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Statement of
the 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 Energy and Commerce
Hearing on
Medicare Modernization: Examining the Federal
Employees
Health Benefit Program as a
Model for Seniors
March 20, 2002
Chairman Bilirakis, Representative Brown,
distinguished Subcommittee members, thank you for inviting
me to appear before the Committee today. I am delighted
to have the opportunity to discuss the Administration�s
goal of giving Medicare beneficiaries reliable and attractive
health plan options � and the lessons that can be drawn
from the Federal Employees Health Benefits Program (FEHBP)
about how to do so. We believe it is critical for seniors
to have these options, in addition to the option of staying
in today�s fee-for-service Medicare plan or choosing a fee-for-service
plan with an improved benefit package. About 5 million seniors,
including many with serious health problems, choose to enroll
in a private plan today � and for good reasons. Through
these plans Medicare beneficiaries can obtain drug coverage,
better preventive care, innovative disease management programs
and other benefits even as they lower their out-of-pocket
costs.
As the members of this committee know all too well, however,
millions of Medicare beneficiaries have only one health
plan available to them � the traditional fee-for-service
plan � and most seniors are given only one or two other
options. And in recent years, flaws in the payment system
for Medicare�s private plans have forced many of these plans
to reduce their benefits or service areas or withdraw from
the program entirely. While the benefits offered by the
plans that remain still provide a better deal for many seniors
than fee-for-service Medicare plus an increasingly costly
Medigap policy, millions of seniors who prefer private plans
have been made worse off as a result of these recent changes.
And without corrective legislation this situation will only
get worse � just at the time when rapid advances in care
will make it even more important for seniors to have these
options.
By contrast, Members of Congress, Administration officials,
and all other Federal employees have long been able to choose
from a wide variety of health plans, including not just
HMOs but more flexible Preferred Provider Organizations
and Point-of-Service plans as well. This system allows each
participant to choose the plan that best meets their health
needs and has given them access to innovative benefits as
well as options for reducing their premiums and health costs.
To quote the President, "Medicare beneficiaries should
have the same kind of reliable coverage options available
to all Federal employees throughout the country � a system
that has been proven to provide one of the highest levels
of satisfaction of any health care program." Of course,
Medicare�s failure to provide America�s seniors with reliable
health care options is just one of the ways in which the
program has lagged behind. That is why the Administration
developed a framework for strengthening Medicare to address
the many threats to its ability to give seniors the health
security they need, now and into the future.
At the same time, the President�s budget recognizes that
it will take several years to implement the comprehensive
improvements that Medicare needs, including a prescription
drug benefit and a more equitable payment system for private
plans. Therefore the Budget also proposes urgently needed
steps that should be incorporated into Medicare legislation
in order to stabilize the Medicare+Choice program. These
proposals would modify the Medicare+Choice payment formula
to better reflect actual healthcare cost increases, allocate
additional resources in 2003 to counties that have received
only minimum updates, and provide incentive payments for
new types of plans to participate in Medicare+Choice, including
PPOs. Together these augmented payments would address the
problem of persistently low payment updates to most Medicare+Choice
plans, making more plan choices available and improving
benefits for millions of seniors. Because these proposals
would allow many plans to provide or at least maintain drug
coverage in their benefit package, they also provide another
means of giving seniors prompt help with their drug costs
� so that they do not have to wait for the full implementation
of a drug benefit. But before I provide additional details
about these short-term proposals I would like to explain
how the Administration sees FEHBP as a useful example for
Medicare in providing reliable access to the kind of innovative
health benefits that so many seniors want and deserve.
Providing Reliable Health Insurance Options for Seniors
For more than 36 years, Medicare has been immensely successful
in helping America�s seniors achieve the promise of secure
access to needed health care. During that time, medical
practice has improved dramatically, but the Medicare benefit
package and delivery system have not kept pace. Medicare�s
lack of prescription drug coverage is only one example of
the ways in which the program has become outdated. Medicare
has also lagged behind the private sector in providing reliable
health insurance benefit options for beneficiaries that
best meet the beneficiaries� own circumstances and preferences.
Like the Federal government, many state governments and
most large private employers help their employees get the
care that is best suited to their needs by offering them
several health care plans, along with unbiased and useful
information that helps them choose the best one. But Medicare
has failed to provide America�s seniors with the same kind
of reliable health care options that every Federal employee
has received for decades. For many beneficiaries, particularly
those in rural areas, Medicare offers only one insurance
plan � it is strictly one-size-fits-all. Previous legislation
to address this problem, including the establishment of
the Medicare+Choice program, has not had the intended effect
of providing more reliable health insurance options for
Medicare beneficiaries.
The effects of Medicare�s current shortcomings
can be seen very clearly here in our Nation�s capital (and
in the figure below). Those of us who are Federal employees
living in Washington, DC, have eleven different health plans
to choose from, including a variety of fee-for-service plans
and health maintenance organizations (HMOs). But our neighbors
with Medicare coverage have only two choices � the traditional
fee-for-service plan and a single HMO.
FEDERAL EMPLOYEE PROGRAM PROVIDES MORE OPTIONS ![NUMBER OF HEALTH PLAN OPTIONS IN WASHIGTON, DC](https://webarchive.library.unt.edu/eot2008/20090512043126im_/http://www.hhs.gov/asl/images/image23.gif)
(The following is a text description of the above chart:
The title of the figure is "FEDERAL EMPLOYEE PROGRAM
PROVIDES MORE OPTIONS" The sub-heading is "NUMBER
OF HEALTH PLAN OPTIONS IN WASHIGTON, DC" The figure
shows the number of health plans available in Medicare and
in the Federal Employee Health Benefits Program (FEHBP)
for an eligible individual living in Washington, DC. A bar
chart shows the number of plans available in each program
that are (1) Fee-for-Service plans or Preferred Provider
Organizations (PPOs) and (2) Health Maintenance Organizations
(HMOs).
In Medicare there are a total of two health plans available
in Washington, DC: 1 fee-for-service plan (the traditional
Medicare program) and one HMO.
In FEHBP there are a total of eleven health plans available:
7 fee-for-service plans and 4 HMOs.)
This pattern occurs throughout the country, in urban and
rural areas alike. Park Rangers living in the most remote
national forests, and postal workers in every neighborhood,
have at least seven plan choices. Overall, FEHBP provides
health insurance coverage to 9 million workers and their
families through contracts with almost 180 insurers and
health plans.
Private plans like those offered to Federal employees have
long been the choice of millions of Medicare beneficiaries
because these plans allow beneficiaries to receive more
up-to-date benefits than those available under traditional
Medicare. Private plans will be the preferred option for
many seniors for several reasons:
- Private plans often have provided innovative new health
benefits � including preventive care, prescription drug
coverage, and dental services � without having to wait
for an act of Congress. Private plans also invented state-of-the-art
coordinated care for the many Medicare beneficiaries who
have multiple or chronic health problems.
- Private plan options allow seniors to reduce or eliminate
their co-payments and deductibles so that their out-of-pocket
payments are manageable � without having to purchase a
supplemental insurance policy that provide expensive "first
dollar" coverage.
- Private plan options give seniors more power. If they
are not happy with the service they are receiving, they
can switch to a different plan. Competition is the best
way to make bureaucracies and health plans responsive
� by giving customers the freedom to choose. Medicare
beneficiaries should have the same options as working
Americans.
For these reasons the President�s framework for strengthening
Medicare includes the principle that Medicare�s coverage
should be improved to give beneficiaries the same kind of
reliable health care options and access to innovative benefits
that all Federal employees and many other Americans enjoy.
As in the Federal employees� program and other successful
programs:
- Plans should be allowed to bid to provide Medicare�s
required benefits at a competitive price, and beneficiaries
who elect a less costly option should be able to keep
most of the savings � so that a beneficiary may pay no
premium at all.
- Medicare�s payment system should create a level playing
field for all plans in areas where private plans are paid
less today and should continue to encourage private plans
to participate in areas where Medicare provides few choices.
- The improved choice system should give beneficiaries
useful and timely comparative information on the quality
and total cost of all of their health care coverage options.
Administrative burdens on private plans should be reduced
while protecting patients� rights to allow good insurance
plans to focus on providing reliable, high-quality service
for Medicare beneficiaries.
- In areas where a significant share of seniors choose
to get their benefits through private plans, the government�s
share of Medicare costs should eventually reflect the
average cost of providing Medicare�s required benefits
in the private plans as well as the government plan. Low-income
seniors should continue to receive more comprehensive
support for their premiums and health care costs.
At the same time, many Medicare beneficiaries will prefer
to stay in the government-run, fee-for-service Medicare
plan. The President�s framework preserves the option of
staying in the existing plan, with no changes, for seniors
who prefer what they have now. It also provides an improved
government plan option with better preventive coverage,
better protection against the high costs of serious illnesses,
and more affordable Medigap coverage.
Strengthening Medicare+Choice Now
Clearly, a comprehensive set of improvements to Medicare
will take time to implement. Such improvements must include
giving all seniors the option of subsidized prescription
drug coverage. They must include giving all beneficiaries
better options to reduce their costs and obtain better benefits
in a private plan. But because so many beneficiaries value
the benefits they obtain through Medicare+Choice � and because
it is so important to retain these options for the future
so that seniors have access to the valuable and innovative
new benefits that private plans can provide � we need to
take steps now to encourage private plans to remain in Medicare
until the new payment system is phased in.
Medicare+Choice has enabled us to take advantage of private
sector expertise to give Medicare beneficiaries more services
for their premiums, often with lower cost sharing and more
benefits than are available under traditional Medicare.
It is important to recognize that these plans provide many
benefits that are valuable to seniors with serious and chronic
health conditions. For example:
- A Medicare+Choice plan in Boston instituted a comprehensive
disease management program for its enrollees with diabetes.
The result has been significant increases in the share
of enrollees who received annual retinal eye exams and
are monitored for diabetic nephropathy and substantial
improvements in the management of their Hemoglobin and
cholesterol levels.
- A Medicare+Choice plan in Florida instituted a comprehensive
disease management program to monitor, facilitate, and
coordinate care for enrollees stricken with cancer. As
a result, the number of acute hospital days per cancer
case dropped by about 15% over two years and the share
of inpatient admissions for complications with cancer
has declined by 10 percent.
- Research has shown that individuals who receive after-care
following hospital stays for mental illness are more likely
to be compliant with their treatment regimens and less
likely to be readmitted to the hospital. One Medicare+Choice
plan in New York instituted a case management program
for those hospitalized for mental health disorders and
nearly doubled the share of its enrollees who received
follow-up care within 7 days of their hospital discharge.
- A Medicare+Choice plan in California established a successful
outreach program to increase influenza vaccination rates
among their elderly and chronically ill beneficiaries
in order to reduce mortality and morbidity among these
at-risk populations.
As you know, the Medicare+Choice program has changed significantly
in the last several years. Hundreds of plans have left the
program or reduced their service areas affecting hundreds
of thousands of beneficiaries. In 2002, about 60 percent
of all Medicare beneficiaries have access to a Medicare+Choice
option, compared to 74 percent in 1998. This year, more
than 500,000 beneficiaries were impacted by organizations
either withdrawing from the program or reducing their service
areas. Plans with both zero premiums and no significant
beneficiary cost sharing have largely disappeared. In addition,
plans are less likely to offer drug coverage in their basic
plan and even when they do that coverage has become less
generous. As a result, the share of enrollees with drug
coverage in their basic plan declined from 84 percent in
1999 to 69 percent in 2001. This is because the annual increases
in Medicare+Choice payments in the counties where most enrollees
live have failed to reflect rising health care costs. Unfortunately,
as a result, plans that wish to stay in the program are
left with two options: reducing supplemental benefits or
increasing beneficiary cost sharing.
In 2001, the Administration took a number of actions to
reduce administrative burden on Medicare+Choice plans so
that they could focus on providing care to their enrollees.
Secretary Thompson and Administrator Scully have testified
about these administrative actions before this committee
and the other committees of jurisdiction. The Secretary�s
regulatory reform initiative will also address the regulatory
burden on Medicare+Choice plans. As the Secretary asked
when announcing this initiative, "At the very time
when we are trying to attract more managed care plans to
offer their services to Medicare beneficiaries, do we really
need 854 pages of regulations standing in the middle of
the front door to the program?" Here the contrast with
FEHBP � where high levels of enrollee satisfaction have
been achieved by contracting with health plans to provide
good options and using regulations only to the extent necessary
� is also striking.
But more must be done and that will require legislation.
Despite our best efforts to slow the number of plan withdrawals
through administrative actions, it is apparent that additional
improvements need to be made to the Medicare+Choice program
to encourage more plan participation and greater beneficiary
access to Medicare options. Simply put, the Medicare+Choice
payment system must be more responsive to the health care
marketplace, so that the program can meet beneficiary needs.
We support a fairer payment system for private plans in
Medicare because the current payment system is causing many
seniors to lose access to valuable benefits � and if left
uncorrected this problem will only get worse just as the
need to keep up with rapid advances in medical benefits
is growing.
Congress has acted to increase funding for Medicare+Choice
through legislation in recent years, but much of the increase
was targeted to so-called "floor" counties. As
a result, these counties have experienced cumulative average
payment increases of 50 percent over the last five years.
Specifically, the floor payment amount, which is the payment
received in many rural areas, increased from $415 to $475
in 2001 and $500 in 2002.
However, payment increases for private plans have failed
to stay anywhere close to medical cost increases in many
parts of the country � the so-called "non-floor"
counties that have accounted for the vast majority of Medicare+Choice
enrollment. Between 1998 and 2002, private plan payments
in many of these areas increased by just 11.5 percent while
Medicare fee-for-service payments (government plan costs)
went up by about 17 percent nationwide � about 50 percent
faster. This is the reason many plans cite for having to
cut benefits, raise copayments, and even pull out of the
program-creating serious problems for the beneficiaries
who depend on them.
This year, the President�s budget focuses on increasing
payments in these "non-floor" counties. Under
the budget proposal:
- For 2003, M+C payments would be increased by 6.5 percent
in counties that received the minimum update in 2002 and
by overall Medicare growth minus 0.5 percent in "floor"
counties.
- For 2004 and 2005, the minimum update and floor rates
would be increased by overall Medicare growth minus 0.5
percent. The payment would be the greater of these rates
or a blended rate.
- Reforms to payments for private plans for 2006 and beyond
would be part of the comprehensive improvements in Medicare
envisioned in the President�s framework.
The budget also proposes to give bonus payments to coordinated
care plans that are the first of their type (i.e. HMO or
PPO) to enter a service area. During their first year in
a new service area, eligible plans would receive a 5 percent
bonus on top of their M+C per member per month payment.
The bonus would phase out 1 percent per year over the plan�s
first five years of operation. This proposal would expand
the number of health plan options available to Medicare+Choice
enrollees by broadening the variety of plans that participate
in the Medicare+Choice program to include the types that
beneficiaries want, and are available to Federal employees.
For example, this proposal would give preferred provider
organizations (PPOs) an incentive to enter service areas
that already have a Medicare+Choice HMO.
We believe that the investments proposed in this budget
will encourage new plans to enter Medicare+Choice and will
improve the coverage options available to millions of beneficiaries.
Even with all the problems caused in recent years by the
current payment system, there are still over 5 million Medicare
beneficiaries enrolled in private plans � so for many seniors,
private plans are the best option. Indicators of care quality
and enrollee satisfaction in these plans are high. And even
after the recent cutbacks in benefits, they can still be
a better deal for seniors than enrolling in traditional
Medicare and buying an expensive supplemental policy to
cover the large benefit gaps.
Conclusion
The President remains fully committed to working with Congress
to pass legislation this year that reflects his framework
for strengthening Medicare. He also believes that legislation
should include several immediate steps to help seniors while
longer-term improvements are being implemented � so that
Medicare legislation can provide help to seniors who need
help now, not just a few years down the road. I look forward
to answering your questions and to working with you to put
into place these important enhancements for Medicare beneficiaries.
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