Copyright 1999 Federal Document Clearing House, Inc.
Federal Document Clearing House Congressional Testimony
May 05, 1999
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 2079 words
HEADLINE:
TESTIMONY May 05, 1999 PAUL CELLUCCI GOVERNOR SENATE FINANCE
CHANGES TOTHE MEDICARE SYSTEMS
BODY:
Financing
Medicare U.S. Senate Committee on Finance May 5, 1999 Chairman Roth, Senator
Moynihan, distinguished Committee Members, thank you for inviting me to testify
on the topic of Medicare financing. I am pleased to represent the National
Governors' Association on an issue of such importance. As policy makers, one of
the most important responsibilities we have is to protect and improve the health
and welfare of our nation's citizens. To this end, the Medicare and Medicaid
programs have been tremendously successful. Together, these federal and state
programs provide health insurance for 1 in 4 Americans, and are responsible for
over one third of the nation's health care expenditures. Medicare has given
seniors and adults with disabilities access to mainstream medicine, and it has
prevented many individuals from falling into poverty through illness or
disability. Moreover, Medicare has given American families assurance that they
will not have to bear by themselves the burden of illness of their elderly or
disabled parents or other family members. Despite Medicare's success, however,
the program faces enormous challenges on two fronts. First, the gaps which have
always existed in Medicare coverage - for preventive care, outpatient
prescription drugs and long-term care - are widening. In fact, Medicare now
covers only about half of seniors' health care costs. Second, as you are well
aware, Medicare expenditures have risen faster than the rate of overall economic
growth since the program's inception. Government officials project that Medicare
spending will surge over the next quarter century from 12% of federal
expenditures to more than 25%. I am here today because the challenges facing
Medicare are as important to Governors as they are to you. For low-income
Medicare beneficiaries, Medicaid fills the gaps in Medicare coverage by
providing assistance for Medicare premiums and cost sharing expenses, and
through coverage of outpatient prescription drugs and long-term care. Medicaid
serves not only low-income Medicare beneficiaries, but higher income individuals
as well, who turn to Medicaid after exhausting their own resources to pay for
their care. States are affected by the same factors that are driving up Medicare
spending. The rising cost of medical care leads to higher beneficiary premiums
and cost sharing expenses, which in turn drive up Medicaid spending for low
income beneficiaries. Additionally, the aging baby boom population and medical
advances are leading to an increasing number of chronically ill beneficiaries
who need long term care and support with basic activities of daily living such
as eating, bathing, and dressing. These factors will place an enormous strain on
state Medicaid budgets in the years to come. Moreover, because Medicaid's role
in providing coverage for these individuals is supplementary to Medicare, states
are in the unreasonable position of sharing responsibility for providing
coverage, without any way to affect the policies that govern Medicare or to
manage the up-front primary and acute care treatment decisions that drive
beneficiaries' use of long term care services and Medicaid spending. These
factors alone are cause for substantial concern. Yet they are compounded by the
fact that states - through Medicaid and other state-funded programs for elderly
and disabled individuals - are susceptible to tremendous cost shifting from
Medicare. For example, the Balanced Budget Act of 1997, which included immediate
cuts in Medicare provider payments, has led directly to increases in state
spending for Medicare beneficiaries. As states, we view these cuts as the tip of
the iceberg, and are alarmed at the prospect that more extensive Medicare reform
may have many times the impact on state spending that the BBA has had. You must
know that any time you change Medicare, it affects Medicaid and other
state-funded programs, typically through a combination of unfunded mandates and
other forms of cost shifting. As you embark on the difficult task of reforming
Medicare, I urge you not do so at the expense of states. Dually Eligible
Beneficiaries Although states play a key role in funding services provided to
many low-income seniors, the most evident connection between Medicare and states
is for individuals eligible for both Medicare and Medicaid coverage. According
to the Health Care Financing Administration, 15 percent of Medicare
beneficiaries are also eligible for Medicaid. These dually eligible
beneficiaries, however, account for 30 percent of all Medicare spending. Dually
eligible beneficiaries are also an expensive population for Medicaid programs.
Although they account for only 16 percent of Medicaid recipients, dual eligibles
account for 35 percent of Medicaid expenditures. Medicare and Medicaid spend
about the same amount for dually eligible beneficiaries. In 1997, Medicare
spending for dually eligible beneficiaries totaled $62 billion. That same year,
Medicaid spending for this population totaled $58 billion. Combined Medicare and
Medicaid spending for dually eligible beneficiaries averages over $20,000 per
person. Dually eligible beneficiaries are a particularly vulnerable and
high-cost group of individuals. Compared to other Medicare beneficiaries, dual
eligibles are more likely to suffer from chronic illness and to require
significant long-term care and social support services. Dually eligible
beneficiaries are also different from other Medicare beneficiaries in another,
very important way: they do not have the same financial incentive to choose
among fee-for-service and managed care options based on differences in price and
benefits, because Medicaid programs cover their out-of-pocket costs and provide
comprehensive coverage. In fact, national data show that dual eligibles are 75%
less likely to enroll in a managed care plan than other Medicare beneficiaries.
Cost Shifting Because of pressure to contain costs, both Medicare and Medicaid
have incentives to shift costs to one another. States are especially susceptible
to cost shifts from Medicare. For example, recent cuts in provider payments
under the Balanced Budget Act of 1997 have shifted significant costs to Medicaid
and other state programs, and are increasing pressure on states to increase
Medicaid provider rates. In my State, the number of home health visits covered
by Medicare dropped by 26% in the year following the introduction of the Interim
Payment System for home health. Medicare payments decreased by $130 million, and
15 agencies went out of business. This has had a direct impact on the demand for
Medicaid and state-funded home care services, which saw a 250% increase in the
number of clients served. More important is the impact on the 10,000 individuals
who lost their coverage for Medicare home health as a result of these changes -
a drop of 15%. It will cost the state more than $1 million a month to provide
the extra services that will allow 4,000 seniors to remain in their home. Other
beneficiaries will have to pay out-of-pocket for their care, and many are
expected to go without care. Inevitably, some of these individuals will end up
in nursing homes and on Medicaid. Efforts to redirect federal payments to
low-cost areas, as well as reductions in Medicare funding for graduate
medical education (GME) are also putting pressure on state budgets, as
providers turn to states to make up for lower Medicare payments. States
particularly affected by cuts in Medicare GME funding are those with a
concentration of large teaching hospitals, such as California, Connecticut,
Florida, Illinois, Maryland, Michigan, Missouri, New Jersey, New York, North
Carolina, Ohio, Pennsylvania, Texas, Virginia, and Wisconsin, and my state,
Massachusetts. Lack of Care Coordination Cost-shifting is not the only concern
of states. An equally severe problem for dually eligible beneficiaries is the
lack of coordination among primary, acute and long term care providers. In
general, seniors needing long-term care also need a great deal of acute care.
Yet our health care system focuses on addressing specific service needs and does
a poor job of addressing the interaction of acute and chronic needs. This
fragmentation of care and a lack of accountability for health outcomes
contribute to higher rates of preventable hospitalizations and to nursing
facility admissions. Ultimately, poor clinical outcomes and service decisions
that are reimbursement-driven lead to higher expenditures for both Medicare and
Medicaid. Separate Management of Medicare and Medicaid Additionally, for
dual-eligible seniors, the lack of coordination between the Medicare and
Medicaid programs contributes to fragmentation of acute and long-term care. It
is currently impossible for Medicaid to participate in the acute care decisions
made when Medicare is the primary payer. Medicare's current managed care program
is incapable of addressing these issues, because participating Managed Care
Organizations are neither responsible for providing long-term care services, nor
accountable for the cost of such services. Integrating Acute and Long-Term Care
There are many personal tragedies that illustrate the human cost of the current
system, to beneficiaries and their families. Along with my testimony, I am
submitting a copy of an article titled "Saving Medicare: Why Medicaid Must Be
Part of the Solution." This article, which highlights many of the problems with
the current system, includes the story of an elderly woman who was, in her
daughter's words, "bounced around (in the current system) like a ping pong
ball," until she finally lost her independence and was confined to a nursing
facility. For the sake of all Americans, we can and must do better. More
effective coordination of acute and long-term care services must occur to serve
our beneficiaries better and to prevent decline in disability. States are in a
strong position to take the lead in administering and managing integrated
programs through federal/state partnerships. Barriers to Integration
Unfortunately, a number of significant obstacles, both statutory and
administrative, have arisen to conducting effective coordinated care
demonstrations. As a result, only one state - Minnesota - is currently operating
an integrated care program that is available to the full range of unimpaired,
moderately impaired, and severely impaired dual- eligible seniors. Many more
states, however, have expressed an interest in developing integrated programs.
They include California, Colorado, Connecticut, Delaware, Florida, Maine,
Maryland, New Hampshire, New York, Oregon, Rhode Island, Texas, Vermont,
Virginia, Washington, and my own state, Massachusetts. Conclusion The National
Governors' Association supports Medicare reform in order to ensure the long-term
solvency of the program, as well as to improve the quality of the program for
all beneficiaries. As reform measures are considered, however, they must be
assessed for their impact on dual eligibles and on Medicaid and other
state-funded programs. Medicare reform must not create unfunded state mandates
or otherwise shift costs to states. Such reform must also account for the fact
that dual eligibles, who account for 30 percent of program expenditures, have no
incentive to select a health plan based on price because their out-of-pocket
costs are paid for by Medicaid. In addition, Medicare reform should support
state flexibility to develop mechanisms to contain growth in Medicaid spending.
Finally, Medicare reform should support federal-state partnerships to coordinate
and integrate Medicare and Medicaid to ensure greater accountability for health
outcomes. As the baby-boom generation begins to retire in 2010, the need for
sensible solutions to the senior health care crisis will grow dramatically.
Federal and state action is needed now to plan for this certainty. Some time
remains to develop and assess policies that could lead to cost-efficient,
quality medical and support services. However, if this time is not used wisely,
the cost in terms of quality of life for individuals and their families, and in
state and federal spending, could be quite substantial. The National Governors'
Association supports Medicare reform, and is anxious to work with Congress
toward this goal. I thank you again for the opportunity to be a part of this
hearing. I look forward to answering any questions you may have.
LOAD-DATE: May 6, 1999 
