Copyright 1999 Federal Document Clearing House, Inc.
Federal Document Clearing House Congressional Testimony
August 04, 1999
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 4816 words
HEADLINE:
TESTIMONY August 04, 1999 MS. KAREN IGNAGNI HOUSE COMMERCE
HEALTH AND ENVIRONMENT MEDICARE AND CHOICE
BODY:
August 4, 1999 Prepared Statement of Ms. Karen Ignagni American Association
of Health Plans 1129 20th Street, NW, Suite 600 Washington, DC 20036 Panel 2,
Witness 1 I. Introduction The members of the American Association of Health
Plans (AAHP) appreciate the opportunity to submit testimony to assist in the
Subcommittee's evaluation of the Medicare+Choice program. AAHP represents more
than 1,000 HMOs, PPOs, and similar network health plans; our membership includes
the majority of Medicare+Choice organizations, which collectively serve more
than 75 percent of beneficiaries in the Medicare+Choice program. 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, comprehensive, cost- effective services to beneficiaries. Today,
more than 17 percent -- or 6.2 million beneficiaries -- are enrolled in health
plans, up from only six percent just 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 fee-for-service
Medicare, such as full year's hospitalization, lower copayments and deductibles,
and prescription drug coverage (Figure 1). Medicare+Choice Fee-for-Service
Outpatient Prescription Drug Coverage Yes No Deductible for Physician Visits No
Yes Nominal Copayment for Physician Visit Yes No Hospital Inpatient Cost-Sharing
Typically, No Yes Annual Day Limit on Hospital Coverage Typically, No Yes With
passage of the Balanced Budget Act (BBA) two years ago, Congress took
significant steps toward the goal of providing Medicare beneficiaries with
expanded coverage 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 future
generations of Medicare beneficiaries. Unanticipated events, however, have
endangered this foundation and created structural issues that must be resolved
quickly. II. Current State of the Medicare+Choice Program As members of the
Subcommittee know, the first public sign of trouble in the Medicare+Choice
program surfaced last fall when nearly one hundred health plans were forced to
reduce or end their participation in the program, resulting in more than 400,000
beneficiaries losing their health plan choice. Fifty thousand of these
beneficiaries were left with no other health plan option. At that time, AAHP and
others urged the Administration and Congress to make mid-course corrections,
arguing that if program problems were left unaddressed, more health plans, many
of which have participated in the program for years, would face the same
difficult decisions in 1999 and beyond. The unfortunate reality is that we were
right. Just two weeks ago, the Health Care Financing Administration (HCFA)
announced that 327,000 beneficiaries in another ninety-nine health plans would
lose their health plan on January 1, 2000. Of the 327,000 affected
beneficiaries, 70,000 will have no choice but to return to the fee-for-service
program because there is no other Medicare+Choice plan in their area. In
addition to these sobering events, an AAHP survey of its 26 largest members that
participate in the Medicare+Choice program showed that among responding
organizations, a substantial number of beneficiaries who will be able keep their
plan next year will face increased out-of-pocket costs and reductions in benefit
levels. Survey results, which were independently collected and tabulated by
Peter D. Hart Research for AAHP, showed that premium changes to be instituted by
18 companies will affect nearly 1.5 million of the 3.86 million beneficiaries
covered by the survey whose plans will remain in the program next year. Among
these individuals, monthly premiums will increase by $20 or more for 926,009
persons and $40 or more for 400,757 of the 926,009 persons. Monthly premiums
will decrease for just fewer than 12,000 individuals; in all instances, these
decreases will be less than $20. More than 1.3 million enrollees will face an
increase in prescription drug copayments, while just 10,000 enrollees will have
decreased prescription drug copayments next year. Additionally, about 600,000
individuals covered by the survey will face hospital inpatient copayments
averaging $275 next year. III. Sources of Medicare+Choice Program Instability
The health plans that announced their decisions to leave the Medicare+Choice
program or to reduce benefits did not make their decisions lightly. Many of
these plans worked up to the July 1st deadline to devise strategies that would
enable them to maintain their current service area, to stay in the program next
year, or to minimize benefit reductions. But for many of these plans, current
problems with the Medicare+Choice payments and increased regulatory burdens were
too overwhelming, and they were forced to reduce their participation, to
withdraw from the program or to scale-back benefits. Medicare+Choice Payment 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 variation in payments to encourage the development of
coverage choices in areas of the country with lower payments. 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, the growing gap in funding between the Medicare+Choice
and fee-for-service sides of the program, and administrative actions taken by
HCFA affecting Medicare+Choice payments do not serve the best interests of
beneficiaries and were not anticipated 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. Spending on medical
services furnished to Medicare-eligible military retirees by Department of
Veterans Affairs (VA) and Department of Defense (DoD) hospitals continues to be
omitted from the calculation of Medicare+Choice rates. A few years ago, the
Prospective Payment Advisory Commission (ProPAC) estimated that health care
provided in DoD and VA facilities to Medicare beneficiaries accounts for 3.1
percent of the total resource costs of treating Medicare beneficiaries. ProPAC
concludes from its findings that the omission of the cost of care provided in
DoD and VA facilities to Medicare beneficiaries leads to systematic errors in
both the level and distribution of Medicare managed care payments. H.R. 2447,
introduced by Congressman McDermott, would help address this problem by
including these amounts in Medicare+Choice rate calculations. In addition, the
BBA sought to begin tackling some of the issues related to Graduate
Medical Education (GME) reform by limiting the number of residents
supported by the Medicare program and by providing incentives to hospitals to
reduce the size of their training programs. However, a central BBA provision,
the removal of GME funds from the calculation of payments to Medicare+Choice
organizations, does not appear to address GME reform goals. AAHP opposed the
removal of GME funds from the calculation of Medicare+Choice payments,
particularly in the absence of broader, structural reforms to GME financing.
AAHP voiced concern that removal of GME funds could result in premium increases
and/or benefit reductions for beneficiaries enrolled with plans already
participating in the program, inhibit enrollment growth, and at worst could
force some plans to leave the program. This provision was intended to assure
that beneficiaries have access to services at these facilities and that these
facilities are compensated for their teaching costs. Studies show that health
plan members do use teaching facilities and that plan payments for a given case
in a teaching hospital greatly exceed payments for the same case in a
non-teaching hospital. Although GME payments are being removed from
Medicare+Choice payments, in many markets, the dominance of teaching hospitals
limits health plans' ability to reflect the carve-out by making commensurate
reductions in payments to teaching hospitals. Consequently, teaching hospitals
are receiving GME payments from the Medicare program as well as higher payments
from health plans. Ultimately, it is the Medicare beneficiary who bears the
burden of these higher payments due to reductions in additional benefits that
they otherwise would receive. 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 beginning in 2000. This is an administratively imposed increase
in the $22.5 billion savings Congress expected from the payment methodology as
enacted in the BBA. In fact, at the time of the BBA's approval, the
Congressional Budget Office (CBO) did not score the new risk- adjuster as saving
money. More recently, CBO stated that it had "previously assumed" that the
health status-based risk-adjustment in the Medicare+Choice program would be
budget neutral. AAHP analysis of PricewaterhouseCoopers projections of
Medicare+Choice rates in each county over the next five years shows that a
significant gap opens up between reimbursement under the fee-for-service program
and reimbursement under the Medicare+Choice program. 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 (Figure
2). This same Fairness Gap will exceed $1,500 per enrollee 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 per enrollee in 2004 and in Houston the
gap will exceed $2,500 per enrollee in 2004. In New Orleans, the Fairness Gap
will exceed $2,600 per enrollee in 2004. For nearly half of Medicare+Choice
enrollees living in the top 100 counties, government payments to health plans on
behalf of beneficiaries will be 85 percent or less of fee-for-service Medicare
payments in 2004, significantly exceeding estimates of so-called overpayment due
to favorable selection by plans (Figure 3). When AAHP examined the top 101 to
200 counties as 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
new risk-adjuster, the design of which is severely flawed. Rather than measuring
health-status, HCFA's risk-adjustment measures inpatient hospital utilization.
This design penalizes health plans that use disease management programs designed
to reduce hospitalizations for chronically ill patients who would have otherwise
been treated in inpatient settings. These programs are designed to prevent
costly hospitalizations by treating patients in alternative settings. An AAHP
analysis of PricewaterhouseCoopers projections that incorporate the effect of
the risk-adjustment methodology, when it is phased-in at 10 percent, indicate
that nearly half of current Medicare+Choice enrollees live in areas in which
year 2000 payments will increase by 2 percent or less over 1999 payments. This
situation will likely worsen in 2001 when HCFA will base 30 percent of
Medicare+Choice payments on its risk- adjustment methodology. 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. AAHP also has significant concerns about the funding of
the Medicare beneficiary information campaign. While it is reasonable for health
plans and their enrollees to contribute to funding HCFA's education and
information dissemination initiatives, their contribution should be in
proportion to their participation in the Medicare program. Last year, Medicare
risk HMOs and their enrollees represented 14.3 percent of the program, but
shouldered 100 percent of the cost of the information campaign. The FY1999 $95
million funding level represents an annual cost of $2.40 per beneficiary if it
is spread over the entire Medicare population of 39 million beneficiaries. It
represents an annual cost of $15.43 per beneficiary if it is spread over only
those beneficiaries who have enrolled in a Medicare+Choice plan. On average,
generating the $95 million authorized by the BBA will require a tax of $1.90
each month for each beneficiary enrolled in a Medicare+Choice plan (the tax is
collected over only the first nine months of the year). This $1.90 per month per
beneficiary tax represents 18% percent of the average monthly 1998 to 1999
payment increase under the new BBA payment methodology. AAHP supports the goal
of providing beneficiaries with accurate information that allows them to compare
all options and select the one that best meets their needs. Last year's campaign
did not meet Congressional expectations. Many beneficiaries received incorrect
or confusing information and some plans were left out of the brochure
altogether. AAHP urges Congress to ask HCFA for an accounting of its use of
resources for educational purposes. We also urge Congress to adopt MedPAC's
recommendation to fund this program through HCFA's operating funds rather than a
tax on Medicare+Choice enrollees. AAHP continues to believe that the entire
beneficiary information program should be reevaluated and streamlined.
Stabilizing Payment Will Help Stabilize the Medicare+Choice Program The present
state of the Medicare+Choice program is not what Congress expected when the BBA
was approved two years ago. Rather than having expanded coverage choices,
beneficiaries face fewer coverage choices. Additional benefits offered by plans
that are not available in the fee-for-service program are being jeopardized.
Some have argued that HCFA overpays health plans and that plans withdrawing from
the market are simply making "business decisions." In response, first let me say
this: overpaid health plans do not leave a market. Overpaid health plans do not
reduce benefits. Second, payment and regulatory requirements dictate the type of
environment in which health plans participate in the Medicare+Choice "business."
So yes, the current payment and regulatory environment is forcing plans to make
difficult business decisions regarding their participation in the
Medicare+Choice program. The Bilirakis-Deutsch bill, H.R. 2419, would go a long
way toward stabilizing the payment situation in both urban and rural areas by
requiring that HCFA implement the new risk-adjuster on a budget-neutral basis,
which is in keeping with Congressional intent. The bill also would ensure that
national updates to government payments for beneficiaries choosing a
Medicare+Choice plan grow at the same rate as government payments for
beneficiaries choosing fee-for-service Medicare. H.R. 2419 represents an
equitable restoration of funding by increasing the total dollars available in
setting Medicare+Choice payment rates. This approach will help ensure that the
BBA goal of expanding coverage choices for all beneficiaries is met. Another way
that payments could be stabilized is through establishment of a true payment
floor. As discussed earlier in this testimony, Medicare+Choice payments are
falling drastically relative to fee-for-service Medicare payments - in many
areas, payments are falling to 80 percent or less of fee-for-service payment. To
prevent this, a true floor could be set such that Medicare+Choice payments would
not fall below a specified percentage of fee-for-service per capita payments in
a county. Medicare+Choice Regulatory Environment Contributes to Program
Volatility The challenges facing the Medicare+Choice program do not result from
payment alone. HCFA's approach to overseeing the program and the structure of
the Medicare+Choice program are contributing to the volatility in the program.
Taken together, the issues of payment and regulation have challenged plans'
abilities to maintain their health care networks. In some cases, providers
simply have told health plans that given low payments and increased regulatory
requirements on them, that they are better off just seeing beneficiaries under
the fee-for-service program. HCFA Roles as Purchaser and Regulator in Conflict.
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. HCFA published the Medicare+Choice regulation, which was more
burdensome than expected, nearly a month and a half after the date plans were
required to file their 1999 adjusted community rate proposals (ACRs) last year.
This situation and the unrealistic compliance deadlines combined with the
reduced rate of increase in payments and the uncertainty created by the new
risk-adjustment model, caused plans across the country and across model types to
become deeply concerned last fall about the viability of the benefits and rates
included in their ACRs on the originally mandated May 1st deadline. This led our
members to make an unprecedented request to HCFA to allow plans to resubmit
parts of their ACRs. In some service areas, the ability to vary copayments --
even minimally -- meant the difference between a plan's ability to stay in the
Medicare+Choice program or to pull out of a market. While this request presented
HCFA with a complicated 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 flexible approach to
Medicare+Choice implementation. As a regulator, however, HCFA had concerns about
criticism that could result from reopening bids, and thus chose not to allow any
opportunity for adjustment of ACRs. HCFA's decision in part contributed to the
withdrawal of nearly 100 health plans from the program, affecting more than
400,000 beneficiaries. 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
for beneficiaries. Need For Fair Regulations. Beneficiaries should have
confidence that all options, including both Medicare+Choice plans and the
Medicare fee-for-service program, meet standards of accountability that ensure
that they will have access to all Medicare benefits and rights regardless of the
coverage 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
plans' 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. While we appreciate HCFA's efforts to address concerns
about certain aspects of the Medicare+Choice regulation over the past several
months, the fact remains that health plans are having to devote substantial
human and financial resources toward compliance activities, which in turn means
fewer resources devoted to additional benefits. AAHP renews its request that
HCFA undertake an immediate analysis to develop a full understanding of the
relationship between the costs associated with the full array of Medicare+Choice
requirements and their value to beneficiaries and the Medicare program. We
believe strongly that more of these resources should be available for benefits
and patient care. Specific Areas of Concern with Medicare+Choice Legislative and
Regulatory Requirements. Beyond the issues presented above the following
specific areas are among those that remain problematic: Discontinuation of
Flexible Benefits Policy. Prior to enactment of the BBA, Medicare HMOs were
allowed to vary premiums and supplemental benefits within a contracted service
area on a county-by-county basis, and to customize products - or offer "flexible
benefits" - to meet beneficiary and employer needs and the dynamics of
individual markets. The BBA and HCFA's Medicare+Choice regulations are both more
restrictive than this policy, and require that Medicare+Choice plans offer
uniform benefits and uniform premiums across a plan's total service area without
regard to different county payment levels. The result is that plans are less
likely to continue or begin serving lower- payment counties, just the opposite
of expanding coverage choice. HCFA developed a transition policy for existing
contractors, which allows Medicare+Choice organizations to segment service areas
and offer multiple plans in an effort to mitigate the effect of moving away from
the flexible benefits policy. While this transitional relief has alleviated this
problem in the short term, a permanent solution is needed. AAHP encourages the
Committee to revise the statute so as to revert to the prior policy allowing
flexible benefits within plan service areas. HCFA's QISMC Standards Disregard
Experience of Private Sector. One area of significant concern to AAHP member
plans is HCFA=s Quality Improvement System for Managed Care (QISMC). QISMC is
designed to establish a consistent set of quality oversight standards for health
plans for use by HCFA and state Medicaid agencies under the Medicare and
Medicaid programs, respectively. AAHP has long advocated coordination of quality
standards for health plans in order to maximize the value of plan resources
dedicated to quality improvement. While AAHP believes that QISMC could have been
designed to contribute to this important goal, our members have a number of
serious concerns regarding HCFA implementation of this program. Furthermore, we
are also concerned that the Medicare program is not providing equal attention to
the overall quality of care furnished under the fee- for-service program. One of
our primary concerns is that QISMC lacks clear coordination with existing public
and private sector accreditation and reporting standards. Rather than coordinate
with existing standards, QISMC establishes an entirely new system of requirement
that not only are far more stringent, but also are unreasonable in their
timeframes. Meeting two competing sets of standards adds to administrative cost
while detracting from health care quality improvement. IV. Solving the Problems
that Undermine the Success of the Medicare+Choice Program AAHP and its members
applaud the Subcommittee for holding this hearing and implore the Subcommittee
to move immediately in taking measures to restore stability to the
Medicare+Choice program. In doing so, AAHP members urge the Subcommittee to
consider the following four principles. First, Congress must ensure that
Medicare+Choice payments are adequate and stable and that they are comparable to
those in fee- for-service Medicare. Federal contributions to Medicare+Choice
organizations should be adequate and predictable to promote expanded coverage
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. The Administration projects that
its approach will cut Medicare+Choice payments by an additional $11.2 billion
over a 5- year period and thus endanger the very choices, broader benefits, and
out-of-pocket protections these beneficiaries enjoy. As is now apparent, the BBA
payment formula, in combination with the Administration's new risk-adjuster,
will not achieve this goal. Instead, AAHP analysis shows a dramatic gap opening
up between payments for beneficiaries in the Medicare+Choice program and their
counterparts in fee-for-service Medicare. AAHP urges of swift approval of the
bipartisan H.R. 2419, the Medicare+Choice Risk-Adjustment Amendments of 1999,
introduced by Congressman Bilirakis and Congressman Deutsch. A budget-neutral
risk-adjuster brings greater equity to payments without penalizing plans or
destabilizing the program. Second, HCFA's beneficiary information and education
effort should be re-examined and refocused to meet beneficiary interests and
needs. AAHP supports the goal of providing beneficiaries with accurate
information that allows them to compare all options and select the one that best
meets their needs. AAHP urges Congress to ask HCFA for an accounting of its use
of resources for educational purposes. AAHP continues to believe that the entire
beneficiary information program should be reevaluated and streamlined. Third,
Congress must promote and enforce a responsive regulatory environment. Without a
doubt, the present instability has undermined beneficiaries' confidence in the
Medicare+Choice program. Unless action is taken to restore their confidence, it
is unlikely that the goals of the BBA will be achieved. Beneficiaries deserve a
well-run program that is responsive to their needs. Unfortunately, the conflict
between HCFA's roles as a purchaser and regulator often prevent the Agency from
acting more nimbly in the best interests of beneficiaries. HCFA's implementation
of the BBA highlights the tension between these roles. To increase consumer
confidence in all aspects of the Medicare program, HCFA should take immediate
steps to improve administration and regulation of the Medicare+Choice program.
During the first year of Medicare+Choice implementation, HCFA promulgated more
than 800 pages of new regulations and issued countless operational policy
letters. The Medicare+Choice regulation should be re-examined to ensure that the
value to beneficiaries justifies the resources required for compliance. V.
Conclusion For over a decade, health plans have delivered to beneficiaries
coordinated care, comprehensive benefits, and protection against highly
unpredictable out-of-pocket costs, but these coverage choices are at risk.
Congress and the Administration should act immediately to create a level playing
field between the payments under the Medicare+Choice program and the Medicare
fee-for- service program, and a regulatory environment based on the principles
of ensuring that the value to beneficiaries justifies the resources required for
compliance and equal accountability under the Medicare+Choice and Medicare
fee-for-service programs. We urge you to address the Fairness Gap, and the
problems we have identified with HCFA's implementation of the Medicare+Choice
risk- adjuster, and with regulation of the program. We are in the process of
conferring with the members of the Subcommittee and your staff about AAHP's
specific suggestions - some of which we have mentioned today - for solving these
problems. Our concern last year that without action, more beneficiaries would
lose access to their plan and that others would face reductions in benefits has
become a dismal reality. Further delay could render the Medicare+Choice program
beyond repair or salvage. This outcome would be a loss not only for the
beneficiaries who have chosen a Medicare+Choice plan, but also for future
beneficiaries who would be denied the opportunity to do so.
LOAD-DATE: August 6, 1999