcare in this
community is a regional enterprise. The pricing structure that
is in place right now is artificial to the detriment of
suburban Medicare beneficiaries. I can think of, virtually, no
other marketplace, no other product line that we operate in,
that is similar. Medicaid contracts are done on a regional
service area basis, not on a specific county basis, and I think
some acknowledgement of what is real in the marketplace being
factored into whatever approach is taken is an absolute must.
Mr. Greenwood. Dr. Harmon-Weiss.
Ms. Harmon-Weiss. Thank you. We, certainly, as both Mr.
Haggett and I have emphasized, there needs to be a way for the
Medicare+Choice rates to be raised, reflective of the medical
cost inflation that we are experiencing. We, certainly, do have
issues with the rates being so disparate in Philadelphia versus
Bucks and Montgomery County, and we would like to see some
resolution on that issue.
As far as moving to a competitive bidding system, I would
have similar reservations that Mr. Haggett has expressed, and
that is as long as it is not based upon some draconian formula
reflecting arcane data. We feel that this would be of great
interest because it should be able to be reflective of the true
cost of providing healthcare in this market. We feel that the
market based forces are really important in setting health
insurance rates. So for example, our plan sponsored
commercially insured members are the bulk of our business.
There are 10 or 20 times the number of beneficiaries in the
market that are commercially insured. The plan sponsors have no
intention of spending more money than they have to. They,
actually, drive the business and they, actually, drive the
health plan to get the lowest rates possible with the
limitations that my colleague has expressed within this market.
So we really feel that using market based forces is far to the
benefit of every Medicare beneficiary in this country.
Mr. Greenwood. Dr. Harrison.
Mr. Harrison. MedPAC has recommended, basically, going back
to the old system.
Mr. Greenwood. The old system being the AAPCC?
Mr. Harrison. The AAPCC, where we look at the county-based
rates, although, we are not wedded to stay with the counties,
and issues do come into play as they would in competitive
bidding as to what you want to make the market areas, and I
think we need some more work. I know HCFA, some people at HCFA,
have been doing some work to try to better define the market
areas, and I think we need to do that.
Mr. Greenwood. I have a question for Mr. Haggett and
another question for Dr. Harmon-Weiss, and I am, obviously,
exceeding my 5-minute limit. I will do the same for the other
gentlemen.
Can you tell us what your profit margin is in this region
here? And if you could include what were your administrative
costs and your profit margin on these products in the
Philadelphia region?
Mr. Haggett. Yeah. For the--maybe take it by product by
product. Keystone 65, by far, our largest program, has
generated a margin between the 2 and 3 percent range over the
last 5 years. That has, progressively, declined and this year
is projected to be less than 1 percent.
Our administrative costs have run over the last 5 years
between 5.5 and 6 percent of the total revenue dollars, which
when we look at the State, or even the national standard, is
extremely competitive. On the commercial side, you would expect
to see anywhere from 10 to 12 percent, so it is significantly
lower.
Personal Choice, the margins have been lower, less than 2
percent since the beginning of that program, and that continues
to be the case. Our administrative cost there, likewise, in the
6 percent range. And our product in New Jersey, and while I
know we are focusing on Pennsylvania, but we do offer product
in New Jersey that is very comparable to the Keystone 65
product. We have never made any money in that market. We have
been in it for 4 years.
Ms. Harmon-Weiss. I have been advised by my financial
colleague who accompanied me today that we are seeing the same
trends that have been expressed by my colleague.
Mr. Greenwood. A final question, and then I will ask--let
us be mannerly here in Bucks County, please.
An interesting--to me, an interesting phenomena occurred
here this morning. That is when our first panelists were, the
beneficiaries, were asked questions that had to do with is it a
better deal for you to be on a Medicare+Choice plan
administered by a private insurance company or is it better for
you, financially, to be on regular fee-for-service Medicare,
most of the beneficiaries' responses were, oh, we are still
better off, financially. And Ms. Kopacz said in terms of
advising her clients, in many cases, you are still better off,
financially, to be with a private insurer than on the Medicare
fee-for-service. And yet, when I think Mr. Hoeffel asked a
question, which was when it comes to prescription drugs, would
you rather be in a Medicare regular fee-for-service system or
would you rather see that constructed in the private insurance
system, I think they all, unanimously, said, oh, we don't want
to be with the private company, we want to be with regular old
Medicare. So you have this sort of irony here, and that is,
when you look at what people are receiving, even though they
are unhappy with it, they think--they don't believe you when
you tell them you are making 1 or 2 percent profit. They don't
really love you very much if you haven't noticed. And yet, they
are still better off with you than they are in Medicare fee-
for-service, for the most part.
Why do you think it is that even though, theoretically, you
can offer better option in many instances than the regular
Medicare fee-for-service, people don't really trust the
companies and don't really believe that they are going to get a
better deal when, for instance, it comes to prescription drugs?
Why do you think they have this credibility issue?
Mr. Haggett. In today's environment, over the last couple
of years, we have been the ones on the front line cutting back
on the benefits and increasing the premiums. I am the one who
signs the letters for our Keystone members; it doesn't come
from Congress, it doesn't come from HCFA. So we are, to a
certain extent, the face that is put on the adjustments that
need to be made.
I would counter that, however, by looking at our company's
and program's disenrollment rates, which on a voluntary basis,
annually, run less than 5 percent, which is significantly lower
than the national average. We look at the satisfaction results
that come through the standardized surveys and so forth that
are done. More than 85 percent of our members report high
levels of satisfaction with the plan. We look at our outcomes,
clinic outcomes data, we look at the accreditation agencies and
so forth, and frankly, I am very proud to offer--to continue to
offer the product.
Can we get it right all the time? No, we don't. I get
concerned when I hear any member saying they can't get through,
they can't get an answer to the question, and believe me, that
is something that we take very seriously. I, personally,
monitor phone calls from our members. I, personally, was out
and did about 30 of these community meetings, as did other
people within our management team. We try in every way to help
support and make it as easy and financially affordable,
however, the game in which we are playing is a tough one right
now, as we all acknowledge. So that is, hopefully, the response
to your question.
Mr. Greenwood. Dr. Harmon-Weiss?
Ms. Harmon-Weiss. I agree that we are on the front lines
and we have been in the very painful position of having to
decrease benefits. And the citizens of Bucks County and
Montgomery County were very pleased with our benefit package,
and they complained bitterly, including my own relatives, that
we are not providing the same benefits. At the same time, we
do, in fact, provide them the opportunities to switch plans if
they are unhappy. If they are dissatisfied, they can switch
plans, they can join another plant. They always have the
opportunity to go back to fee-for-service Medicare, and we find
that they don't do that.
There were 308 individual members who are effective with
our health plan on November 1, 1985; 47 of them in Bucks County
remained enrolled to this day. They have been with us through
the thick and thin, even though we have had to change the
benefit package and change the premiums. Similarly, in
Montgomery County, there were 142 members who were enrolled
with us on 11-1-85, who have been continuously enrolled. We
have kept them healthy, and they still remain enrolled at this
time. That is a great deal of loyalty. We have a great deal of
loyalty out there with our members.
Also, as my colleague was emphasizing, we provide
coordinated care to Medicare beneficiaries. We provide services
and make sure that Medicare beneficiaries have their
preventative care. We, currently, can show that 80 percent of
the Medicare enrollees in our plan have received mammography,
whereas when you look at the fee-for-service data in
Pennsylvania, for example, only 40 percent of the Medicare
beneficiaries in Pennsylvania received the service even though
it has been covered by Medicare for several years. That is just
one example. There are many, many examples of the benefits that
we can bring to the beneficiaries under managed care by
coordinating their care.
Mr. Greenwood. Thank you all. I now yield 10 minutes to the
gentleman from Florida, Mr. Deutsch.
Mr. Deutsch. Thank you, Mr. Chairman. One of the things
that is interesting, I guess, if you can, when January 1 rolled
around for the two plans, how many people actually dropped
coverage? How many people dropped out based upon the change in
premium?
Mr. Haggett. For Keystone 65, the total number through the
first quarter of the year, through the 1st of March, which we
really view as our transition period, a total of about 7,000
members dropped coverage from our plan. However, at the same
time, about 5,000 new members joined. And part of that 7,000
are people who are not eligible for Medicare any longer, people
who died, so it is not just the voluntary folks. I mean, that
is the reality of our business, every month that is there.
Mr. Deutsch. Okay. Dr. Harmon-Weiss?
Ms. Harmon-Weiss. I have the information for you in Bucks
County. With the change in benefits for 2001 and the
introduction of the higher premium, we have a decrease in our
enrollment of 500 members in Bucks County. And as I mentioned
before, that is against a 16,000 member enrollment previously
in Bucks County.
Mr. Deutsch. One of the, you know, sort of interesting
issues, you know, you mention, I guess, you have been providing
Medicare+Choice since 1985, and Keystone----
Mr. Haggett. 1993.
Mr. Deutsch. 1993. I guess at some point, there was the
sort of glory days, you know, where you were really providing
the type of service that you felt you really wanted to. You
know, could you describe--I mean, what was the glory year, I
mean, when you felt you were really providing the benefits that
you wanted to provide for your beneficiaries? And then sort of,
how much more would it cost to get to that level? I assume you
are not providing hearing aids anymore. Is that accurate for
both of you?
Mr. Haggett. We do.
Ms. Harmon-Weiss. We do.
Mr. Deutsch. All right. And prescription glasses, are you--
--
Mr. Haggett. We do.
Mr. Deutsch. They are not your--are there other benefits
that you have dropped, or the main dropping was prescription
drugs?
Mr. Haggett. Correct.
Mr. Deutsch. All right. So were there other cutbacks on any
other benefits you provided? You provided glasses at one point
and then you chose not to?
Ms. Harmon-Weiss. In 2001, we have a discount vision
program, but no benefit coverage dollar limit for glasses.
Mr. Deutsch. No healthcare memberships?
Ms. Harmon-Weiss. Pardon me?
Mr. Deutsch. Healthcare memberships.
Ms. Harmon-Weiss. Fitness benefit? We had a fitness benefit
previously that provided healthcare memberships. We had a
dental benefit, and now we have a discount dental program.
Dental, as you be aware, is becoming much more of an important
issue to Medicare beneficiaries. Previously, when that care was
enacted, Medicare beneficiaries were dentureless, at least 55
percent of them were, but now they have teeth and care about
them through the attrition.
Mr. Deutsch. So I mean, I guess the question sort of is,
you know, how much more would you need to provide it under the
existing system? How much more money would you need on a
monthly basis to get back to the point where you can provide
coverage and say, hey, to every beneficiary, you are not going
to have one out-of-pocket dollar for prescription drug
coverage? Because the reality, that is what seniors want. I
mean, when seniors joined HMO's, what they wanted was the
acknowledgement that when they chose to join an HMO, the
healthcare costs, for all intents and purposes, were over.
Their decision was to join the HMO or not to join the HMO, and
their filing issues were over, and it gave them, you know,
extreme comfort. And I guess what I am really hearing is that
extreme comfort is gone.
Ms. Harmon-Weiss. As we mentioned previously, the years
leading up to BBA included updates to our fees annually. They
were quite different in different parts of the country, but as
we heard from our colleague in MedPAC, they were based upon the
fee-for-service experience on a county by county basis. At that
time, this would be in the early 1990's, we were able to
provide prescription drug coverage, we were able to take the
Medicare money that would have been spent in fee-for-service,
receive 5 percent less, and still provide coverage for physical
examinations, which basic Medicare doesn't cover. We were able
to provide a rather rich benefit package of prescription
medication, all the wellness, all the preventative care, plus
hearing aids, which Medicare doesn't cover, and a number of
other programs and ways in which our benefit package was richer
than Federal Medicare.
Mr. Deutsch. Right. And I guess, you know, one of the
questions, though, is on an average, you know, basis--this is
one of the other issues. I mean, there is the issue that
Philadelphia is getting more than Bucks County, but the other
issue, really, is what is Medicare+Choice getting in
relationship to fee-for-service. I mean, there has been a real
debate, and again, the chairman and I sit on the committee that
has jurisdiction over Medicare and Medicaid, so we go through
these debates, and there has been a real debate, which all of
you are aware of for fee-for-service physicians, in particular,
who are not members of HMO's, who feel that, you know, there
was too much--you know, the benefit, the incentive for people
to join HMO's was too good, and they had a real effort to sort
of, you know, try to cut that back, to increase fee-for-
service. On a percentage basis, you said that 5 percent, which
was the original concept of Medicare HMO's. What is the
differential now between a Medicare beneficiary, in terms of
payment that you get, versus your HMO patient?
Ms. Harmon-Weiss. I think the graphic here is demonstrating
the gap that is developing. If I am incorrect, please let me
know, but I think that graphic is demonstrating the gap that is
developing between Medicare fee-for-service spending and HMO's
right there. It is growing extraordinarily wide, as we have
testified, 9.5 percent in 2001. And actually, I think we
included that in our testimony, but came at it from our
company's perspective.
Mr. Deutsch. So what we are saying now is that we are
spending 9 percent more on a fee-for-service patient on
average?
Ms. Harmon-Weiss. That is what the data says.
Mr. Deutsch. Ms. Berek, do you want to try to respond to
that?
Ms. Berek. What the data there is showing is the rate of
growth in 1 year. If you average it out over the last few
years, I don't think the difference is that great, because when
the fee-for-service spending was going down in 1998 and 1999,
our payment to managed care plans was going up by the flow,
which was 2 percent.
Mr. Deutsch. Can I ask you, just so I understand this
chart, which is kind of hard to understand----
Ms. Berek. You got just about my limit on the chart, but we
can try it.
Mr. Deutsch. Well, I mean, is this just total amount or is
this per person? I mean, what does this chart show? I still
have no idea what this chart is trying to explain.
Ms. Berek. This shows, if I am correct, the percentage
annual increase of the total amount.
Mr. Deutsch. So total amount. That has nothing to do per
person?
Ms. Berek. It has nothing to do with per person, right. And
it is the annual increase of growth, so you don't see the base
percentage growth. It is not showing you the base, it is
showing you percentage growth on the base.
Mr. Deutsch. Right. So I mean----
Ms. Berek. Excuse me. It is divided on a per person.
Mr. Deutsch. So it is per person. So is what we are saying
now that a fee-for-service person is now getting 9.6 percent
more than a Medicare reimbursement? I mean, what is the bottom
line?
Ms. Berek. The growth in spending for a fee-for-service
beneficiary in the year 2001 was 9.6 percent. The growth in
spending on a managed care beneficiary, nationally, was 4.4
percent, and in Bucks County was 3 percent. But if you are
going back, in 1998, we spent less money on Medicare
beneficiaries in fee-for-service than we did in 1997.
Mr. Deutsch. I guess, you know, one of the questions that I
am trying to understand is, you know, when Medicare initiated
the pilot projects to do HMO's which my recollection, again, is
before we were in Congress, but really started in south Florida
when Claude Pepper was chairman of the Rules Committee in the
Congress, and started, actually, in my community in south
Florida. And in fact, you know, it didn't exist. I mean, it was
a creation of HCFA and Members of Congress did it as a pilot
project, and the concept really was that it was going to save
Medicare money, and that was the 95 percent reimbursement that
you are saying. Are we at the point now where it would still
save money but we are reimbursing at a higher rate for fee-for-
service?
In other words, some of the things that you are talking
about, which I think are really significant, and I am glad that
you brought them up. I mean, the utilization rate of mammogram.
I mean, everyone in this audience, if no one gets anything else
out of this meeting today, you should be aware that through the
good works of our committee, Mr. Greenwood and myself, that
since we were both elected to Congress in 1992, we have
consistently added preventative coverage for Medicare as a
benefit. Medicare, originally, didn't have any preventative
coverage at all, so it now provides mammogram coverage,
colonoscopy screening. As of July 1 of this year, 35,000,000
Americans will be eligible under Medicare for colonoscopy
screening, which they weren't previously until July 1. So you
know, it is Congress at work. But you are absolutely correct.
The utilization rates for these screenings is incredibly low. I
mean, you know, just scary. I mean, unfortunately, low. And for
everyone in this audience, they should be aware that their
Medicare, whether fee-for-service or HMO, they have benefits
that they can avail themselves of, which we know,
statistically, a very high percentage of people just don't do
that. But the whole theory is that if you avail yourself of
these preventative things, you are going to be healthier, and
ultimately, you are going to save money.
So what I am trying to get a sense of, do we know is it
working? I mean, are we cutting--in other words, I guess the
question I am really trying to get to, are we cutting back so
severely--in other words, it is a balance. It really is a
balance. I think there shouldn't be an incentive for people to
join fee-for-service, there shouldn't be an incentive for
people to join HMO's. It should be a real choice that
individuals have, but it has to be sort of a level playing
field choice. And one of the issues about not having
prescription drug coverage, which I think physicians who were
not part of traditional, you know, or an HMO, had legitimate
concerns. Physicians would come to me in my community and say,
hey, I am losing patients to an HMO because they are getting
prescription drug coverage. What can I do? Well, openly, the
only thing you can do is have prescription drug coverage under
traditional Medicare so that people can make intelligent
choices.
But I guess, can anyone--can you try to answer that? Are we
paying more than we should? I mean, you are doing it from a
research basis. Go ahead.
Ms. Berek. I was trying to ask our policy statistical
person behind me to say can we tell you whether we are saving
or not. We can tell you on a locality by locality basis what we
are saving. I don't think we can give you the broader answer,
and I don't think I can say to you, honestly, that HCFA
understands right now whether we have the right level of
incentive. We see the growth in managed care going down, which
we do not think is good, and we want to see the growth in
managed care going up.
And so I can say to you that we are committed to working
with you and Chairman Greenwood to figure out what are the
things we need to do, both in terms of policy and finance, to
change the direction so that we do what Medicare+Choice was
philosophically intended to do, which was increase the
participation in managed care, increase the availability of
choices for our beneficiaries, and whether I can tell you in
theory it is saving what it should or not doesn't matter. It is
not working in terms of the need to increase the choices for
beneficiaries and increase what they need. So we are committed
to working with you to both look at the numbers, because I know
when you pass a budget, it is numbers that count--to look at
the numbers and to look at the rules, and see what are the
things we have to change, what are the things we have to fix,
and help you make the decisions to make those changes. But I
can't--I mean, I can have somebody sit down with you afterwards
on the detail, but I think we should focus----
Mr. Greenwood. The time of the----
Mr. Deutsch. The Chairman mentioned we are out of time. Let
me just ask one very quick question as a last question.
Mr. Greenwood. Well, I have got to--here is our problem. We
promised to be out of here at 11:30 so that they can set up for
lunch, and Mr. Hoeffel--we have given the gentleman 15 minutes.
We need to give the gentleman, Mr. Hoeffel, some time.
Mr. Deutsch. Okay. All right.
Mr. Greenwood. The gentleman from Montgomery County is
recognized for 10 minutes.
Mr. Hoeffel. Thank you, Mr. Chairman, and I will take less
than that.
We have talked about three sets of numbers, basically. We
have talked about the medical cost inflation that the carriers
face and you want to be reimbursed at a rate that reflects the
increased cost of medical care so you guys can continue to make
the profit you need to make and provide the services you need
to make. We have talked about the county by county
reimbursement rate you get from Medicare per beneficiary, the
amount that we pay you to provide a service and to pay the
doctors and the hospitals. And we have talked about the county
by county premiums you charge to the beneficiaries, to the
customers.
And what really bugs me is the notion that we pay you more
where there is higher medical costs, such as Philadelphia, but
the system is so askew that your response in the marketplace is
to charge no premium to the people that happen to live there
and higher premium to the people out in the suburbs that have
no--at a lower cost. And I am not blaming the representatives
of the companies here. I mean, I think, fundamentally, this is
Congress' responsibility to figure out how to balance this out.
But that is what we have got to focus on.
And I wanted to say to the representative, Dr. Harrison,
from the Medical Payment Advisory Commission, that in your
report you said that--in your testimony, you said that the
Commission is not yet ready to use a metropolitan area for
payment because it may be too large an area to represent a
homogenous healthcare market. I don't see why that is a
problem. Why can't we figure out the service area for Aetna,
the service area for Blue Cross, and then make sure that they
are charging one premium for everybody that lives in that
service area? And one more comment before you respond. You said
that we need--the best way to define local markets awaits
further research, which I think is the same problem. Congress
can't wait much longer. We need to have the necessary research,
and I don't understand why it is so hard for us to determine
what a fair and uniform premium would be for these carriers to
charge in a service area where they provide the same coverage.
Mr. Harrison. Okay. Two issues. It used to be that you had
to charge the same premium in a service area, but what happened
was that the plans would then choose their service area and
they didn't always go along county lines. And so they would
sort of customize a service area to go with that premium and
package. As Mr. Haggett said, depending on how you arrange
these areas, you could have competitors only playing in parts
of them and that wouldn't be competitively fair, because if
they were only in the areas where they would get high payments,
then they would be able to charge a lower premium than someone
who is covering the entire market.
Mr. Hoeffel. Well, maybe then we have to reimburse on a
regional basis and then have premiums on a regional basis.
Mr. Harrison. That is one possibility, yes.
Mr. Hoeffel. Rather than reimburse on counties and have
premiums based on counties. It just isn't fair the way it works
now.
Mr. Harrison. I think you are right, but our commissioners
were concerned about some of the competitive issues when you
got into some of the larger metropolitan areas, you know. If
you look at the Baltimore-Washington Metropolitan area, it goes
all the way to West Virginia, and you know darn well that there
are different costs involved in treating people in West
Virginia than in D.C.
Mr. Hoeffel. Well, I thank you. I know we are out of time.
I want to yield back. Thanks to the panel for your testimony.
Mr. Greenwood. Well, I thank all of our witnesses for being
here today. I want to thank my colleagues for traveling here
and participating in this hearing. Thanks to the Bristol Senior
Center for hosting us. And thank you to all of the public for
coming.
I think, as anyone who has sat here for the last couple of
hours plus can understand, this is at one time a very complex
issue. You can hear all this jargon and gobbledygook about
AAPCC, and demographic factors, and geographic variations, and
blended rates, and utilization rates, and so forth, and I can
see the eyes glazing over as we get into all of this very
complex discussion. But what we have to remember at the same
time is that--and we hearken back to our first panel--this is
about real people, real men and women who have served their
country, who have lived their lives, and who have a right to
expect at this point in their life that we, their elected
representatives, will figure out how to take care of their
healthcare needs, to provide them with the kind of healthcare
that they need, that they have to have, or they don't have any
choices about the medications that they take, and they have a
right to the sense of security that they are going to have that
taken care of for them.
I am hell-bent to get this done this year. I have two
priorities in the Congress, and I think my colleagues shared
this: (1) We have to get a prescription drug benefit into
Medicare, we have to do it this year; and (2) We have to fix
Medicare+Choice so that for those seniors who choose that
benefit and find it best to their advantage, they have a
program that they can afford, that, hopefully, they don't have
to pay a premium for it, and they can offer them a prescription
drug benefit, as well as the eye care, the dental care, and the
audio care, and all of the rest. That is our responsibility to
do it. I think I owe it to my mother and father to make that
the case, I think I owe it to everyone that I represent, and
that is what we are going to try to do and try to do this year.
Thank you very much for being here.
[Whereupon, at 11:33 a.m., the subcommittee was adjourned.]
[Additional material submitted for the record follows:]
Prepared Statement of Hon. W.J. ``Billy'' Tauzin, Chairman, Committee
on Energy and Commerce
Chairman Greenwood, I would like to congratulate you for holding
this field hearing today. This is an important issue that affects your
constituents and millions of Medicare beneficiaries across the country.
In 1997, Congress passed the Balanced Budget Act (BBA) of 1997,
which included the provisions that created the Medicare+Choice program.
This legislation redesigned the system for setting Medicare payment
rates for managed health care plans that contract with Medicare. The
goals in creating Medicare+Choice were to expand health plans to
markets where access to managed care plans was limited or nonexistent,
and to offer new types of health plans in all areas. Unfortunately,
some of these goals have not been realized.
Medicare managed care enrollment has remained nearly level since
the implementation of the Medicare+Choice program, increasing from
about 14% of the Medicare population in 1997 to about 16% of the
Medicare population by September, 2000. At the same time, more than 100
plans have either terminated their contracts and fully withdrawn from
the program or partially withdrawn by reducing the geographic areas
they served.
In areas, such as Bucks County, the reimbursement level paid by
Medicare to Medicare+Choice organizations has been limited to a rate of
2 percent annual growth since 1998. This has led to the recent local
developments where health care plans have decreased benefits and
instituted a monthly premium, for the first time. Most studies and
analyses of health care costs tell us that in order to provide quality
health care, we must increase spending on this program at an annual
rate greater than 2 percent.
Last year, Congress passed the Medicare, Medicaid, and SCHIP
Benefits Improvement and Protection Act of 2000 (BIPA) in response to
the information that I have just cited. Contained within BIPA is a
provision that increases payments in counties where Medicare+Choice
organizations receive the minimum percentage increase from 2 percent to
3 percent, for this year only. Clearly, this is a temporary fix and
Congress must act this year to address the reimbursement methodology so
that payments to Medicare+Choice organizations adequately reflect the
growth in health care costs in these areas.
Chairman Greenwood and the Subcommittee staff have spent numerous
hours reviewing data and information on the structure and management of
the Medicare+Choice program. I look forward to hearing his findings. I
am also eager to hear the testimony of the stakeholders who have been
invited to this hearing. It is of the utmost importance to listen to
the people who rely on these programs. It is also crucial to have a
dialogue with those who are tasked with the management and
implementation of this program. They work with the program every day
and see its strengths and weaknesses first-hand.
Chairman Greenwood, I look forward to hearing what your analysis
has highlighted as the important issues regarding Medicare+Choice
payment methodology. I believe that an important part of modernizing
the Medicare program is laying the foundation for more competition and
future innovation in the Medicare program. Medicare+Choice is a
fundamental component in the effort for testing competitive models that
can provide Medicare beneficiaries with better health care. I look
forward to working with you, and other Members of the Committee, in an
effort to fashion long term solutions to the problems that have
inhibited the growth of the Medicare+Choice program.
______
Prepared Statement of Hon. Jim Saxton, a Representative in Congress
from the State of New Jersey
Mr Chairman, I am pleased to have the opportunity to provide
testimony on the issue of reimbursement for Medicare+Choice plans. With
the thousands of seniors in my district who are enrolled in
Medicare+Choice plans and are deeply affected by the annual increase in
premiums that have taken place, I believe this issue needs to be
carefully examined and I commend the Chairman for holding this hearing.
Beginning in the late fall of 1999, the Medicare beneficiaries in
my district who were enrolled in Medicare+Choice plans received
notification that their premiums would be increased substantially for
2000. In some instances, the premiums were increased by 250 percent. At
the same time, benefits vital to many seniors--such as coverage of
prescription drugs--were dropped. Clearly, this troubled many of the
seniors in my district.
Unfortunately, this was not a one-time event. Once again, last fall
Medicare+Choice enrollees in my district were informed by their health
insurance plans that their premiums would again increase for 2001.
Many of those affected by these premium increases contacted my
office. Because so many of them were on fixed budgets, they expressed
how difficult it was for Medicare+Choice beneficiaries to afford two
consecutive premium increases, especially when they were at such an
extreme level. In addition, they were concerned because seniors in
Philadelphia and New York City were receiving better benefits without
the substantial increase in premiums.
After hearing the latter point raised by many of my Medicare+Choice
constituents, I began to look into this issue and discovered the major
discrepancies that existed between the reimbursement rates for each
county--not only when you compare counties in different states, but
also counties within the same state.
To say the least, the difference between the reimbursement rates
for those plans who serve the three counties in my district and the
reimbursement rates in Philadelphia and New York is staggering.
Medicare+Choice plans in Ocean County receive $550.07 per enrolled
beneficiary; those in Burlington County receive $569.18; and plans in
Camden County receive $611.27 per enrollee. In Philadelphia County,
Medicare+Choice plans are reimbursed at $769.77, and those plans
serving New York City receive $838.75 per enrolled beneficiary.
In Ocean County, plans receive 29 percent less per beneficiary than
Medicare+Choice plans in Philadelphia and 34 percent less than plans in
New York City. When you take into consideration that this is a county
with over 100,000 Medicare beneficiaries--17 percent of which are
enrolled in Medicare+Choice plans--plans who serve nearly 20,000
seniors are being paid 29 and 34 percent less to provide health
benefits than in neighboring cities.
In Burlington County, the pattern continues. The difference in the
per-enrollee reimbursement is 26 percent as compared to Philadelphia
and 32 percent in New York.
Finally, in Camden County, plans are reimbursed at 21 percent less
than those in Philadelphia and 27 percent less than those in New York
City. Important to note, the reimbursement level in Camden County is
the highest in New Jersey, and yet it is way behind the levels of
reimbursements in Philadelphia and New York.
In examining the justification for and the reasoning behind the
Medicare+Choice premium increase in the last two years, there are also
many other components of the Medicare+Choice program that should be
taken into consideration, including increasing medical costs, undue
regulatory burden within the Medicare+Choice program, and additional
oversight on how the Medicare+Choice plans are using the reimbursements
they receive.
However, when reviewing the reimbursements for the plans who serve
the Medicare+Choice enrollees in my district versus those in
Pennsylvania and New York, there is a drastic difference in these
rates. Clearly, this disparity has and will continue to adversely
affect the seniors who live in counties where Medicare+Choice plans
receive a substantial--and seemingly unjustified--lower rate of
reimbursement.
When the health care of thousands of seniors is put at risk, it is
vital that all aspects of this important program be examined. Seniors
need to be protected from having to face yet another premium increase
or a notice from their Medicare+Choice plan stating that they are no
longer serving the area.
Clearly, the reimbursement methodology of the Medicare+Choice
program needs to be thoroughly reviewed, in hopes of finding a way to
bridge the gap between county reimbursement rates. I am pleased that
Chairman Greenwood has begun to move forward on this issue and I
commend him for holding this hearing.