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Copyright 1999 Federal News Service, Inc.  
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MARCH 18, 1999, THURSDAY

SECTION: IN THE NEWS

LENGTH: 5761 words

HEADLINE: PREPARED TESTIMONY OF
SANDRA HARMON-WEISS, M.D.
VICE PRESIDENT AND HEAD, GOVERNMENT PROGRAMS
AETNA U.S. HEALTHCARE
ON BEHALF OF
THE HEALTH INSURANCE ASSOCIATION OF AMERICA
BEFORE THE HOUSE COMMITTEE ON WAYS AND MEANS
SUBCOMMITTEE ON HEALTH

BODY:

Mr. Chairman and members of the Committee, I am Dr. Sandra Harmon- Weiss, Vice President and Head of Government Programs of Aetna U.S. Healthcare. I am testifying today on behalf of the Health Insurance Association of America ("HIAA"). As the preeminent health insurance trade association, HIAA is the principal voice of the broadest spectrum of the health insurance industry. HIAA represents over 265 members that include commercial insurers, health maintenance, preferred provider and managed care organizations and businesses that provide products and services to the health insurance industry. Together, HIAA members provide health, long-term care, supplemental, and disability income insurance coverage to more than 110 million Americans. Association members include companies currently serving as Medicare+Choice managed care contractors, companies who are considering offering new Medicare+Choice options, and companies that have recently withdrawn from the Medicare+Choice program, giving us a unique perspective on the issues under review by this Committee. Aetna U.S. Healthcare offers 18 Medicare+Choice plans (under 15 Medicare+Choice contracts) which serve 530,000 Medicare beneficiaries in 16 states.
I am pleased to have this opportunity to discuss the implementation of the Medicare+Choice program with you and to share a few of our principle concerns. HIAA and Aetna U.S. Healthcare believe that the Medicare+Choice program represents an essential component in the government's effort to 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 21 st Century.
HIAA applauds the Health Subcommittee of the Ways and Means Committee for its role in shaping these bold Medicare reforms through the Balanced Budget Act of 1997. Recent developments, however, suggest that the Committee's work is not yet done. To ensure the promise of the reform, and to facilitate beneficiary choice under the Medicare program, additional legislative and policy modifications must be made.
CONCERNS ABOUT LOW ANTICIPATED MEDICARE+CHOICE ORGANIZATION PAYMENT RATE INCREASES.
1. Limits on Annual Increases in Capitation Rates and Concerns Regarding the New Proposed Risk Adjustment Methodology Threaten the Continued Attractiveness of the Medicare+Choice Program to Beneficiaries and Providers.
a. Most Plans Will Experience 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, 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 off
(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 $401.61 per enrollee per month in 2000; 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.
Due to a budget neutrality requirement, the blended capitation rate was not available in 1998 or 1999. The Health Care Financing Administration (HCFA) has announced, however, that the blend will apply to 63 percent of counties in the year 2000. While the majority of counties will receive blended payments, it is HIAA's understanding that approximately 27 percent of counties will continue to receive the floor amount and 10 percent of counties will receive the minimum two percent increase.
The practical result, based on actual Medicare+Choice enrollment, is that Medicare+Choice organizations serving a majority of Medicare beneficiaries enrolled in such organizations will receive rate increases of the minimum 2 percent or only slightly more. For most--if not all---of these organizations, this increase would not be sufficient to cover the increased cost of covering mandated services, given projected medical inflation.1 This, combined with the fact that many Medicare+Choice organizations experienced significant losses in 1998 (and anticipate additional losses in 1999), forecasts trouble for the program.
Indeed, inadequate reimbursement rates for 1999 largely were responsible for the retrenchment of Medicare+Choice plans last fall. At that time, some of the most respected Medicare+Choice organizations in the country withdrew from states and counties with low capitation rates. Other withdrawals occurred in low enrollment areas even though capitation rates were above average. As reported, 45 health plans decided to withdraw from the Medicare+Choice program and 55 plans decided to cut back their coverage area. In all, about 400,000 Medicare beneficiaries were effected. To put this in perspective, HCFA averaged two Medicare risk contract cancellations per year from 1993 through 1997.
The use of the blended rate for some Medicare+Choice plans for the first time in 2000 is clearly a step in the right direction in terms of ensuring fair and adequate reimbursement. However, HIAA strongly believes that additional adjustments 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 fee-for-service program.
Accordingly, HIAA urges Congress to reconsider the artificial and arbitrary limits on capitation rate increases set forth in the BBA. Specifically, HIAA 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. If the current reimbursement structure is not adjusted, more Medicare+Choice organizations are likely to withdraw from areas served and beneficiaries enrolled in the remaining plans will likely 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 calculations 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 preliminary HCFA estimates, total Medicare+Choice plan revenues for the year 2000 are projected to be $200 million less than they would have been under the Adjusted Average Per Capita Cost ("AAPCC") payment method and $6.3 billion less in 2004. As a result, some plans will see even their minimum two percent increase eroded in 2000 as the risk adjustment methodology is phased in. Thus, what began as a well-intended effort to compensate plans for the health care costs of their particular members will, in reality, result in an overall reduction in funds to Medicare+Choice organizations.
This development runs counter to HIAA'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 HIAA'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 will undoubtedly be an additional deterrent to program participation. Accordingly, HIAA 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.
HIAA 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, places 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 last year 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.
This user fee tax equals .355% of the total monthly payments to each Medicare+Choice plan in 1999. The detrimental impact of the user fee tax would be magnified under the Administration's recent Budget proposal, which would boost the authorization by 50% (to $150 million in Fiscal Year 2000), and which would add another type of user fee (estimated at $37 million in Fiscal Year 2000) to cover the cost of reviewing initial M+C organization applications and renewing annual contracts.
We note that this tax further exacerbates the problems outlined above concerning inadequate reimbursement. Indeed, when the user fee tax is combined with the large revenue reductions due to adjustment, some existing Medicare+Choice plans will see little or no increase in their payment rates from 1999 to 2000 even though HCFA is using a phase-in of an interim risk-adjustment methodology.
In your district, Chairman Thomas, there were 33,527 beneficiaries enrolled in Medicare risk plans in 1997 (or 29.1% percent of Medicare beneficiaries). We project 4 that by 2003, Medicare+Choice plans will receive only 53.3% percent of the projected per capita increase in Medicare fee-for-service costs.. We also project an increase in the 65+ population from 103,296 in 1998 to 117,030 in 2003. If Medicare+Choice options are withdrawn or have less perceived value by then, a reduction of Medicare+Choice enrollment to 75 percent of existing numbers would reduce the savings from BBA for 2003 by $14.6 million 5 from your district alone.
In your district, Representative Stark, there were 137,276 beneficiaries enrolled in Medicare risk plans in 1997 (or 41.9% percent of Medicare beneficiaries). We project that by 2003 Medicare+Choice plans will receive only 46.2% percent of the projected per capita increase in Medicare fee-for-service costs.. We also project an increase in the 65+ population from 312,704 in 1998 to 351,438 in 2003. If Medicare+Choice options are withdrawn or have less perceived value by then, a reduction of Medicare+Choice enrollment to 75 percent of existing numbers would reduce the savings from BBA for 2003 by $72.8 million from your district alone.
Overall, over the period 1997 to 2003, the per capita increase in payments to Medicare+Choice plans will average only 49.5% of the expected per capita increase in costs for the fee-for-service portion of Medicare. In some areas of the country, Medicare+Choice plans may get less than $50 more per month over this entire period to deal with medical inflation.
2. The May 1 Deadline for Filing ACRs Has Created Serious Problems in the Administration of the Medicare+Choice Program and Should Be Changed to November 1.
The BBA moved up the deadline by which Medicare+Choice plans must submit their adjusted community rate (ACR) proposals from November 1 to May 1. The problem with this early date is two-fold. First, by submitting proposals seven months in advance of the actual effective date (i.e., January 1), plans place themselves at substantial risk that health care costs will rise in unexpected ways in the latter half of the year and thus not be captured in the proposals. This is what occurred last year, contributing to the decision by many Medicare+Choice organizations to not renew their Medicare+Choice contracts for 1999, or to reduce their service areas. Also, proposals submitted by May 1st are based on relatively limited claims experience with the Medicare beneficiary population enrolled in the more rapidly growing plans and are thus less likely to be accurate predictors of costs than proposals based on a longer period of time.
In regulations published earlier this month, HCFA "recognize(d) the difficulties inherent to estimating the cost of a benefit package for 2000 based on at most 4 months of experience under the 1999 benefit package," but indicated that it had no discretion in this matter due to the statutory mandate. The President's fiscal year 2000 budget includes a proposal that would extend the deadline for ACR submissions until July 1. HCFA strongly supports this proposal. In fact, in several recent public statements, HCFA has indicated that M+C plans should proceed assuming a July 1 due date. However, HCFA has NOT provided official notice to M+C organizations. Consequently, even today my company (Aetna U.S. Healthcare) and others are struggling to compile ACRs for the official May 1 due date. Given the importance of this issue to Medicare+Choice organizations, and the concerns involved, HIAA urges the Committee to take steps to put in place a permanent workable deadline for ACR submissions and suggests an ACR date of November 1, or as close to that date as operationally possible.
3. Congress Should Return to the Previous Policy Allowing Flexible Benefits and Premiums Within a Service Area.
Historically, Medicare risk contractors were able to offer different benefit or charge structures within a given contracted service area. For example, modified benefit packages were often developed and offered in a subset of the contracted service area. While Medicare beneficiaries residing in the segmented service area were offered a uniform array of benefits at a uniform price, uniformity was not required across the entire service area. This flexibility was important because it allowed contractors to adjust their benefit package and premium structure to take into account differences in capitated payment rates received, which varied by county.
In the BBA, Congress mandated a new policy requiring that organizations offer uniform benefits and premiums throughout a service area, despite varying payment levels. Under the Medicare+Choice regulations, an organization may offer multiple plans and propose different service areas for each plan. (Were this not the case, organizations would be discouraged from expanding to outlying rural counties that typically offer lower reimbursement rates.) This regulatory policy allows Medicare+Choice organizations to achieve results similar to the original flexible benefit policy, but only at significant additional expense.

Instead of one ACR being filed for a broad service area with benefits modified to reflect anticipated revenues, as used to be the case, multiple ACRs must be generated for separate Medicare+Choice plans by each organization, and reviewed and approved by HCFA. The Congressional mandate thus imposes significant administrative costs on the organizations and the agency, with absolutely no benefit to beneficiaries. Therefore, HIAA urges Congress to repeal the uniform benefits and premium provisions of the BBA.
IN MANY PLACES THE REGULATIONS ARE OVERLY RIGID AND DEMANDING SO THEY BECOME AN IMPEDIMENT TO ALL MEDICARE+CHOICE ORGANIZATIONS, AND ESPECIALLY FOR SMALL AND/OR RURAL MEDICARE+CHOICE PLANS
1. The Quality Assurance Approach is Misguided.
HIAA believes that some form of quality standards are important to any market-based approach to Medicare. Without quality standards, or some other performance measurement, the added costs of maintaining quality will be difficult to present fairly although over time, it will be obvious. That being said, HIAA has serious concerns about the breadth and depth of the onerous quality assessment, performance improvement and performance measurement standards developed by HCFA.
More Guidance from HCFA is Needed To Implement the Quality Improvement Program QISMC establishes ambitious new quality improvement standards for Medicare+Choice organizations. While HCFA has scaled back their initial, overly ambitious implementation plan in response to M+C organization concerns, more guidance is needed from HCFA in several areas. For example, local Peer Review Organizations (PROs) are intended to collaborate with M+C organizations on quality improvement projects, yet the specific role of the PRO is not clear.
In many cases, PRO staff will need additional training to fulfill their role.
The Extensive Data Collection Proposed Is Not Necessary
The extensive data collection and reporting efforts required under the regulations will add significant administrative costs to Medicare+Choice organization operations. We question whether these costs are justified or desirable, and whether the quality assurance goals might not be met just as well through alternative approaches. HIAA strongly believes that consumers, not government officials, should dictate through their plan choices the extent and nature of quality improvement, balanced against costs. Under this approach, organizations that are responsive to consumer preferences would be rewarded with greater market share. Fewer government resources would be required for oversight.
HCFA could, however, play a central role in ensuring that minimum standards are met and encouraging quality initiatives through flexible, incentive-based standards established by contracts. HCFA is to be congratulated for posting beneficiary satisfaction survey results and other such information on the Medicare internet site (www.medicare.gov). In HIAA's view, this would be far superior to the current practice of setting detailed regulatory mandates which run the risk of leading to micromanaging and encouraging uniformity at the price of creative experimentation.
In trying to determine the cost of the extensive data collection effort proposed, HIAA notes that many health care organizations, particularly those with loosely managed network-style delivery arrangements (such as PPOs) do not currently have the capability to capture or report performance data at the level being proposed. The BBA's limitations on increases in capitation rates means that outside sources will be required to fund system upgrades. Even if financially possible, the time required for procurement, installation, training, and validation are not consistent with HCFA's scheduled implementation and reporting requirements for Medicare+Choice plans. As a result, these quality assessment requirements will be a significant deterrent to expanding senior's choices as potential new plans decide not to participate in the Medicare+Choice program. At the very least, HIAA believes that organizations making a good faith effort to meet the regulatory requirements should be provided a transition period where penalties would not be imposed. This is particularly important given plan efforts to address Year 2000 computer issues.
c. The "Deemed Status" Program Should Be Implemented Immediately.
Most Medicare+Choice organizations already adhere to rigorous quality assurance review by nationally accredited health care organizations such as the National Committee on Quality Assurance (NCQA), the Utilization Review Accreditation Committee (URAC), and the Joint Commission on Accreditation of Health Organizations (JCAHO). HCFA has provided by regulation that Medicare+Choice organizations may be "deemed" to meet quality assessment and performance improvement requirements if judged to do so by a national accreditation organization approved by HCFA and applying HCFA's standards for assessing compliance. This approach has much merit. It would allow plans to work with reviewers who already are familiar with their operations, creating obvious efficiencies and potential cost-savings. HCFA has failed, however, to establish procedures to implement the "deemed status" process. To date, HCFA has not designated any national accreditation organization for this purpose, nor has it issued policy guidance on how this process will work. HIAA urges Congress to direct HCFA to promptly institute a procedure for awarding deemed status since this process has the potential to reduce some of the substantial costs associated with HCFA's extensive quality assurance measures.
2. 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 the BBA. While HIAA 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 5- year 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 calls for a separate capitated payment rate for each enrollee based 90 percent on the demographic method and 10 percent on the risk adjustment methodology.
By 2004, payment rates would be based on comprehensive risk adjustment using full (i.e., inpatient and other) encounter data and the demographic method would not be used. HCFA estimates a much greater negative impact on M+C plan revenues, on average, with the switch to full encounter data risk adjusters. HIAA's concerns with this proposal are both practical and programmatic.
First, the practical. The time frame 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, 1999. (HCFA has not yet identified a specific date by which this information must be provided, creating additional uncertainty.) The collection, verification, transmission and analysis of"representative" encounter data is a complicated endeavor. Capturing these data in a valid, accurate and transferable manner will be a major challenge for most plans. Indeed, some HIAA member companies that currently contract with HCFA do not have the technical capability to capture and transmit encounter data other than inpatient encounters. Nor do our members with PPO and similar network- style delivery systems have the capability to do so. They are simply not organized in a manner that will allow them to collect this level of data.
Even if the capital needed for technological up-grading can be arranged, HCFA's proposed time frame is insufficient to allow Medicare+Choice organizations to procure and install the required systems. Procuring systems that can accomplish these tasks requires very careful planning and assessment, review of the capabilities of competing technologies and vendors. Time is needed to install the systems, modify provider contracts if necessary to ensure adequate reporting to the Medicare+Choice plan, train the staff (both at the Medicare+Choice organization and provider locations) and verify and validate the data. All of these steps must be carefully executed or the system will fail. These obstacles to compliance cannot simply be wished away. Moreover, the imposition of these costs on all Medicare+Choice plans will make the development of rural plans even more difficult because they will continue to have fewer beneficiaries enrolled compared to plans in other areas.
The process by which information is communicated to, and received by, HCFA is likely to present significant technological problems as well, if past experience is any guide.

HIAA members have experienced, and continue to experience, problems in ensuring that accurate inpatient hospital data is transmitted via Medicare fiscal intermediaries to HCFA. Difficulties can also be expected as HCFA attempts to manipulate significant amounts of data for the first time using the proposed PIP-DCG risk adjustment model. The methodology developed by HCFA is complicated and requires numerous steps. The process is yet untested. HCFA faces a monumental task in getting the PIP-DCG system to work. Moreover, as HCFA acknowledges, "the PIP-DCG model is (simply) an interim step towards implementation of a comprehensive risk adjustment model (i.e., one which uses diagnoses from all sites of service.)" HIAA strongly believes that the ambitious time frame proposed by the agency rests on a flawed premise: namely, that all of the anticipated technological and methodological problems can be resolved in the five-year window.
HIAA's doubts in this regard are heightened by the fact that planned implementation coincides, at least initially, with agency efforts to ensure Year 2000 readiness, both internally and in connection with Medicare+Choice organizations and other contractors. If HCFA transitions to risk adjustment before the necessary fixes are made and before reliable data are gathered and properly analyzed, the consequences could be catastrophic for individuals enrolled in Medicare+Choice plans, as well as the Medicare managed care program generally.
As if all this were not reason enough to delay implementation, HIAA has significant programmatic concerns regarding the proposed risk adjustment model. First, HIAA 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 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, HIAA believes that Congress should require HCFA to reexamine the use of plan-based sampling to reduce the administrative burden on the plans, reduce the potential for errors in the start-up phases, and increase the privacy of each individual's sensitive medical information.
Third, HIAA strongly believes that it is poor public policy to base risk adjustment---even temporarily--on inpatient hospital data only. Such an approach, even with the adjustments that HCFA has made to its initial risk adjustment proposal, would reward Medicare+Choice plans that, through inferior utilization management or poorer quality, experience excessive hospital use, and penalize plans that have 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, HIAA urges HCFA to delay the implementation date of risk adjustment beyond January 1, 2000. Since HCFA believes it does not have the authority to do this, Congress should revise the implementation date. While the effort to collect encounter data should proceed in a careful and deliberate manner, changes in payment methodology based on risk adjustment should not be implemented until complete and reliable encounter data are available. To ensure the validity of the data and a viable risk adjustment process, Congress should direct HCFA to (1) conduct a demonstration project aimed at validating the proposed methodology and (2) identify less costly and less data intensive ways of performing risk adjustment. Alternatively, the impact of the risk adjuster should be capped at a level, perhaps 1%, that would reduce the potential for perverse effects, and Medicare+Choice plan withdrawals or benefit reductions.
SUMMARY AND CONCLUSION
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 punitive 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 an early crossroad where improvements can allow it to flourish but neglect of necessary change will doom it to failure. It would be more wise, in the long ran, 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, HIAA believes that the prospects for success will be greatly improved if the following steps are taken with respect to the Medicare+Choice program:
- Adjust the payment structure so that increases cover medical inflation; - Issue revised regulations to reduce costly administrative burdens on all M+C plans; - Change the due date of ACRs to November 1 to eliminate unnecessary risk; - Delay and revise the proposed risk adjustment model to reduce the cost of reporting and system development; and - Modify the role of risk adjustment so that overall revenues to the Medicare+Choice program are not reduced, but simply reallocated among M+C plans based on the health status of enrollees.
A final word of caution: Congress must act quickly to direct HCFA to change course in the manner outlined and to find ways to reduce the regulatory burden of participating in the Medicare+Choice program if it wants the program to succeed. The time frames for critical decisions relating, for instance, to system investments are very short, particularly given HCFA's anticipated risk adjustment schedule. Thus, if Congress is to make adjustments to the program, it should act now.
Thank you, Mr. Chairman. I would be happy to answer any questions you may have at this time.
FOOTNOTES:
1 The budget for fiscal year 2000 includes 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%.
2 In addition to the 5 percent reduction in payment from fee-for- service costs which existed prior to the BBA, the increase in payment to Medicare +Choice organizations under both the blended rate and the floor will not fully reflect anticipated medical inflation. A reduction of 0.8 percent was made in 1998 and reductions of 0.5 percent are to be included in 1999 through 2002. The cumulative effect of these reductions will be that even the blended rate adjustment will be inadequate. This, coupled with the insufficient increases in the minimum rate, will undermine Congressional intent to encourage growth of Medicare + Choice options for seniors in low cost areas. 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.
4 Our projections of the change from 1997 to 2003 utilize September 1998 enrollment figures, a 1998 Price Waterhouse report on Medicare Capitated Payments, and reflect HCFA's assumption for the average cost to Medicare+Choice organizations of risk adjustment.
5 Lost savings, based on the difference in projected per capita payments to HCFA vs. Medicare+Choice, multiplied by the potential Medicare+Choice enrollment less 75 percent of current enrollment.
END


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