Copyright 1999 Federal News Service, Inc.
Federal News Service
MAY 27, 1999, THURSDAY
SECTION: IN THE NEWS
LENGTH:
3720 words
HEADLINE: PREPARED TESTIMONY OF
KAREN
IGNAGNI
PRESIDENT AND CEO
AMERICAN ASSOCIATION OF HEALTH PLANS
BEFORE THE SENATE FINANCE COMMITTEE
SUBJECT - FUTURE OF
THE MEDICARE PROGRAM
BODY:
I. Introduction
The members of the American Association of Health Plans (AAHP) appreciate
the opportunity to submit testimony on the future of the Medicare program. AAHP
represents more than 1,000 HMOs, PPOs, and similar network health plans; our
membership includes the majority of Medicare+Choice organizations. Together,
AAHP member plans provide care for more than 150 million Americans nationwide
and have strongly supported efforts to modernize Medicare and give beneficiaries
the same health care choices that are available to working Americans.
Our
plans have had a longstanding commitment to Medicare and to the mission of
providing high quality, cost effective services to beneficiaries. Today, more
than 16 percent -- or 6.1 million beneficiaries -- are enrolled in health plans,
up from only 6.2 percent five years ago. Recent research indicates that health
plans are attracting an increasing number of older Medicare beneficiaries, and
that Medicare beneficiaries are remaining in health plans longer. In addition,
near-poor Medicare beneficiaries are more likely to enroll in health plans than
higher-income beneficiaries. These health plans offer Medicare beneficiaries
many benefits that are not covered under traditional Medicare, such as
prescription drug coverage.
With passage of the Balanced Budget Act (BBA)
two years ago, Congress took significant steps toward the goal of providing
Medicare beneficiaries with expanded choices similar to those available in the
private sector and toward ensuring the solvency of the Medicare trust fund. The
establishment of the Medicare+Choice program was supported by AAHP and regarded
as the foundation for moving forward with a program design that can be sustained
for baby boomers and future generations of Medicare beneficiaries. Unanticipated
events, however, have endangered this foundation and created structural issues
that must be resolved quickly. Without Congressional action this year, the
promises made to beneficiaries with the passage of the BBA will remain
unfulfilled thus preventing the successful implementation of virtually every
long-term solution, including premium support, that this Committee might
examine.
We appreciate this opportunity to share with the Committee our
members' thoughts on reforming Medicare for future generations of seniors and
disabled and will comment on several topics, including:
- AAHP's Medicare
principles; - The Medicare Fairness Gap and its effect on beneficiaries; and -
The premium support approach to reforming Medicare.
II. AAHP's Medicare
Principles
The Medicare program was enacted 34 years ago and was a
reflection of private sector insurance coverage at that time. Much has changed
since then -- but prior to the enactment of the Balanced Budget Act of 1997,
Medicare had taken few dramatic steps to modernize the program. In the past 34
years, health plans have learned how to organize and deliver health care
services in ways that improve coverage and quality while better controlling
costs. But Medicare had been slow to take advantage of these improvements. As a
result, while more than 80 percent of working Americans with health insurance
coverage now receive their care through health plans, only one out of every six
Medicare beneficiaries is a health plan member.Given the challenge of addressing
the current Medicare problems and moving toward the goal of sustaining the
program for future beneficiaries, our members believe that there are six
principles that ought to guide the Committee's work:
- Strengthen Medicare
Through Expanded Choice. Ensuring a strong Medicare program requires that
beneficiaries have an expanded range of health care choices. Consumers in the
private sector have benefited from access to affordable, comprehensive coverage
due to the widespread availability of health plan options. However, broader
choice for Medicare beneficiaries, a central goal of the Balanced Budget Act,
has not yet been realized. The promise of the BBA and the foundation for future
reform should be fulfilled through midcourse corrections that will make the
Medicare+Choice program fair, stable, and predictable for beneficiaries, health
plans, and providers.
- Provide More Information. Beneficiaries should
receive accurate information that allows them to compare all options and select
the one that best meets their needs. We are concerned that with its beneficiary
information campaign last year, HCFA got off to a very rocky start. The agency
conducted a costly campaign that did not meet congressional expectations. Many
seniors received incorrect or confusing information and, in fact, information
about options other than the traditional Medicare program did not appear in the
"Medicare+You" brochure until page 17, some plans were left out altogether,
information was inaccurate and the subliminal message to beneficiaries was
'don't switch'.
- Ensure Payment Adequacy, Accuracy, Predictability, and
Stability. Federal contributions to Medicare+Choice organizations should be
adequate and predictable to promote expanded choices for beneficiaries in low
payment areas, while maintaining the availability of affordable options for
beneficiaries in markets in which health plan options are currently well
established. As is now apparent, the BBA payment formula, in combination with
the Administration's risk adjustor, will not achieve this goal. New options
generally are not developing, while communities across the country with high
concentrations of seniors are seriously threatened. This experience is
completely contrary to what Congress intended and is an unstable basis from
which to proceed to address long-term structural reform.
Mechanisms to
improve payment accuracy should ensure that Medicare+Choice organizations are
reimbursed appropriately for the broader benefits, better out-of-pocket
protections and coordinated care provided to enrolled beneficiaries.
Furthermore, implementation of the new risk adjustment
mechanism required under the BBA should move forward on a spending neutral
basis, as Congress intended; when it is clear that risk
adjustment is consistent with objectives of promoting a system that
provides high quality cost effective care and disease management; when the risk
adjuster accurately measures health status, rather than producing results that
are artifacts of data problems or fee-for-service utilization patterns; and when
benefits offered to Medicare beneficiaries will not be adversely affected. An
accurate, well-implemented risk adjustor will be a critical component of any
premium support model or alternative that builds on a competitive model.
-
Ensure Payment Parity and Fair Regulation. A key component of a stable Medicare
program is payment parity and regulatory fairness across all options available
under the Medicare program. The rate of growth in reimbursements for
beneficiaries under the Medicare+Choice program should be comparable to the rate
of growth in spending to serve beneficiaries under the Medicare fee-for-service
program. Likewise, the regulatory structure for health plans should not be based
on the erroneous view that fee-for-service Medicare is inherently superior to
Medicare+Choice.
In fact, there is much evidence of better care being
provided in the Medicare+Choice program, yet Medicare regulation continues to
emphasize micromanaging Medicare+Choice plans over improving care for the 85
percent of beneficiaries in fee-for-service Medicare. In short, Medicare+Choice
organizations should not receive disproportionately low government payments on
behalf of beneficiaries or be subject to disproportionately extensive regulatory
requirements.
- Establish Consistent Standards and Meaningful Regulation.
Beneficiaries should have confidence that all options, including both
Medicare+Choice plans and the Medicare fee-forservice program, meet standards of
accountability that ensure that they will have access to all Medicare benefits
and rights regardless of the choice they make. All Medicare+Choice options
offered to Medicare beneficiaries should be required to meet comparable
standards in such areas as quality of care, access, grievance procedures, and
solvency. These standards should be implemented through regulatory requirements
that make the best use of Medicare+Choice organization resources to ensure that
beneficiaries receive the maximum value from the program. This means that when
requirements are established, their benefits must outweigh their costs. In a
reformed Medicare system, consistent standards are essential to the creation of
a level playing field of choices. - Promote Responsive Government. To foster
increased consumer confidence in all aspects of the Medicare program, HCFA
should take immediate steps to improve administration of the Medicare+Choice
program by: providing consumer-friendly educational information to current and
prospective beneficiaries about all types of choices available to them through
an equitably financed program; reducing unnecessarily burdensome regulatory
requirements that do not add value for beneficiaries and streamlining and
stabilizing program administration to permit expanded choice; and improving
consistent implementation of HCFA Central Office policies throughout HCFA
regional offices and minimizing variation in policy interpretation and
administrative determinations across these offices.
m. The Medicare Fairness
Gap
The BBA limited the annual rate of growth in payments to health plans,
producing $22.5 billion in savings from the Medicare+Choice program. In
addition, the BBA reduced geographic inequities in the payment formula to
encourage the development of choices in lower payment areas of the country. We
supported the passage of payment reforms in the BBA and understood the need to
contribute our fair share toward the savings necessary to stabilize the Medicare
Trust Fund.
We are deeply concerned, however, that unintended consequences
of higher than anticipated inflation, 900 pages of new regulations, and the
growing gap in funding of the two sides of the program does not serve the best
interests of beneficiaries and was not intended by Congress. In 1998 and 1999,
because of the low national growth percentage and the inability to achieve
budget neutrality, no counties received blended payment rates. Furthermore, HCFA
has chosen to implement its new risk adjustment methodology in
a manner that will cut aggregate payments to Medicare+Choice organizations by an
estimated additional $11.2 billion over a five-year period. This is an
administratively imposed 50 percent increase in the $22.5 billion savings
Congress anticipated from the payment methodology as enacted in the BBA of 1997.
In fact, the Congressional Budget Office (CBO) recently stated that it had
"previously assumed" that risk adjustment in the
Medicare+Choice program would be budget neutral.1
AAHP analysis of
PricewaterhouseCoopers projections of Medicare+Choice rates in each county over
the next 5 years shows that a significant gap opens up between reimbursement
under the feefor-service program and reimbursement under the Medicare+Choice
program.2 This Medicare+Choice Fairness Gap will be at least $1,000 for
two-thirds of Medicare+Choice enrollees living in the top 100 counties, as
ranked by Medicare+Choice enrollment. This same Fairness Gap will exceed $1,500
in major Medicare+Choice markets, including Chicago, Los Angeles, Miami, New
York, Boston, Pittsburgh, Cleveland, St. Louis City, Dallas, and Philadelphia.
In Miami, the Fairness Gap will be $3,500 in 2004 and in Houston the gap will
exceed $2,500 in 2004. In New Orleans, the Fairness Gap will exceed $2,600 in
2004.
For nearly half of Medicare+Choice enrollees living in the top 100
counties, the Medicare+Choice reimbursement will be down to 85 percent of
traditional Medicare payments in 2004, significantly exceeding any estimates of
so-called overpayment due to favorable selection by plans. When AAHP examined
the top 101-200 counties ranked by enrollment, we continued to find a large
Fairness Gap in the smaller markets that plans were expected to expand into
under the policy changes implemented by the BBA. In these counties, nearly half
of Medicare+Choice enrollees live in areas where the Fairness Gap will be $1,000
or more in 2004.
A large percentage of the Fairness Gap is attributable to
HCFA's risk adjuster. Contrary to ensuring predictability in the new
Medicare+Choice program, the impact of this risk adjustment
methodology will be to restrict new market entrants and leave beneficiaries with
fewer options, reduced benefits and higher out-of- pocket costs. AAHP has found
that the impact of HCFA's risk adjuster on Medicare+Choice payments to rural and
urban counties is similar - rural areas with Medicare+Choice beneficiaries are
cut by about 6 percent, while urban areas are cut by about 7 percent.
Finally, we also are concerned that only health plan beneficiaries are
funding the Agency's beneficiary education campaign. Given concerns about the
effectiveness of this effort and at a time of growing instability in the
Medicare+Choice program, we strongly urge that the program be scaled back and
realistic goals set. In addition, we urge that the cost of a newly developed
effort be distributed proportionally across the entire system.
We have
summarized the crisis in the Medicare+Choice program because we believe its
success will determine the nation's ability to move to broader reforms. We look
forward to a future opportunity to present our analysis and our proposals for
addressing these challenges to the Committee when it convenes its hearings
specifically on Medicare+Choice.
IV. Premium Support Approach for Medicare
In order to protect and preserve the Medicare program for future generations
of beneficiaries, a national conversation should proceed about the need for
structural change and future preparedness. The premium support approach that was
examined by the National Bipartisan Commission on the Future of Medicare could
be the platform for examining how to fundamentally change the way Medicare
finances coverage to beneficiaries, offering seniors a wide variety of choices
with the anticipation also of curbing long-term spending growth. Since a premium
support program would represent a significant change not only for beneficiaries,
it will be crucial to consider the best means of structuring the program so that
the fee-for-service program continues to be available.
Changing the Medicare
program along these lines raises a number of important design issues that should
be explored thoroughly. To that end, as the Committee considers fundamental
changes to Medicare, it needs to evaluate what has occurred in the
Medicare+Choice program. Virtually all stakeholders supported the concept of
expanding choice, but many have been disappointed by problems in implementing
Congress' intent. Through this prism, our members have developed the following
principles for your consideration.
- Establish a Core Set of Benefits and
Allow for Competition Around Additional Services. The program should require a
core set of benefits, while allowing plans flexibility in offering other
benefits. To help beneficiaries compare different plan offerings, benefit
descriptions could be standardized.
- Government Contribution Must Be
Actuarially Sound. Determining the amount of the government contribution will be
a critical decision in the design of a premium support program. The level of the
government's contribution should be a fixed proportion of an amount necessary to
adequately meet the needs and costs of the benefits package for Medicare
beneficiaries.
- Include the Fee-For-Service Program. In order to allow for
a level playing field that promotes effective competition and a broad array of
choices, all options, including fee-for- service, should be required to operate
under the same premium support rules.
- Let the Beneficiary Choose. The
federal government's premium contribution should not vary according to the type
of program or delivery system selected.
- Establish Equivalent Quality
Standards for Coverage Options. Health plans have been the frontrunners in
meeting quality, access and consumer protection standards.
All coverage
options, including Medicare fee-for-service, should be governed by equivalent
quality and consumer protection standards. Equivalent standards should be
flexible enough to recognize that a given quality or consumer protection
objective might be achieved in a number of different ways.
- Develop a New
Administrative Framework. Health plans and other options participating in a
reformed Medicare program should be administered under a new framework that
focuses on promoting quality medical care, rather than on micromanaging plan and
practitioner operations. The new framework should seek to minimize the
conflicting objectives evident under HCFA's current role as both purchaser and
regulator.
- Pilot Testing and Phase-In. A premium support approach -
including the traditional program - should be pilot tested on a limited basis.
Subsequently, the program should be phased-in to allow time to make necessary
adjustments.
In addition, there are two very specific lessons from the
current Medicare program that should provide context for your discussion of
premium support.
- Tensions Between HCFA's Role as Purchaser and Regulator.
HCFA's dual roles as purchaser and regulator are, at times, in conflict. Nowhere
has this conflict been more evident than in HCFA's implementation of the BBA.
The situation plans faced in the Fall of 1998 serves to illustrate the inherent
conflict between HCFA's traditional role as a regulator and its changing role as
a purchaser. Given all of the uncertainty surrounding the program and the
unrealistic compliance timetable, plans across the country and across model
types became deeply concerned last Fall about their ability to deliver benefits
promised under the originally mandated filing schedule. This led our members to
make an unprecedented request to HCFA to allow plans to resubmit parts of their
adjusted community rate proposals. In some service areas the ability to vary
copayments -- even minimally -- meant the difference between a plan's staying in
or pulling out of a market.
While this request presented HCFA with a
difficult situation, AAHP strongly believes that an affirmative decision would
have been better for beneficiaries. As a purchaser, HCFA had a strong motivation
to maintain as many options as possible for beneficiaries by responding to
health plans' concerns and adopting a more nimble approach to Medicare+Choice
implementation. As a regulator, HCFA would have had a difficult time coping with
the predictable political fallout from reopening bids.
These role conflicts
remain unresolved, even largely unaddressed. Until ways are found to reconcile
them, however, they will stand in the way of designing and delivering a
Medicare+Choice program that really works. One of the features of the Bipartisan
Commission's premium support proposal was that it addressed this conflict by
establishing a separate administrative board to oversee the restructured
program. We recommend that the pros and cons of such an approach be thoroughly
investigated and stand ready to participate with the Committee in a discussion
of these issues.
- Lessons from the Competitive Pricing Demonstration
Project. Many issues raised by a premium support approach are similar to those
experienced under the controversial competitive pricing demonstration projects
proposed in recent years for Baltimore and Denver, and HCFA's current efforts to
implement similar demonstrations in Phoenix and Kansas City. Successful
competitive pricing models in the private sector include all options available
to enrollees; HCFA's competitive pricing demonstrations have not and do not
include the fee-for-service Medicare program as an option alongside health
plans. From the first proposed demonstration site, AAHP consistently has
recommended that both sides of the program be included in a model to test
competitive bidding.
The competitive pricing demonstration projects proposed
for Kansas City and Phoenix would continue to experiment only on seniors who
have chosen Medicare+Choice. These projects will lead to benefit reductions and
disruptions for the provider community, which explains why in every community
coalitions of physicians, hospitals, health plans, employers, and beneficiaries
have joined together to raise seniors' concerns about these proposals. This
experience provides important lessons for consideration of a premium support
model.
V. Conclusion
For well over 10 years, health plans have delivered
to beneficiaries coordinated care, comprehensive benefits, and protection
against highly unpredictable out-of-pocket costs, but these choices are at risk.
Congress and the Administration should act immediately to create a level playing
field between the Medicare+Choice program and fee-for- service, and a regulatory
environment that holds Medicare+Choice organizations and providers in the
Medicare fee-forservice program equally accountable. We are in the process of
conferring with the members of the Committee and your staff about our specific
suggestions for solving these problems.
Without action this year,
beneficiaries may find access to their health plans jeopardized and
beneficiaries may find few choices available to them. In addition, employers and
unions who have depended on health plans as a source of comprehensive and
affordable retiree health care may find their choices severely limited. Finally,
if the Medicare+Choice program erodes it will seriously set back discussions in
the Committee, and throughout the Congress to preserve Medicare for future
generations.
FOOTNOTES:
1 "An Analysis of the President's Budgetary
Proposals for FY 2000," Congressional Budget Office.
2 AAHP's analysis of
the PricewaterhouseCoopers payment model used assumptions that produced
conservative estimates of the Fairness Gap. For example, although county-level
Medicare+Choice payments were actually lower than FFS per capita payments in
1997, AAHP's analysis assumes that county-level Medicare+Choice and FFS payments
were equal.
END
LOAD-DATE: May 28, 1999
