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Congressional Testimony
April 17, 2002 Wednesday
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 4523 words
COMMITTEE:
HOUSE WAYS AND MEANS
HEADLINE:
PRESCRIPTION DRUG BENEFIT
TESTIMONY-BY: TOMMY G.
THOMPSON,, SECRETARY,
AFFILIATION: U.S. DEPARTMENT OF
HEALTH AND HUMAN SERVICES
BODY: Statement of
Tommy G. Thompson, Secretary, U.S. Department of Health and Human
Services
Testimony Before the House Committee on Ways and Means
Hearing on Integrating Prescription Drugs into Medicare
April
17, 2002
Chairman Thomas, Representative Rangel, distinguished Committee
members, thank you for inviting me to discuss our proposal for strengthening
Medicare, including prescription drug coverage. This committee obviously played
a key role in creating the Medicare program. When that legislation was enacted,
President Johnson said: "No longer will older Americans be denied the healing
miracle of modern medicine. No longer will illness crush and destroy the savings
that they have so carefully put away over a lifetime." Thirty-six years later,
President Bush believes it is time for our Nation to come together and renew
that commitment. I share the President's view that we have a moral obligation to
fulfill Medicare's promise of health care security for America's seniors and
people with disabilities. Medicare has provided this security to millions of
Americans since 1965. But its lack of prescription drug coverage demonstrates
that Medicare is not keeping up with the rapid advances in medical care. Looking
ahead, medical care holds the promise of improving and extending life through
countless innovations. But as we enter the 21st century, Medicare's promise is
threatened by: outdated benefits; limited financial protection against high
medical costs; a system that has not delivered reliable health plan options; and
a traditional government plan that often fails to deliver responsive services to
beneficiaries or ensure high-quality care.
The 77 million Americans who
will be entitled to Medicare in 2030 are counting on Medicare's promised
benefits. Yet even Medicare's current benefits are not secure for the retirement
of the Baby Boom generation. Medicare's fund for hospital insurance will face
cash flow deficits beginning in about 15 years and is projected to become
insolvent within 30 years. Medicare's fund for its other benefits will require
nearly a doubling of beneficiary premiums and infusions of general revenues to
remain solvent over the next 10 years. Medicare's accounting disguises the true
fiscal health of Medicare and makes it difficult to plan ahead.
STRENGTHENING MEDICARE
Recognizing these problems, President
Bush has worked with members of Congress from both parties to develop a
framework for a modernized Medicare program and for keeping Medicare's benefits
secure. The President's framework includes the following eight principles:
First, all seniors should have the option of a subsidized prescription
drug benefit as part of modernized Medicare. More specifically, the President's
framework made it clear that:
Medicare's subsidized drug benefit should
protect seniors against high drug expenses and should give seniors with limited
means the additional assistance they need.
The drug benefit should give
all seniors the opportunity to choose among plans that use some or all of the
tools widely used in private drug plans to lower drug costs and improve quality
of care.
The drug benefit should support and encourage the continuation
of the effective prescription drug coverage now available to many seniors
through retiree plans and private health insurance plans.
The new drug
benefit should also be available through Medigap plans and as a stand-alone drug
plan for seniors who prefer these choices.
Others may advocate a
different approach, but we believe it is critical for seniors to have a choice
of drug plans so that they can pick the one that is best for their needs - this
is not a decision the government should make for them, just as we should not be
picking their doctor or giving them a one-size-fits-all health plan. As the
members of this Committee know, both the independent CMS actuaries and the
non-partisan Congressional Budget Office experts fully expect private drug plans
to participate in this benefit. At this point in the legislative process, with
the drug benefit still subject to intense debate, it would be surprising if
companies were stepping forward to say they would offer it - since they might
prefer not to have to compete. But as CBO has also confirmed, giving private
plans the proper incentives is the way to get the best deal for Medicare
beneficiaries and the program - yielding lower drug prices and lower monthly
premiums through competition. Of course, the government has a proper role to
play as well, particularly in making sure seniors can get the protection against
catastrophic drug costs that they need - protection which is often lacking today
- and taking the steps necessary to ensure that all eligible seniors and
disabled individuals get the benefits to which they will be entitled.
Second, modernized Medicare should provide better coverage for
preventive care and serious illnesses. Medicare's current cost- sharing often
imposes the highest costs on those who need the most care. Individuals who need
hospital care currently face a payment of more than $
800 for
each spell - and they can have several spells in a year - and Medicare's
coverage for hospitalizations can eventually run out. And unlike most private
insurance, Medicare does not provide "stop-loss" protection to limit the
financial obligations imposed on beneficiaries. At the same time, whether in
Medicare itself - or in the Medigap plans that seniors buy to fill in Medicare's
coverage gaps - first- dollar often coverage drives up costs and premiums for
beneficiaries without yielding noticeable improvements in health. Thus we
believe Medicare's coverage should be improved so that it provides better
protection when serious illnesses occur and better coverage to help prevent
these illnesses in the first place - like having zero co-payments on Medicare's
preventive benefits while still encouraging prudent use of services and
beneficiary involvement in health care decisions. Because they will encourage
better use of preventive care and other services, better Medicare benefits will
also help seniors and the Medicare program get the best value from the new drug
benefit.
Third, today's beneficiaries and those approaching retirement
should have the option of keeping the traditional Medicare plan with no changes.
For us this is obvious - no one should be forced to accept significant changes
they do not like and are not prepared for. Although we believe that a modernized
Medicare program will be attractive to many current beneficiaries, we believe
the choice rightly rests with them on whether to move from the existing program
to the modernized one.
Fourth, Medicare should provide better health
insurance options, like those available to all Federal employees and retirees.
For too long, Medicare has been a "one size fits all" program, and we should
offer options appropriate to the unique challenges various seniors face -
including the kind of innovative disease management programs which this
Committee has pushed for but which are threatened by chronic underpayments to
private plans today. Private plans have been a critical source of drug coverage
and other innovative benefits for seniors, and should remain so.
Fifth,
Medicare legislation should strengthen the program's long- term financial
security. In light of the recent Trustees' Report on Medicare one could conclude
that our guiding principle should be "first, do not harm." But the President's
budget recognized that strengthening Medicare would require substantial new
resources - and proposed $
190 billion for this important
purpose. Of course we are more than willing to work with Congress this year to
enact this long-overdue legislation, and we understand that there are a range of
views regarding how much new spending needs to be allocated for this purpose. We
believe an effective program for strengthening Medicare and including a
prescription drug benefit can be accomplished within the amount the President
has allocated in his Budget. Without strong measures to make the program more
efficient being incorporated along with new benefits, all of Medicare's benefits
will become less secure under some proposals.
For example, some have
proposed a drug benefit as large as $
750 billion, financed
largely by surpluses generated by the Medicare Part A Trust Fund. But if the
Part A surpluses literally were directed to augmenting prescription drug
coverage, the consequences for Medicare's ability to provide benefits for the
Baby Boom would be severe. According to the independent Actuaries, this transfer
could cut the life of the Part A Trust Fund in half - causing its insolvency by
2016 and requiring its balances to be drawn down starting in 2008. Some might
want to exploit the accounting gimmicks that Medicare's bifurcated Trust Fund
system encourages, by creating yet another fund for the drug benefit and leaving
it to future generations to figure out how to pay for it. But no accounting
gimmicks can hide the fact that such a drug benefit would increase the program's
long-term financing challenges by 50 to 100 percent. What costs
$
750 billion in the first 10 years would balloon to
$
2.4 trillion in the next ten, just when the Baby Boomers are
counting on Medicare. Medicare spending (even after subtracting beneficiary
premiums) is expected to grow from 2% of GDP today to 4% by 2030, and this drug
benefit proposal would increase that share to almost 6% - which is like a tax
increase on future Americans amounting to nearly 2% of our entire national
product.
Thus, while we want to work closely with Congress to enact a
Medicare drug benefit this year, we also want to work closely with Congress to
make sure that the benefits we promise today will be there for beneficiaries
tomorrow. This is also why we support changes in Medicare's Trust Fund
accounting to provide a clear picture of Medicare's financial outlook. We have
all seen examples of how poor accounting practices can lead to poor planning,
with devastating consequences for many Americans. It is critically important
that we avoid such practices in a program that is so important to all Americans.
In this context it is also important to consider the issue of provider
payment reforms. Although certain provider payments may benefit from adjustment,
we believe such adjustments can be accomplished without draining new funds that
are even more urgently needed for improving Medicare benefits. In the context of
moving forward on our shared goal of modernizing and strengthening Medicare, the
Administration is willing to work with Congress to consider limited
modifications to provider payment systems in order to address payment issues. In
doing so, we must be systematic: all provider payment updates must be considered
and any package must be budget neutral in the short and long term. Most
importantly, as we all consider changes to payment systems, we need to focus on
the adequacy of payment systems for providing access to care for beneficiaries,
and recall that any increases in spending will be borne, in part, by
beneficiaries and also have long-term implications for the security of
Medicare's benefits.
Sixth, the management of the government Medicare
plan should be strengthened so that it can provide better care for seniors.
That's what we're working to do now at CMS, but we need legislation to proceed
with such steps as competitive bidding so that Medicare and its beneficiaries
can get better, market-based prices for the items it buys while ensuring high
quality.
Seventh, Medicare's regulations and administrative procedures
should be updated and streamlined, while the instances of fraud and abuse should
be reduced. Here too we have moved aggressively but we need help from Congress
and want to work with you to enact into law the kind of sensible improvements
that this Committee led through the House of Representatives with unanimous
bipartisan support. Regulatory reforms and simplifications are needed to reduce
burdens on providers and on CMS at a time when we are implementing new benefits
into the Medicare program.
Eighth, Medicare should encourage
high-quality health care for all seniors. Recent reports from the Institute of
Medicine and others have made clear the widespread opportunities for improving
patient care that exist - which are likely to benefit seniors more because they
use more care. These studies have also shown that these problems are not the
result of malfeasance, and made it clear that we need to change the environment
for medical practice to one that encourages systematic and continuous
improvements in care, not endless and costly litigation.
Looking ahead,
we can and surely will continue to have a healthy debate about how we should
meet these principles. The key, however, is to take action this year, and we
intend to continue to work closely with Congress to implement a prescription
drug benefit that Republicans and Democrats can support, and that achieves the
President's principles for Medicare legislation.
IMMEDIATE STEPS
At the same time, the President's budget recognizes that - under all
proposals - it will take several years to implement the comprehensive
improvements that Medicare needs, including a prescription drug benefit and a
more equitable payment system for private plans. Therefore the Budget also
proposes urgently needed steps that should be incorporated into Medicare
legislation: the transitional low-income drug benefit, new Medigap options, and
immediate steps to help make sure that seniors who prefer private health
insurance coverage in Medicare can continue to get it. We are also pushing ahead
administratively with the Medicare- endorsed prescription drug card and the
Pharmacy Plus waiver. These changes will both pave the way for a modernized
Medicare program, and provide immediate relief including drug coverage for
millions of Medicare beneficiaries before the full drug benefit can be
implemented at least three years from now.
Prescription Drug Card
About 9 million Medicare beneficiaries have no prescription drug
coverage at all. About thirty-five percent of these beneficiaries had incomes
below 150 percent of poverty, or an annual income of about
$
18,000 for a family of two. Medicare beneficiaries and the
uninsured are the only people in America today that commonly have to pay full
price for prescription drugs. That is simply unacceptable and we must do
something to address it. Last year, the President took the first step when he
proposed the creation of a new Medicare-endorsed drug card program. The drug
card is not a drug benefit and it is not a substitute for one. It is, however,
an important first step in helping seniors afford the drugs they need today.
The President's proposal is pretty straightforward - it's a pooling
mechanism modeled on private health insurance programs, where consumers
routinely benefit from discounts of 10 to 35 percent. Private insurers, with
their large numbers of customers, use their market power to secure significant
rebates and discounts from manufacturers. In fact, I would venture to guess that
all of us in this room, and certainly all federal employees, benefit from lower
drug prices as a result of such pooling. Under the President's proposal,
Medicare would endorse private drug cards that met minimum standards, allowing
seniors to get the information they need to obtain manufacturer discounts and
other valuable pharmacy services. These third-party plans will negotiate
discounts and rebates directly from drug manufacturers and pass the savings on
to Medicare beneficiaries who choose to participate.
The drug card has
another important aspect: CMS has to implement it, just as it will eventually
have to implement a more comprehensive drug coverage benefit. CMS knows how to
pay hospitals and doctors and nursing homes, but has little experience in
working with PBMs, paying pharmacists, or negotiating with drug manufacturers to
run a retail drug insurance program. The infrastructure created by the voluntary
drug card program and the experience CMS will gain by administering this program
will be a significant advantage as CMS moves to implement whatever comprehensive
Medicare prescription drug benefit is enacted. In our extensive
discussions with AARP, we have found that this may be the top reason for their
solid support of this concept - the desire to build the infrastructure and
develop the experience needed for an effective Medicare drug benefit.
Transitional Medicare Low-Income Drug Assistance Program
We've
been debating how to cover prescription drugs under Medicare for years. In the
absence of a
Medicare prescription drug benefit, many states
have taken action to assist the neediest seniors. The lowest-income seniors have
received drug coverage under the Medicaid program. In addition, about three-
fifths of the states have set up separate prescription drug assistance programs
for seniors. Yet many lower-income seniors still get no help. The President
believes that Medicare legislation should take immediate advantage of existing
state infrastructure, and support the integration of existing state low- income
programs into the new Medicare drug benefit, by helping states provide drug
coverage for low-income seniors right away.
The Administration has
proposed to provide immediate support for comprehensive drug coverage for
Medicare beneficiaries up to 150% of poverty - about $
18,000
for a family of two. This proposal, called the Transitional Medicare Low-Income
Drug Assistance Program, would use the existing administrative structure
operated by the states to identify and assist low-income seniors, and would also
encourage states to use the new Medicare drug card infrastructure or similar
competitive approaches to provide expanded low-income assistance. For Medicare
beneficiaries up to 100% of poverty, the program would pay for expanded drug
coverage at current Medicaid matching rates. As an incentive for States to
expand coverage up to 150% percent of poverty, Medicare would pay 90 percent of
the States' cost of drug-only coverage expansion for above 100% of poverty,
leaving states responsible for covering the remaining 10%. This policy is
projected to eventually expand drug coverage for up to 3 million beneficiaries
who currently do not have prescription drug assistance. It would be fully
integrated with the Medicare drug benefit once the reform Medicare program is
implemented, through a transitional mechanism as envisioned in all major
Medicare drug benefit proposals.
In addition, to make expanded drug
coverage immediately available even before the enactment of the Transitional
Low-Income Drug Assistance Program, states can immediately participate in a
model drug waiver program called Pharmacy Plus that can cover Medicare
beneficiaries up to 200% of poverty. In Illinois, for example, 368,000
additional low-income Medicare beneficiaries, up to 200% of poverty, will
receive drug coverage under the waiver we approved last month. These waivers
must be budget neutral to the federal government. A principal mechanism that
states can use to provide this expanded coverage in a budget-neutral way is the
adoption of private-sector drug benefit management tools. The savings generated
from these tools in states' existing populations can be used to finance
additional drug coverage.
Reliable, Affordable Health Insurance Coverage
Options In Medicare
The President's framework for strengthening Medicare
calls for a fair payment system for private plan options for Medicare
beneficiaries, like the system that provides reliable health insurance options
to all Federal employees in the Federal Employees Health Benefits program.
Private plans have long been the preferred choice of millions of Medicare
beneficiaries. This is not surprising, because the private plans allow
beneficiaries to receive more up-to-date benefits than are available under
traditional Medicare. The enhanced benefits can include prescription drugs,
disease management programs, and better preventive care services - benefits
widely available to the nonelderly and to Members of Congress and Administration
officials and other Federal employees. Frequently, private plans have provided
much lower cost sharing for required Medicare benefits as well.
Action
is needed now to ensure that these benefits remain available to Medicare
beneficiaries, because the current Medicare+Choice system for paying private
plans is not giving beneficiaries the options they deserve. Since the new
payment system was implemented in 1998, hundreds of Medicare+Choice
organizations have left the program or reduced their service areas, adversely
affecting coverage for hundreds of thousands of beneficiaries - reversing what
had been an upward trend in private plan availability and enrollment. In
addition, the remaining plans are offering less generous drug benefits and other
coverage.
While the benefits offered by the plans that remain still
provide a better deal for many seniors than fee-for-service Medicare plus an
increasingly costly Medigap policy, millions of seniors who prefer private plans
have been made worse off as a result of these recent changes. And without
corrective legislation this situation will only get worse - just at the time
when rapid advances in care will make it even more important for seniors to have
these options. Indeed, based on the latest projections of the Congressional
Budget Office, enrollment in Medicare+ Choice will fall by more than a million
over the next 10 years as a result of inadequate payment updates. Moreover,
open-network plans like Preferred Provider Organizations (PPOs) and point of
service plans have become popular among privately covered individuals, yet only
two PPOs participate in a few counties in the entire Medicare program.
We seek to address these problems both through legislation and
administrative action. For example, we just announced a demonstration project to
expand health plan options in Medicare + Choice. Preferred Provider
Organizations (PPOs) have been successful in non-Medicare markets and CMS is
conducting the demonstration to test ways to provide more health plan options to
people with Medicare. We hope to award demonstrations later this year in up to
12 geographic areas that will be available to enroll beneficiaries during the
Fall open enrollment period and begin to serve enrollees next January. This
demonstration program will test changes in methods of payment for Medicare
services that may be more efficient and cost effective while improving the
quality of services available to beneficiaries. The demonstration plans will be
considered Medicare+Choice (M+C) plans and must offer all of Medicare's required
benefits, but will also have the flexibility to offer greater access to drug
benefits.
The President's budget also proposes to take urgently needed
legislative steps toward the equitable payment system for private plans proposed
in the President's framework for strengthening Medicare. These proposals would
modify the Medicare+Choice payment formula to better reflect actual healthcare
cost increases, allocate additional resources in 2003 to counties that have
received only minimum updates in 2002, and provide incentive payments for new
types of plans to participate in Medicare+Choice, including PPOs. Together these
augmented pay- ments would address the problem of persistently low payment
updates to most Medicare+Choice plans, making more plan choices available and
improving benefits for millions of seniors. Because these proposals would allow
many plans to provide or at least maintain drug coverage in their benefit
package, they also provide another means of giving seniors prompt help with
their drug costs.
New Medigap Options
Because of the major gaps
in the benefit package in the fee-for- service program, supplemental coverage -
often called Medigap - is an essential part of Medicare coverage for millions of
our nation's elderly and disabled. The Administration shares the concerns some
have expressed regarding the rapid increases in Medigap premiums in recent
years: most seniors now pay much more for Medigap than they pay in Medicare
premiums. We also agree with the leaders on this Committee that we can better
design both Medicare and Medigap so that seniors and people with disabilities
can get more affordable coverage, and get the most for the health care dollars
they spend. Clearly the existing set of options, which require beneficiaries to
purchase "first-dollar" coverage for hospitalizations and even basic services
like doctor's visits before they can obtain any drug coverage, has become
outdated.
Yet giving seniors the option of a better benefit package,
including prescription drugs, and more affordable Medigap plans to go along with
it will take several years to implement. So we have also proposed that two new
Medigap plans be added to improve beneficiaries' options quickly. Both of these
options would be considerably more affordable that the current Medigap policies
that cover drugs. They would substantially reduce cost-sharing for beneficiaries
and provide much better protection against high costs. And they would increase
the number of seniors with drug coverage. If we provide a one-time opt-in for
current beneficiaries, we estimate that up to 1.5 million beneficiaries would
choose these new policies once they are available - and that nearly half of
these enrollees would be beneficiaries who do not have drug coverage now.
Moreover, we can achieve this significant increase in drug coverage among
seniors right away, not several years down the road, while saving money for
beneficiaries and the Medicare program. Of course, as the President has made
clear, seniors should be able to keep their existing Medigap coverage with no
changes if they prefer it.
CONCLUSION
We are committed to
working constructively with Congress to enact legislation consistent with the
President's principles - so that we can put a prescription drug benefit into
place this year. We all know that failing to act to meet these unavoidable
challenges may lead to more extreme changes later, including government controls
on prescription drugs and stricter coverage limits in Medicare. These changes
would reduce access to needed treatments and slow the development of new
technologies, such as promising new drugs for common cancers and other diseases.
Instead, we must come together now to take the sound, careful, and deliberate
steps needed to improve the Medicare program for today's seniors and tomorrow's.
And we must take action now - these issues have been debated on and off for
years, and seniors cannot afford to wait any longer. Thirty-six years from
today, we should still have a Medicare program that fulfills President Johnson's
promise of a secure and vibrant retirement. I thank you for the opportunity to
discuss this very important topic with you today, and I look forward to
answering your questions.
LOAD-DATE: April 23,
2002