This is an archive page. The links are no longer being updated.
Statement of
Hon. Bobby P. Jindal,
Assistant Secretary for Planning and Evaluation,
Department of Health and Human Services
Testimony Before the Subcommittee on Health
of the House Committee on Ways and Means
Hearing on
Medicare Supplemental Insurance (Medigap)
March 14, 2002
Chairman Johnson, Representative Stark, distinguished Subcommittee
members, thank you for inviting me to discuss the issue
of Medicare supplemental insurance, commonly referred to
as Medigap, and to share with you the Administration�s views
about � and proposals to strengthen � this critical complement
to the Medicare fee-for-service program. Clearly, because
of the major gaps in the benefit package in the fee-for-service
program, Medigap is an essential part of Medicare coverage
for millions of our nation�s elderly and disabled. The Administration
shares your concern regarding the rapid increases in Medigap
premiums in recent years: most seniors now pay much more
for Medigap than they pay in Medicare premiums. We also
agree that we can better design both Medicare and Medigap
so that seniors and people with disabilities can get more
affordable coverage, and get the most for the health care
dollars they spend.
As you know, the President has put forward a framework
for strengthening Medicare that would address the many threats
to its ability to give seniors the health security they
need. Medicare�s lack of prescription drug coverage is only
one example of the ways in which the program has lagged
behind. The Administration also believes that Medicare should
provide better coverage for preventive care and serious
illness. Medicare's statutory benefits have enormous gaps,
and its cost-sharing requirements can add up quickly. Beneficiaries
who require $25,000 or more in care are typically responsible
for about $5,000 in deductibles and co-payments. Yet Medicare
provides no stop-loss protection � something the Administration
believes should change.
As past of legislation to improve Medicare�s existing coverage,
it is also important to develop new Medigap options that
better meet beneficiary needs and provide more affordable
premiums. Clearly the existing set of options, which require
beneficiaries to purchase "first-dollar" coverage
for hospitalizations and even basic services like doctor�s
visits before they can obtain any drug coverage, has become
outdated. Yet giving seniors the option of a better benefit
package, including prescription drugs, and more affordable
Medigap plans to go along with it will take several years
to implement. So we have also proposed that two new Medigap
plans be added to improve beneficiaries� options quickly.
These options would include valuable prescription drug coverage,
protection against high out-of-pocket costs, and coverage
of most of Medicare�s cost-sharing � all at a significantly
lower price than the current Medigap options that include
prescription drugs. While we are obviously willing to work
with Congress and other interested parties on the details
of these initiatives, we believe that providing better short-term
options for seniors to get more affordable drug coverage
is a critical priority. In addition, these options would
generate modest savings for Medicare as well as savings
for beneficiaries.
BACKGROUND
Before I provide additional details about our proposals,
I would like to briefly review the key features of � and
problems with � Medigap coverage today. One of the main
reasons why nearly all seniors in the fee-for-service (government)
plan have supplemental insurance is that Medicare does not
provide adequate protection against the costs of serious
illness. As you know, the deductible for each hospital spell
now exceeds $800 and will grow rapidly. Moreover, Medicare
beneficiaries who require long hospital stays are exposed
to daily co-payments that run into the hundreds of dollars
� and Medicare coverage can eventually run out altogether.
This stands in stark contrast to private plans like the
Blue Cross/Blue Shield plan offered to Federal employees,
which has a single annual deductible and modest coinsurance
for outpatient care but provides much better coverage for
hospitalizations. Not surprisingly, the Coalition to Preserve
Choice for Seniors (which consists of several Medigap insurers)
recently found that coverage of hospital expenses not paid
by Medicare is the Medigap benefit that seniors value most.
Of course, not all beneficiaries get their supplemental
insurance through Medigap. Those who are eligible often
obtain this coverage through Medicaid or their former employer.
Many have been able to lower their co-payments and deductibles
by joining a Medicare+Choice plan. It is important to recognize
that, despite the changes in Medicare+Choice benefits that
have resulted from years of consistently inadequate payment
updates, these plans still provide a better deal for seniors
than fee-for-service Medicare plus an increasingly costly
Medigap policy. That is why the Administration places a
high priority on ensuring that these private plan options
remain available for beneficiaries.
But the focus of our discussion today is on the roughly
10 million beneficiaries who have to purchase their own
Medigap policy. The designs of these policies were standardized
in 1990 and have scarcely been updated since. As a result,
these seniors face important problems in getting the coverage
they need:
- Antiquated benefit design. The 1990 reforms created
10 standard Medigap plans, but three specific designs
account for about three-fourths of the enrollment in these
standardized plans. This concentration of enrollment suggests
that the other available plans are not providing the range
of options that beneficiaries need. What is more, Medigap
drug coverage can be purchased only in combination with
first-dollar coverage for other services. As a result,
the added premiums for these policies can be so high that
they greatly limit the value of the benefit � if these
policies are available at all. Not surprisingly, less
than 10 percent of those who purchase a standardized plan
buy one that covers drugs. In effect, it is easier for
seniors to get coverage for a foreign travel emergency
than it is to get drug coverage from Medigap.
- First-dollar coverage. All of the standard Medigap
plans pay the up-front costs of care for beneficiaries,
often including the first dollar spent. Research has demonstrated
that first-dollar coverage results in increased utilization
and higher costs without providing clear health benefits.
The independent Office of the Actuary at CMS estimates
that service use is 23 percent higher for beneficiaries
with Medigap than for those without supplemental insurance.*
Medicare pays most of these costs, but first-dollar coverage
also leads to higher Medicare and Medigap premiums. Indeed,
the added cost of a Medigap policy that covers the $100
Part B deductible often exceeds $100 � so seniors who
purchase these policies are merely "dollar trading."
According to GAO and others, even modest changes in first-dollar
coverage would lead to significantly lower Medicare costs,
and in turn, Medigap costs. Additionally, almost all private
insurance plans avoid first-dollar coverage and instead
use reasonable co-payments. Private plan enrollees have
some limited out-of-pocket costs to help encourage appropriate
use of services, and they benefit from much lower insurance
premiums. As a result, Medicare spending for those with
supplemental coverage through their employer is about
10% less than for those with individual Medigap policies.
- Rising premiums. The result of these problems
can be seen in high and rising premiums. In 1998, the
average senior was actually spending more on supplemental
insurance premiums than on prescription drugs. According
to Weiss Ratings, the cost of Medigap policies that provide
drug coverage has grown rapidly since then � by 17 to
34 percent in 2000 alone. Premiums for Medigap policies
that do not cover drugs did not rise quite as fast in
2000 but over the past three years have increased 25 to
45 percent.
IMPROVING MEDICARE AND MEDIGAP FOR THE FUTURE
Clearly, addressing these problems requires a comprehensive
approach. That is why the President worked with Members
of Congress from both parties to develop a framework for
strengthening and improving Medicare. It includes giving
all seniors the option of subsidized prescription drug coverage.
It includes giving seniors better options to reduce their
costs in a private plan. And it includes giving seniors
the option of keeping the coverage they have now or choosing
an improved benefit package with better coverage for preventive
care and serious illness as part of a modernized fee-for-service
plan. In specific:
- Medicare�s preventive benefits should have zero co-payments
and should be excluded from the deductible.
- Medicare�s traditional plan should have a single indexed
deductible for Parts A and B to provide better protection
from high expenses for all types of health care.
- Medicare should provide better coverage for serious
illnesses, through lower co-payments for hospitalizations,
better coverage for very long acute hospital stays, simplified
cost sharing for skilled nursing facility stays, and true
stop-loss protection against very high expenses for Medicare-covered
services.
- These changes should not reduce the overall value of
Medicare�s existing benefits.
These improvements in Medicare�s coverage will reduce the
benefit gaps that Medigap must fill and will lower Medigap
premiums. But the President�s framework also includes updated
and more affordable Medigap options for beneficiaries who
choose the improved Medicare benefit package. These new
options should begin by giving beneficiaries even better
protection against high-costs � supplementing the stop-loss
limit that would be added to Medicare. More generous policies
could then reduce Medicare�s deductibles and co-payments
� but they should not be structured in such a way that seniors
have to buy first dollar coverage for hospitalizations and
doctor�s visits before they can obtain drug coverage or
supplement the Medicare drug benefit.
At the same time, the President strongly believes that
beneficiaries who wish to keep their current benefits with
no changes must be able to do so. Let me be clear: under
the President�s framework, seniors who are happy with their
current Medigap policy would never have to change it.
Such restructuring will also take time. However, to provide
more affordable Medigap options before the improved benefit
package becomes available, and to improve the Medigap options
available for seniors who prefer their current Medicare
benefits, the Administration proposes the addition of two
new Medigap plans to the existing ten standardized plans.
We believe both of these new plans should cover all of the
coinsurance for extended hospital says in the same way that
the current Medigap plans do, but should not cover the Part
B deductible. To give seniors a choice about how best to
meet their needs:
- One plan would cover 75 percent of current cost-sharing
and have a lower stop-loss limit while providing modest
drug coverage that most beneficiaries would value. The
drug benefit would have a $250 deductible and cover half
of the next $2,500 in drug spending (as in the current
Medigap plans H and I).
- The other would provide coverage for additional drug
expenses � like the current plan J � but have a higher
stop-loss limit and cover 50 percent of Medicare�s cost-sharing.
Both of these options would be considerably more affordable
that the current Medigap policies that cover drugs. They
would substantially reduce cost-sharing for beneficiaries
and provide much better protection against high costs. They
would also provide needed options for beneficiaries who
want lower premiums but have not chosen to enroll in one
of the two high-deductible Medigap policies � giving beneficiaries
a choice between "all or nothing". And they would
increase the number of seniors with drug coverage. If we
provide a one-time opt-in for current beneficiaries, we
estimate that up to 1.5 million beneficiaries would choose
these new policies once they are available � and that nearly
half of these enrollees would be beneficiaries who do not
have drug coverage now. This could even be a conservative
estimate; the Coalition to Preserve Choice for Seniors found
that one-third of Medigap policy holders would favor a proposal
that included a modest deductible and some payments for
doctor visits and hospital stays � even without the offer
of drug coverage. Moreover, we can achieve this significant
increase in drug coverage among seniors right away, not
several years down the road, while saving money for beneficiaries
and the Medicare program.
Let me reiterate that we are quite open to working with
this Committee, other Members, and key stakeholders going
forward. For example, it could be that a nominal co-pay
for doctor�s visits would work better than a fixed percentage
or that the drug benefit designed could be improved. But,
as with our other Medicare proposals, we want to act now.
The idea of making updated Medigap plans available has long
had bipartisan support. For example, President Clinton proposed
to update Medigap with a new supplemental coverage option
that included reasonable limits on cost sharing. The new
plans we are proposing would also generate modest budgetary
savings � at least $1.3 billion over 10 years � since they
would not provide first-dollar coverage. But the primary
reason we support them is that they provide another means
for seniors to obtain more affordable drug coverage quickly.
I look forward to answering your questions.
HHS Home (www.hhs.gov) |
Topics (www.hhs.gov/SiteMap.html) |
What's New (www.hhs.gov/about/index.html#topiclist) |
For Kids (www.hhs.gov/kids/) |
FAQs (answers.hhs.gov) |
Disclaimers (www.hhs.gov/Disclaimer.html) |
Privacy Notice (www.hhs.gov/Privacy.html) |
FOIA (www.hhs.gov/foia/) |
Accessibility (www.hhs.gov/Accessibility.html) |
Contact Us (www.hhs.gov/ContactUs.html)
Last
revised: March 18, 2002