Copyright 1999 Federal News Service, Inc.
Federal News Service
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recently withdrawn from the Medicare+Choice program, giving us a unique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
LOAD-DATE:
March 20, 1999