DISSENTING VIEWS OF
SENATOR JAY ROCKEFELLER
REP. JOHN D. DINGELL
REP. JIM McDERMOTT

ON THE BIPARTISAN COMMISSION ON THE FUTURE OF MEDICARE

March 16, 1999

The Commission is concluding without achieving any of the goals set out for it in 1997. The major problem the Commission was supposed to solve was finding a means to assure the financial viability of Medicare over the long-term while protecting the basic program and its beneficiaries.

Rather than engage in a serious conversation about how to meet the health care needs of a growing senior population, some Commissioners have taken this opportunity to further their ideological beliefs at the risk of seniors and have developed an approach referred to as 'premium support.'

We are being asked to vote on this proposal, with almost no details, hundreds of unanswered questions, last minute changes, and with no analysis of its impact on seniors and the disabled.

Medicare is the key to the financial security and peace of mind for almost 40 million Americans. It is irresponsible to vote or make recommendations on a program that means so much to so many without knowing the specifics of the proposal or its impact. The majority's proposal of uncertain and unspecified changes is enough to justify our "no" vote.

Under the Breaux-Thomas proposal, we save relatively little and fail to make Medicare solvent, while shifting hundreds of billions of dollars in costs onto seniors.
Seniors and disabled will not know what their benefits are, what they have to pay, and whether they can have their choice of doctor.

Basically, premium support would require everyone annually to choose a health insurance plan, with higher premiums charged to beneficiaries who choose traditional fee-for-service Medicare. This proposal would result in major changes in the ways that seniors get their health coverage. Despite all the effort on this proposal, the Medicare actuaries attribute only modest savings to
premium support, mostly from increasing the cost of fee-for-service. These savings are certainly not enough to come anywhere close to solving Medicare's financial problems.

In our opinion, the Commission's premium support proposal will destroy Medicare as we know it. It not only does little to save Medicare, it does terrible harm to the most vulnerable and sick in our society.

How has the Commission failed its mandate and why will premium support be bad for Medicare beneficiaries?
Perhaps the best way to explain our views is to review the twelve issues that the law said the Commission was to address.

Identifying the Problem

As the Balanced Budget Act provided:

"The Commission shall­

"(1) review and analyze the long-term financial
condition of the medicare program...."

"(2) identify problems that threaten the financial integrity of the...Trust Fund(s)...including
"(A) the financial impact of the medicare
program of the significant increase in the
number of Medicare eligible individuals
which will occur beginning approximately
during 2010 and lasting for approximately
25 years, and

"(B) the extent to which current medicare
update indexes do not accurately reflect
inflation;"

Breaux-Thomas spent a huge amount of time setting up 'the sky is falling' scenarios, which they then used to justify radical surgery­­turning Medicare into a voucher program that will raise premiums on seniors and force them into low-cost bare bones HMOs. In a last minute development, the Breaux-Thomas plan also seems to limit general revenue contributions to Medicare or (it is unclear) require a separate Congressional vote whenever Medicare general revenue spending rises above a certain amount. This subjects the program to Congressional budget gridlock and government shutdowns. Medicare will no longer be a real guarantee of health care. It will become a defined contribution-voucher plan.

There is no question that our society faces serious problems and will have to ask taxpayers, doctors and hospitals, and beneficiaries all to contribute to meeting the retirement and health needs of the Baby Boom generation.

Breaux-Thomas will report terrible problems facing America. They will cite worker/retiree ratios, trillions of dollars in unmet obligations, etc.
Americans should take a deep breath and consider:

1) The Balanced Budget Act of 1997 cut the 75 year shortfall in Medicare Part A in half, without any notable harm to beneficiaries (indeed there were some program expansions);

2) If we extended just some of the Balanced Budget Act provider reductions (and did nothing on the revenue or beneficiary side), we could keep the Part A Trust Fund solvent to 2030 (it is currently due to slip into the red around 2011);

3) For over 30 years now, the Medicare Trust Fund has been projected to go bankrupt, and Congress has repeatedly extended its life while improving benefits--and we can again (see Attachment 1, for a history of trust fund solvency);

4) While there will be more retiree dependents, society will have relatively fewer dependents in school, freeing resources;

5) The GDP per person continues to grow, as does the income of most citizens, making the future financing of Medicare easier ;

6) Relatively small revenue increases would keep Medicare solvent even without further provider reductions and without shifting burdens to beneficiaries. We support the President's proposal to forgo a tax cut and save 15% of the surplus for Medicare, thus extending Part A solvency past 2020. We oppose further payroll tax increases to support Medicare because they are relatively regressive, but we should consider other, more progressive taxes. Just to show how manageable the problem is, we note that a 0.25% payroll tax increase on workers, and a 0.25% increase on employers would keep the Trust Fund sound till 2025. A 2 percentage point increase would keep the Trust Fund solvent until nearly 2072, with no beneficiary or provider cuts for 75 years!

Medicare's financial problems should be split into two parts: first, increasing costs per individual beneficiary (more services, new technology, etc.), and second, a simple but dramatic increase in the number of beneficiaries. Premium support only addresses, to a very small extent, the first issue of rising costs per beneficiary. For premium support to save money, most seniors would have to join HMOs, and those HMOs would have to pay hospitals and doctors less than they do now.

The second financial problem is simply the growth in the number of retirees. The number of people on Medicare will nearly double over the next 30 years, and there is no way that spending can be held level with that kind of growth. The only way to keep spending level would be massive and unacceptable cuts in benefits (about 50%) or in payments to providers or new revenues.

We believe, however, that to save the program we must share the burden across all parties--providers, beneficiaries, and the government. Breaux-Thomas did not consider this balanced approach, but instead takes almost all its savings from the retired and disabled.

Find money for an adequate Medicare program

"(3) analyze potential solutions to the problems identified under paragraph (2) that will ensure both the financial integrity of the medicare program and the provision of appropriate benefits under such program...

The 1997 Balanced Budget Act extended the life of the Part A Trust Fund from 2001 to past 2011.

The Commission set as its goal assuring solvency to 2030.

The Breaux-Thomas plan fell short.

First, any forecast to 2030 is an impossible task. What would the Congress of 1969 have told us about today's Medicare or the miracles of medical care at the beginning of the new Millennium?

A twenty year goal­to 2020­would have been more realistic.

The Breaux-Thomas plan appears to extend the life of the Trust Fund one or two years at most. The Commission staff analysis says it will even increase spending in the early years compared to current projections. The Breaux-Thomas press release document of 4:09 PM, March 15, 1999 (the first we saw this proposal) claims "solvency to 2017." We do not see how the proposal (which dropped its major source of savings and substantially increased spending between its February plan and the March 15 plan) can possibly achieve this date, and we await the Medicare Actuary's objective analysis.

The President's proposal to save 15% of the currently projected surpluses for Medicare would extend the Part A Trust Fund to later than 2020 without any cuts to beneficiaries and providers.

The Commission never considered the President's proposal as an increased source of revenue. As we indicated above, Medicare will need more revenues in the future.

To repeat, the President's proposal = 20 years.

The Breaux-Thomas proposal = 1 or 2 years.

International Trends and What's Happening to
Retiree Benefits

Continuing with subsection (3):

"including methods used by other nations to respond to comparable demographic patterns in eligibility for health care benefits for elderly and disabled individuals and trends in employment-related health care for retirees."

We never seriously looked at the experience of foreign countries. All the other major industrialized nations (except Australia) have older populations than the United States, yet they are able to insure all their citizens, with reasonably good quality care, for about 30 to 50% less of their Gross National Product than we spend. "American commentators may be surprised to learn that from 1960-1990 (a period of significant population aging in many societies), there was no correlation across OECD nations between aging populations and growth in health care costs. As Temple University economist Thomas Getzen reports about this period, `in those OECD countries where the fraction of the population over age 65 has grown most rapidly, spending has not increased any more rapidly than in countries where the elderly population has grown most slowly.'"

"The United States...has the unfortunate distinction of spending relatively more per capita for the elderly while providing them with less comprehensive coverage with generally higher out-of-pocket costs."
Clearly there are international lessons to be learned, but the Co-chairmen, perhaps embarrassed that the lessons from abroad would support a social insurance program like Medicare rather than the privatization of Medicare, looked away.

Breaux-Thomas also failed to note trends in "employment-related health care for retirees." If they had, there is no way they would have supported an increase in the Medicare eligibility age from 65 to 67. Employers are cutting back on retiree health coverage, especially in high cost-growth areas like pharmaceuticals. Therefore, raising the eligibility age will increase the number of uninsured by somewhere between 200,000 and 1.75 million. In fact, increasing the financial burdens of companies by giving them two more years of employee liability costs to cover is certain to speed the destruction of the employment-based health care system, and accelerate companies dropping retiree coverage.

At the last minute, Breaux-Thomas added the idea of allowing seniors to buy into Medicare between ages 65 and 67 or establishing some sort of new, poorly-defined 'disability' program. Under this plan, millions of beneficiaries would be left with much higher insurance costs, and hundreds of thousands would be left uninsured. Based on analyses of the revenue-neutral 62-64 buy-in, this is likely to cost beneficiaries $500 to $550 per month.
Solvency Recommendations

(4) make recommendations to restore the solvency of the...Trust Fund(s);

Again, the Breaux-Thomas plan fails to address the solvency issue. Of the savings in the Breaux-Thomas proposal, most come from traditional types of beneficiary and provider cuts and have nothing to do with Premium Support.

Premium Support­-i.e., vouchers for Medicare-- saves little or nothing. Contrary to the Breaux-Thomas rhetoric, over the last 28 years, Medicare has inflated less per capita than private health insurance. In the last 11 years it has inflated less than the Federal Employee Health Benefit Program that Premium Support is allegedly modeled on. The Medicare Chief Actuary, Mr. Richard Foster, has written us that there is "no statistically significant difference" in the mean per capita growth of Medicare v. FEHBP v. Private Health Insurance. [See Attachment 2]

The Commission staff gets longer term savings from an assumption that clearly has no basis in fact. The staff assumed that a premium support scheme would spend 1% to 1.5% less per year for each of 30 years than traditional Medicare. Nothing, over the past 28 years of tracking health insurance expenditures, supports this assertion. There is no proof for the assumption, it is simply a belief. ,

Where do the Breaux-Thomas savings come from?

Largely from beneficiaries.

Following are the Breaux-Thomas savings broken out between provider and beneficiary cuts:

Most of the new savings come from beneficiaries, despite the fact that beneficiary cost-sharing and out-of-pocket spending have been steadily increasing. "Under current Medicare policies, out-of-pocket expenses in 2025 will average nearly 29% of beneficiary income. Low-income and seriously ill beneficiaries would face even greater financial burdens than the typical beneficiary, both because of their lower incomes and their higher health care expenses."

The average Medicare beneficiary spends about one-fifth of income on out-of-pocket health care costs.

Medicare beneficiaries living at or below the federal poverty level spend more than a third of their incomes on health care.

About half of low-income beneficiaries do not have Medicaid coverage, and out-of-pocket spending consumes an astounding 50% of their income.

Comprehensive Reform?

"(5) make recommendations for establishing the appropriate financial structure of the medicare program as a whole;

"(6) make recommendations for establishing the appropriate balance of benefits covered and beneficiary contributions to the medicare program;"

The Breaux-Thomas proposal shifts costs to beneficiaries and especially to those who are sick and disabled.

As for 'the appropriate balance of benefits,' Breaux-Thomas failed to modernize or make adequate the Medicare package of benefits. In fact, by allowing 10% variation in benefits, the Commission has eroded Medicare's guarantee of a defined benefit and could subject seniors to an erosion in coverage down the road as plans compete.

1) It is impossible to have a modern health insurance program without coverage of pharmaceuticals for all; Breaux-Thomas failed to seriously consider a universal drug benefit, perhaps because of reluctance to discuss cost containment in this sector. The Breaux-Thomas proposal is a help to some lower income, even though they assume 40% of those eligible for prescription drug subsidies will
fail to be assisted, and the plan does not provide insurance to the great majority of beneficiaries. Yet the failure to cover prescription drugs or to have a drug utilization program in Medicare costs tens of billions in unnecessary hospitalizations and increased deaths and illness.

2) Breaux-Thomas inability to provide catastrophic protection and to make expensive and inefficient medigap policies unnecessary was a major failure.

3) Increasing the deductible to $400, well beyond
the deductible in most private sector and government employee plans, is bad medicine, will discourage many from seeing doctors in a timely manner, and will probably result in increased severity of illnesses at time of treatment.

4) Creating new co-pays in home health, lab tests, and the first 20 days in a skilled nursing facility while proposing that medigap policies not cover 'first dollar' of treatment is a direct assault on people when they are sick, and is a severe blow on the near-poor: those too rich for Medicaid but not rich enough to afford medigap policies.

5) Breaux-Thomas did not give any consideration or
direction to the growing need for long term care
assistance.

6) There are also serious geographic balance
questions. The Breaux-Thomas proposal will apparently result in a huge increase in premiums for fee-for-service in rural America if one HMO enters the rural marketplace. While the plan may make it attractive for managed care plans to move into rural areas (and perhaps out of urban areas), HMOs and managed care may be an almost impossible idea in rural and frontier areas where the problem is lack of doctors.

7) A recent international study found that the United States, "with its heavy reliance on patient premiums and out-of-pocket costs...[had] the most regressive methods of financing health care." The premium support proposal will increase this
regressivity.

How Fast To Change Everything?

"(7) making recommendations for the time periods [for implementation of subsections 4, 5, and 6 above];"

As in many other areas, the Breaux-Thomas plan did not reach this level of specificity, but seems to plan all this disruption by 2003. The premium support plan appears to increase beneficiary premiums from $546 a year today to about $720 a year upon enactment. We believe this is just another example of how the Breaux-Thomas plan causes seniors to pay more and get less.

Graduate Medical Education: Someone Else's Problem

"(8) make recommendations regarding the financing of graduate medical education...."

The Breaux-Thomas plan did make recommendations to transfer the direct medical education (salaries and direct costs of residents) portion of Medicare to....somewhere else. There are good questions about the role of Medicare in financing the training of young doctors. This is an area we can make some savings and reforms. But to just throw out a recommendation that it be paid from some other source without obtaining the support of the appropriators is irresponsible.

We are relieved that the initial Breaux-Thomas proposals to get rid of all medical education spending and all help for the hospitals that disproportionately serve the low-income and uninsured were scaled back. Now the staff memo says they only want to "explore" funding these programs outside of Medicare.

We also note in the Breaux-Thomas March 14th document considerable discussion about how the movement of a portion of home health spending out of Part A and into Part B eroded the concept of 'trust funds.' Certainly moving graduate medical education and disproportionate share hospital expenses totally out of Medicare further erodes the concept of budget discipline.

No Support for President's Early Buy-in to Medicare

(9) make recommendations on modifying age-based eligibility to correspond to changes in age-based eligibility in [Social Security] and on the feasibility of allowing individuals between the age of 62 and the medicare eligibility age to buy into the medicare program."

The President's proposal was never considered despite our repeated requests. Indeed, the Breaux-Thomas plan went the other way, recommending that we raise the medicare eligibility age to 67. The President's repeated legislative proposal to let those without health insurance buy into Medicare at age 62 in a way that does not burden the current program was completely ignored. The CBO has scored this provision, with its accompanying anti-fraud proposals, as being a net plus for Medicare. The Office of the Chief Actuary has also said that over time the early buy-in proposal actually raises money because of the anti-fraud provisions. It would be an enormous help to those who are near retirement but uninsured. For them, health insurance is often unobtainable and/or unaffordable. As business continues to drop retiree coverage (another issue we did not examine; see above), the opportunity to buy in should have been offered.

In a very real sense, the law's mandate to consider this issue was violated.

How to Deal with the Chronically Ill?
Turn them over to HMOs

"(10) make recommendations on the impact of chronic disease and disability trends on future costs and quality of services under the current benefit, financing, and delivery system structure of the medicare program;"

The Breaux-Thomas proposal barely paid more than a passing glance to the issue of the chronically ill and disabled. There are no recommendations made regarding how this new system would protect the chronically ill, disabled, or end stage renal disease patients who depend on Medicare for their only realistic source of insurance.

By raising premiums for people in traditional Medicare fee-for-service, they will in effect drive middle and lower income beneficiaries into HMOs. Those HMOs, if they are to save Medicare any money, will not be offering any extra services or benefits. Already, there are serious questions about some Medicare HMOs providing inadequate care for the chronically ill and long-term disabled. There are reports that some of today's HMOs offer less in the way of rehabilitation, nursing home care and home health care, etc.

The Breaux-Thomas plan is sure to force lower-income beneficiaries, where the chronically ill are concentrated, into bare bones HMOs:

"If government contributions were based, as under FEHBP, on average premiums for participating plans,the shift of beneficiaries to sub-Medicare [HMO] options would reduce the contribution, further pressing lower-income beneficiaries to shift. The result would be a sort of race to the bottom, which might stabilize at a level well below current benefits."

If, under the Breaux-Thomas proposal, these HMOs have to offer the same general benefits as regular Medicare, then they will find their 'race to the bottom savings' by offering lower quality.

Also, by discouraging doctor visits through higher deductibles and less generous Medigap policies, the Breaux-Thomas proposal will probably increase the number of long-term ill.

More Generalizations

"(11) make recommendations regarding a comprehensive approach to preserve the program; and

"(12) review and analyze such other matters as the
Commission deems appropriate."

Premium support is a radical change that will not do anything to preserve the program. It is certainly not a comprehensive approach, and it will not preserve the fundamentals of the Medicare program: insurance, fairness, and government responsibility. In fact, it will erode these fundamental principles. By relying on the market where there are incentives to separate the healthy from the sick, and by including the ability to vary benefits, Medicare's principle of insurance will be eroded. By failing to ensure that beneficiaries have access to the benefits they need at an affordable price, only the wealthy will be able to afford treatment and the principle of social insurance will be eroded. And finally, by shifting costs to the beneficiaries, we are eroding the government's commitment to the program.

Instead of a defined benefit program available to all, Medicare would offer uncertain benefits, with costs increasingly shifted to the beneficiaries.

Medicare does face problems. The country should be educated about these problems and involved in identifying possible solutions. By not creating a true dialogue with the public, the Commission missed an important opportunity.

The Principles We Support

Clearly, Breaux-Thomas failed to achieve the mandate they were given.

Democratic members offered several alternatives based on the principles described below, but our proposals were never considered.

Principle #1: Any revision of Medicare must protect the right of individuals to choose their doctor, by continuing the traditional Medicare fee-for-service option. Beneficiaries must not be forced to give up that freedom.

The Breaux-Thomas plan tilts the playing field, raising premiums on those who might choose to stay in fee-for-service, and those in areas that have a limited number of plans to choose from. The proposal would force seniors into bare-bones HMOs, and would destroy Medicare fee-for-service over time.

Principle #2: Any revision of Medicare should not increase the number of uninsured or reduce access to health insurance.

Breaux-Thomas would increase the number of uninsured by hundreds of thousands by gradually raising the Medicare eligibility age.

Principle #3: Today, Medicare covers only about half of a beneficiary's total health costs. Any revision of Medicare must not increase burdens on beneficiaries and should do more to help low-income beneficiaries.

In the Breaux-Thomas plan, most of the savings come from beneficiaries in the form of higher premiums, new co-pays for home health, lab services, and nursing homes. The premium for Medicare fee-for-service will resemble a defined contribution or voucher, shifting costs from the government onto beneficiaries.

Principle #4: Medicare must always offer peace of mind by covering a well defined set of benefits that cannot be reduced or eliminated.

The Breaux-Thomas proposal is unclear about what exact benefits are offered, and allows benefit packages to vary.

Principle #5: Medicare, like any modern health insurance package, must provide comprehensive prescription drug coverage for all its enrollees.

Under the Commission proposal, prescription drugs are not included for the vast majority in the traditional Medicare fee-for-service program. By
providing only an optional benefit, the plan
guarantees sky-high premiums as only those who
most need prescriptions enroll.

Principle #6: Save 15% of the budget surplus to extend the life of Part A Hospital Trust Fund to 2020, and combine the Part A & Part B Trust Funds to eliminate solvency as an issue in Medicare.

The Commission extends the life of the traditional Part A Trust Fund about one year, maybe two.

We believe that a combination of dedicating a portion of the surplus, modernizing Medicare payment methods (a proposal of former HCFA Administrator Bruce Vladeck that we congratulate Breaux-Thomas for adopting), and
early Medicare buy-in with the President's anti-fraud proposals would have met the law's goals for the Commission. Once Medicare Trust Fund solvency was extended by twenty years, we could then consider options for improving the Medicare benefit package, including a drug benefit with appropriate cost containment for all beneficiaries, and more efficient delivery of benefits to low-income seniors.

These relatively simple, straightforward steps would have preserved and protected Medicare.

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