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