Copyright 1999 Federal News Service, Inc.
Federal News Service
FEBRUARY 25, 1999, THURSDAY
SECTION: IN THE NEWS
LENGTH:
3364 words
HEADLINE: PREPARED STATEMENT BY
ANN
MILLER
MEMBER, AARP BOARD OF DIRECTORS
MEDICARE+CHOICE:
AN
EXAMINATION OF THE RISK ADJUSTER
AND OTHER REFORM ISSUES
BEFORE THE
HOUSE COMMERCE COMMITTEE
SUBCOMMITTEE ON HEALTH AND
ENVIRONMENT
BODY:
Good morning Mr. Chairman and
members of the Committee. I am Ann Miller from Morro Bay, California. I am a
member of the AARP Board of Directors and come before you as a representative of
a group whose large and diverse membership includes millions of current and
future Medicare beneficiaries. The Association supported the creation of the
Medicare+Choice program as part of the Balanced Budget Agreement in 1997 and we
appreciate this opportunity to share the beneficiary perspective on the
Medicare+Choice program today.
In 1997, Congress passed the Balanced Budget
Act (BBA) that included sweeping changes in the Medicare program. The BBA
provided significant program savings to extend Medicare's solvency until 2008
and made several major changes affecting the program's beneficiaries. These
changes included the creation of the Medicare+Choice program through which four
new health plan options are to become available to beneficiaries. The
legislation also addressed when and how beneficiaries can enroll in health plans
or Medigap plans, as well as what information beneficiaries receive about those
choices. In addition, as the changes mandated by the BBA take effect, virtually
every beneficiary will face higher out-of-pocket expenses for health care.
AARP supported the BBA and its creation of Medicare+Choice in order to
accomplish the objective of expanding choice in the program while also
protecting access, affordability, and quality. We understood that extending the
short term solvency of the Medicare program required shared sacrifice from all
who participate in the program -providers and beneficiaries alike. We also
recognized that Medicare+Choice would lay the foundation for essential longer
term reform in the Medicare program.
Impact of BBA
Last fall's
unexpected disruption in Medicare HMO availability, however, serves as a wake-up
call to all who seek to bring private sector solutions to bear on Medicare's
problems. While private sector options have been able to remedy some glaring
faults in original Medicare, such as the lack of prescription drug coverage and
high out- of-pocket costs, these options are not without their own failings.
When private businesses are given the right to manage a beneficiary's care in
exchange for the opportunity to earn a profit, several things can happen. On the
plus side, the innovations in administrative efficiency and improved health care
delivery could benefit the patient with lower costs, better benefits, and better
coordinated care. On the minus side, patients may have less control over health
care treatments, and no control over whether their chosen health care plan
continues to be available from year to year. It is a challenge to separate the
positive from the negative, because the same factors create both results. A
private business can be more innovative and efficient, but if it is not
profitable, the private business will leave (or not enter) the market. The
beneficiary who gained the extra benefits for a time, can lose in the long run.
One of the lessons from the initial implementation of Medicare+Choice is
that every change to Medicare will have consequences, some predictable, some
unanticipated. In fact, the disruption last year, which seemed enormous to those
affected, occurred beforeany new Medicare+Choice plans were available. Once new
types of private plans are offered, other issues are certain to arise. At this
point, two things are clear: first, private market participation in Medicare
must be structured to assure beneficiaries have stability in their health
insurance coverage; and second, the impact of the BBA is significant and it must
be evaluated and understood in order to. plan the even greater changes needed to
strengthen Medicare for the future.
Issues Arising from Medicare+Choice
Implementation
Beginning late last fall, Medicare beneficiaries began to
feel the effects of the program's transformation. Medicare, like other health
insurance programs, has always been complex. But, with the advent of new
choices, greater private sector involvement, and the accompanying need for
information, it has become even more confusing. In order to protect
beneficiaries' choices, significant issues, such as payment methodology,
risk adjustment and public information and education, will need
to be addressed and understood as Medicare+Choice is implemented. We need to
address these needs and stabilize the Medicare+Choice program before greater
changes take place.
Payment Methodology/Medicare HMO Withdrawals - Last
fall, about 400,000 beneficiaries found themselves displaced from their current
HMOs when multiple plans terminated their Medicare contracts. The majority of
beneficiaries who lost coverage had the option of joining another HMO in their
area, but often that meant changing doctors or losing extra benefits that had
attracted them to the particular HMO in the first place. Beneficiaries were also
entitled to return to original fee-for-service Medicare, but formany that was
not a preferred option. Often, these beneficiaries chose managed care bemuse it
both relieved them of the financial burden of Medigap insurance payments and
offered needed benefits, such as prescription drugs, that are not .covered by
Medicare. Under the BBA, beneficiaries who lost their HMO coverage and returned
to original Medicare were given certain rights to purchase---or repurchase---a
Medigap policy, but they would have to bear the significant expense, generally
in excess of $100 a month. Even if they can afford Medigap, not all
beneficiaries are protected by the rules. Disabled beneficiaries may not have
the right to purchase Medigap and no beneficiary is guaranteed the right to
purchase a policy with drug coverage.
The Medicare HMO withdrawals at the
end of 1998 affected 7 percent of all Medicare beneficiaries in managed care.
While only 1 percent lost their managed care option, all of these beneficiaries
were deeply troubled, and the general disruption in the lIMO market could make
other beneficiaries reluctant to join a Medicare HMO in the future.
Several
reasons have been put forward to explain the lIMO withdrawals from Medicare. The
HMO industry contends that the BBA Medicare payment rates and methodology was
the chief reason that plans pulled out of certain markets. Whether or not the
payments are adequate or fairly calculated is an issue on which AARP does not
have enough data to permit us to evaluate the situation. We believe, however,
that it is important for all stakeholders - Congress, the Medicare Commission,
HCFA, health plans and beneficiaries - to understand what caused last year's
rash of HMO withdrawals inorder to determine how to preserve enrollment
stability for beneficiaries without undermining the fiscal integrity of the
program.
Most stakeholders agree that it is necessary to change deadlines of
the Medicare+Choice program to allow the program to function more smoothly and
to attempt to avoid a repeat of last year's HMO withdrawal problem. We
understand that one proposal is to move the date for plans to file the Adjusted
Community Rate (ACR) from May 1 to July 1. This would allow Medicare+Choice
plans to base their next years' benefits and premiums on two quarters of
experience.
We believe moving the date of the ACR submission to no later
than July is a reasonable accommodation to the needs of managed care plans to
set their rates based on recent data. AARP continues to believe that plans have
the responsibility to identify problems that may affect rates as early as
possible. If plans are going to operate responsibly as part of Medicare and deal
fairly with beneficiaries, they need to be aggressive in their efforts to set
rates appropriately. Changing the timeline for plan submission of ACR data will
not be without its impact on beneficiaries, however. It will necessitate
adjustments in the information that can be included in the Medicare Handbook,
which will have to be carefully worked out in 1999.
Ultimately, the HMO
withdrawal situation underscores the importance of original Medicare. Regardless
of the market decisions of private health plans, beneficiaries need the security
of knowing original Medicare and access to Medigap are there for
them.Risk Adjustment - Health plans have also reported that
uncertainty surrounding new risk adjustment methodology
contributed to their decisions to pull out of certain markets in 1998, and
beneficiaries fear a similar response by health plans this year.
In its 1996
Annual Report to Congress, the Physician Payment Review Commission estimated
that HMOs received overpayments of about 5 to 6 percent per beneficiary became
the populations they enrolled were healthier than the general Medicare
population. In recognition of that, the BBA requires HCFA to implement a
risk adjustment method to set payment rates based on the
"expected relative health status of each enrollee." Risk
adjustment is intended to ensure that health plans are neither
penalized for enrolling beneficiaries with chronic illnesses nor overcompensated
for enrolling healthier beneficiaries. In theory, risk
adjustment will make all beneficiaries equally attractive to health
plans regardless of their health sums. The BBA requires the system to be in
place no later than January 1, 2000.
Last September, HCFA released a notice
describing the risk adjustment method it intends to implement.
The new system will adjust payments to Medicare+Choice plans for each Medicare
beneficiary based on whether the individual's "risk factor" is higher or lower
than that of an average beneficiary. Specifically, payments to Medicare+Choice
plans will be risk adjusted by incorporating diagnosis information into the
payment methodology. The information used would be based on inpatient hospital
encounter data to determine payments to Medicare+Choice organizations and,
eventually, additionalencounter data (outpatient hospital, physician services,
etc.) will be incorporated into the methodology as well.
We understand that
the diagnosis-based or hospital data risk adjuster has several advantages,
including that it is more readily available, strongly correlated with future
expenses, and verifiable through audit. On the other hand, this approach has met
with some criticism. Health plans argue that using hospital-only data to
determine diagnosis penalizes plans that avoid hospitalizations, potentially
creating inappropriate incentives to needlessly hospitalize Medicare
beneficiaries. Also, it does not recognize the cost of treating expensive
illnesses that do not result in hospitalizations.
While we understand that
available methods of risk adjustment are imperfect, adding
risk adjustment is still essential to derive a more accurate
payment for Medicare+Choice plans. If plans are to compete fairly in the
Medicare market, it will be necessary to minimize risk selection through
improved risk adjustment. Prior risk adjusters based on
demographic factors are widely recognized to be inadequate to protect the
Medicare system. AARP understands that HCFA intends to address plato' concerns
about financial impact by phasing-in the implementation of the diagnosis-based
risk adjuster. AARP believes that it is important that HCFA move forward with
the proposed risk adjuster in order to allow a smooth transition to more
accurate payment for plans. Refinement of risk adjustment
methodology should continue, as Medicare cannot afford to wait for a perfect
risk adjuster before implementing at least a partial solution.Medicare+Choice
Information and Education - In supporting expansion of Medicare choices, AARP
emphasized the importance of solid, consumer-friendly information so that
beneficiaries can make informed decisions and select the best health plan
choices for them. But, we also recognize that educating beneficiaries so that
they understand the complex range of choices facing them is an enormous task.
Recent research in five cities conducted for AARP by Dr. Judith Hibbard of the
University of Oregon found that many beneficiaries were not able to make
knowledgeable choices even between the original Medicare fee-for-service program
and Medicare HMOs. As more Medicare options become available, this task will
grow still more difficult. In addition, for those beneficiaries who do select
any of the new Medicare+Choice options, they will need help in navigating within
those options. These challenges must be taken very seriously by HCFA, the
Congress, health plans, and groups like AARP.
AARP supported Medicare+Choice
in order to give beneficiaries the full benefit of innovations in health care
delivery. However, Medicare+Choice can realize its potential only if
beneficiaries acquire the knowledge that will enable them to exercise their
leverage as informed consumers in the marketplace. We support HCFA's efforts to
educate beneficiaries and have joined with the Agency as a parmer in its
education campaign. AARP has also undertaken a campaign to educate our members
about the Medicare+Choice program and the new options they may have available to
them.We believe Congress, too, must do its part by providing sufficient
resources to enable HCFA to carry out its challenging tasks. This year, for
example, we anticipate that HCFA will need to make changes in its beneficiary
education campaign to reflect modifications in program timelines, like the ACR
filing date, and to respond to problems encountered last year. Medicare has
found its $95 million appropriation- less than $3 per beneficiary -- barely
sufficient to carry out the education campaign. Presently the # $ 00 line is
operational only in the five pilot test states and the ..full Medicare Handbook
has been mailed only to those states. By the end of this year, these services
must be available nationwide. Therefore, we strongly support the
Administration's proposed increase in Medicare+Choice user fees to $150 million.
AARP believes this increase is needed to assure that all aspects of the
education campaign can be carried out as Congress envisioned, including the #800
telephone assistance line with live operators as opposed to an automated
response system.
Greater Medicare Reforms
As we've noted,
Medicare+Choice is still in its infancy and many of the changes enacted by the
Balanced Budget Act are still phasing in. The overall effect of these changes on
beneficiaries, providers and the Medicare program itself is not yet clear and
there is much to be learned. The challenges and the successes of Medicare+Choice
will have important implications for broader reform of the Medicare program. The
amount of"fine-tuning" now under discussion for Medicare+Choice offers ample
reason why larger-scale reforms in Medicare must be made slowly and
cautiously.While we have slated the importance of understanding the impact of
the changes that have already been made before new changes are layered on top,
this does not mean that the status quo in Medicare is acceptable.
Medicare
continues to face financial challenges which have to be addressed if the program
is to continue to remain strong for current and future beneficiaries. Equally
important, Medicare's benefits and delivery system need to be modified to live
up to the demands of 21st century medicine. That means that greater reforms are
still necessary. The Balanced Budget Act extended Medicare's solvency only until
2008. More must be done to ensure the program's long-term solvency. The program
must also be prepared to handle the enormous number of baby boomers who are
moving towards retirement.
To this end, AARP believes that there are some
fundamental tenets that have guided Medicare and should be the basis of any
efforts to reform the program:
- First and foremost, Medicare should
continue to be available to all older and disabled Americans despite health
status or income. Our nation's commitment to a system in which Americans
contribute to the program through payroll taxes during their working years and
then are entitled to receive the benefits they have earned is the linchpin of
public support for Medicare. Toward that end, AARP views it asunacceptable to
create a situation where more Americans would be uninsured by requiring people
to wait until they are 67 to receive Medicare.
- Medicare should guarantee a
defined set of benefits with payments that keep pace with the cost of the
benefit package. Clearly defined benefits, across all plans, provide an anchor
on which health plan benefits and the government's contributions are based. On
the other hand, a defined contribution, with payments tied to artificial budget
targets rather than the cost of a benefit package, creates the potential for
both benefits and government payments to diminish over time. The latter would
leave beneficiaries more vulnerable to rising health care costs - something over
which individual Americans have little control.
- Medicare should
keep up with advances in medicine and medical technology in much the same way as
do private and employer-provided insurance. This means, among other things,
modernizing Medicare's defined benefit package to include prescription drug
coverage. Prescription drugs keep people healthy, independent, and out of
hospitals. Therefore, there should be a guarantee of drug coverage across all
Medicare plans. Without such coverage in every Medicare plan, there would be a
greater tendency towards adverse selection of beneficiaries.
- Changes in
Medicare financing and benefits should protect all beneficiaries - including
those with low-incomes - from burdensome out-of-pocket costs.
Medicarebeneficiaries should continue to pay their fair share of the cost of
coverage, but outof-pocket costs must be kept affordable. The average
beneficiary already spends nearly 20 percent of his/her income out-of-pocket on
health care. If cost- sharing is too high, Medicare's protection would not be
affordable and many beneficiaries could be left with relatively few coverage
options.
- Medicare must have a stable source of financing that keeps pace
with enrollment and the costs of the program. Ultimately, any financing source
will need to be both broadly based and progressive. Additionally, AARP supports
using an appropriate portion of the on- budget surplus to insure Medicare's
financial health beyond 2008.
- As private insurance participation in
Medicare expands, effective administration of the program will be essential. The
agency or organization that oversees Medicare must be accountable to Congress
and beneficiaries for assuring access, affordability, adequacy of coverage,
quality of care, and choice. This will require things like: ensuring that a
level playing field exists across all options; modernizing original Medicare
fee-for-service so that it remains a viable option for beneficiaries; improving
the quality of care delivered to beneficiaries and ensuring that all health
plans meet rigorous standards; and continuing to rigorously attack waste, fraud,
and abuse in the program.AARP is awaiting the Medicare Commission's report. We
have reviewed (he "premium support" proposal put forth by Senator Breaux. This
proposal relies heavily on the private insurance market to provide health,
insurance coverage to Medicare beneficiaries. As discussed earlier, a step
towards greater involvement of private sector health plans in Medicare requires
careful assessment and ample time to test the potential impact on beneficiaries.
Since many details of this particular proposal are still sketchy it is premature
for us to comment on it fully. As more information becomes available, AARP will
weigh the proposal - as we will any Medicare reform plan- against the
fundamental principles of the Medicare program described above.
In the
meant/me, AARP will continue to work with the Commerce Committee, and your
colleagues in the House and Senate to improve upon the Medicare+Choice program.
We also want to work with you to advance a Medicare reform package. The status
quo in Medicare is not acceptable. But together we must ensure that any reform
package continues Medicare's promise of quality, affordable health care.
END
LOAD-DATE: February 27, 1999
