Copyright 2002 eMediaMillWorks, Inc.
(f/k/a Federal
Document Clearing House, Inc.)
Federal Document Clearing House
Congressional Testimony
March 7, 2002 Thursday
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 3802 words
COMMITTEE:
SENATE FINANCE
HEADLINE:
ADMINISTRATION MEDICARE PROPOSALS
TESTIMONY-BY: THOMAS
A. SCULLY, ADMINISTRATOR
AFFILIATION: CENTERS FOR
MEDICARE AND MEDICAID SERVICES
BODY: STATEMENT OF
THOMAS A. SCULLY ADMINISTRATOR, CENTERS FOR MEDICARE AND MEDICAID SERVICES
ON MEDICARE COVERAGE OF PRESCRIPTION DRUGS
BEFORE THE SENATE
FINANCE COMMITTEE
MARCH 7, 2002
Chairman Baucus, Senator
Grassley, distinguished Committee members, thank you for inviting me to discuss
our new proposal for strengthening Medicare, including prescription drug
coverage. Joining me today, Mr. Chairman, is Assistant Secretary for Planning
and Evaluation, Bobby Jindal. Bobby has spent a considerable amount of time
looking into Medicare reform. As many of you will recall, Bobby served as the
Executive Director of National Bipartisan Commission on the Future of Medicare.
Strengthening
Medicare with prescription drug coverage is one
of President Bush's top legislative goals for the year. Since I took this job
last June, I have started almost every speech and ended every speech by saying,
"Don't let anyone tell you that the
Medicare prescription drug
benefit can't get through this year. And don't let anyone tell you that we can't
address health insurance access this year." For the past twenty years, I have
heard that almost every year. I've heard that Medicare reform and prescription
drug coverage can't be done - usually because it is an election year and it is
too dicey. But I know, and I'm sure you'll agree with me, that a
Medicare prescription drug benefit can and should be started
this year. My first job in the first Bush Administration in the spring of 1989
was (along with many on this committee) to try to save catastrophic coverage
(prescription drugs) for seniors. Congress passed a provision that included drug
coverage in 1988, and then repealed it in 1989. And Congress has been debating
the need for prescription drug coverage on and off ever since. The bottom line
is that seniors, particularly low-income seniors, need prescription drug
coverage now - it's long overdue.
We can have a healthy debate about how
much additional funding is necessary over the next decade to modernize Medicare
- whether it's the $190 billion proposed by the Administration, the $300 billion
that had strong bipartisan support in last year's budget resolution, or some
other figure. But the problem is that similar numbers have been kicked around
for the past 15 years with no action. We believe that $190 billion is
sufficient, as part of legislation that brings other aspects of Medicare up to
date - including reliable, less costly health care coverage options, an improved
benefit package, and lower drug prices through competition. These steps will
help seniors not only through a meaningful drug benefit, but also through
allowing them to spend their prescription drug dollars more effectively and
avoid unnecessary health care costs. We believe that any new spending for
Medicare should go toward helping beneficiaries through prescription drugs and
better health care coverage options. We must also be cognizant of the fact that
most seniors have drug coverage today and many are satisfied with the private
coverage they have now - we must avoid "crowding out" good employer coverage.
And finally, we must make sure that the prescription drug benefit we implement
will be there for seniors in the Baby Boom. The key, however, is getting
started, and we intend to continue to work closely with Congress to implement a
prescription drug benefit that Republicans and Democrats can support.
The President, the Secretary, and I are determined to get started now.
The President's FY 2003 budget demonstrates the Administration's commitment to
modernizing Medicare by dedicating $190 billion over ten years for comprehensive
Medicare modernization, including a subsidized prescription drug benefit, better
insurance protection, and better private options for all beneficiaries, as well
as targeted improvements that begin providing relief immediately. And it is our
goal to work constructively with Congress to achieve the President's principles
for Medicare legislation, as he announced last July. To that end, I want to
discuss with you in greater detail the new proposals to be included in
legislation to modernize Medicare, as set forth in the President's budget: the
prescription drug card, the transitional low-income drug benefit, and immediate
steps to help make sure that seniors who prefer private health insurance
coverage in Medicare can continue to get it. The Administration is committed to
working with Congress to implement these important changes.
PRESCRIPTION
DRUG CARD
The lack of drug coverage among American seniors is becoming a
social epidemic and is Medicare's most pressing challenge. Ten million Medicare
beneficiaries have no prescription drug coverage at all. About forty percent of
these beneficiaries, or 4 million, had incomes below 150 percent of poverty, or
an annual income of about $18,000 for a family of two. In fact, 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.
One of the strongest arguments for the drug card is that it is the
building block for most
Medicare prescription drug benefit
proposals. For example, both Senator Graham's proposal and Chairman Thomas'
proposal both get a significant portion of their savings from pooling seniors
into PBMs.
Under the President's drug card proposal, beginning later
this year, Medicare would annually endorse a number of discount card options
operated by private organizations that meet certain qualifications, including
financial stability, accessibility, availability of discounts and other customer
service features. Each of the card programs could use formularies, patient
education, pharmacy networks, and other commonly used tools to secure deeper
discounts for beneficiaries. Medicare beneficiaries could choose the one card
that best suits their prescription needs, and at most they would pay an
enrollment fee of no more than $25. Beneficiaries would enroll with one
particular card for six months at a time, but as their prescription needs
change, they could switch cards as frequently as every six months to ensure they
are getting the best discounts on their prescriptions and the best pharmacy
services. Card sponsors would negotiate discounts with drug manufacturers, and
endorsed cards would be required to provide comparable information to
beneficiaries about the discounts and other services they offer. The Medicare
program would encourage competition among cards through better information, and
would simplify Medicare beneficiaries' decisionmaking, by requiring that
comparisons of the drug discounts available through the different cards are
published and available to beneficiaries. Is this a new benefit? No. Is it
perfect? No. But it is a key component to getting on track to implement a
prescription drug benefit effectively.
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 CMS has no 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 such a program
will be a significant advantage when Congress passes a comprehensive
Medicare prescription drug benefit, and CMS has to administer
it. In our extensive discussions with AARP, I 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 prescription drug coverage under the Medicaid
dual-eligible program. In addition, 24 states have set up additional
prescription drug assistance programs for seniors. Yet many lower- income
seniors still get no help. The President believes that comprehensive Medicare
legislation should take advantage of existing state infrastructure immediately,
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 begin by using
the existing administrative structure operated by the states (in cases where
states have already set up drug assistance programs) and would also allow states
to use the new Medicare drug card infrastructure to provide low-income
assistance. For Medicare beneficiaries up to 100% of poverty, the program would
pay for expanded drug-only coverage at current Medicaid matching rates, much
like existing programs that subsidize Medicare premiums and cost-sharing for
low-income Medicare beneficiaries. 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 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.
REFORMED
MEDICARE WITH
PRESCRIPTION DRUG COVERAGE
Medicare - which will spend over
$255 billion in 2003 on health care for about 40 million beneficiaries - was
established in 1965 to address the national problem of health care for the
elderly, and later, citizens with disabilities. Yet, while the private health
insurance market has continued to make dramatic advancements to update coverage
and improve health outcomes over the past four decades, Medicare has lagged
behind. The President believes very strongly that the largely 1965 model of
Medicare must be strengthened. I don't think anyone in this room - Democrat,
Republican or Independent - if we could start from scratch, would take $255
billion and design the Medicare program we have today. We must work together and
finally take action to strengthen the Medicare system and update its outdated
benefits package. To this end, the President last year proposed a framework for
modernizing and improving the Medicare program that builds on many ideas
developed in this Committee and by other Members of Congress. That framework
includes the following eight principles:
All seniors should have the
option of a subsidized prescription drug benefit as part of modernized Medicare.
Modernized Medicare should provide better coverage for preventive care
and serious illness. Today's beneficiaries and those approaching retirement
should have the option of keeping the traditional plan with no changes.
Medicare should make available better health insurance options, like
those available to all Federal employees.
Medicare legislation should
strengthen the program's long-term financial security.
The management of
the government Medicare plan should be strengthened to improve care for seniors.
Medicare's regulations and administrative procedures should be updated
and streamlined, while instances of fraud and abuse should be reduced
Medicare should encourage high-quality health care for all seniors.
We all know that when it comes to Medicare reform, even the smallest,
most incremental changes can be contentious. But we must get started now, even
if it is a gradual but systematic, multi-year approach. Let me assure you that
the Administration remains committed to the principles outlined in the framework
introduced last year.
There are, of course, a number of things to
consider. For example, Congress will have to consider whether the program will
be run through private or public entities. It could be administered through
private sector risk-bearing contractors (as Medicare+Choice is managed) or
through the government-run, fee- for-service Medicare program, where the
government bears the risk, not our contractors. All of these questions are
extremely difficult. The Administration obviously has strong preferences toward
the private sector risk model. We want to work out a long- term solution for
seniors. Still, the Administration is determined not to add a new drug benefit
to Medicare without significant reform of the program's existing structure.
In this year's budget, the President also made some specific proposals
that can be implemented along with this legislative framework to provide
immediate assistance to seniors.
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 6 million 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. 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. 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.
Annual increases in
Medicare+Choice funding have failed to reflect rising health care costs, leading
to unreliable options and reduced benefits for seniors. Specifically, between
1998- 2002, Medicare+Choice rates increased at 2 or 3 percent per year, or only
11.5 percent overall, in counties where the majority of Medicare+Choice
enrollees live. This compares with increases in Medicare fee-for-service
(government) plan spending by over 21 percent and medical cost inflation of 9 to
10 percent per year and the same time period. Because payments to private plans
do not reflect conditions in Medicare and the health care marketplace, private
health plans are struggling to maintain benefit levels.
The President's
budget proposes to take urgently needed steps toward the equitable payment
system for private plans proposed in the President's framework for strengthening
Medicare. The proposal will modify the Medicare+Choice payment formula to better
reflect actual health care cost increase and allocate additional resources in
2003 to counties that have received only minimum updates over the last few
years. This would make it possible for more private plans to remain in Medicare
until the new payment system is phased in. Proposals to help sustain private
plans in Medicare are supported by both Democrats and Republicans.
Under
the President's proposal, all plans will receive payment increases equivalent to
national fee-for-service cost growth minus 0.5 percent. For 2003, plans in
counties that have been receiving the minimum updates (2 to 3 percent) will
receive a 6.5 percent increase in payments. The budget also proposes incentive
payments for new types of plans that enter Medicare+Choice to encourage a
variety of new managed care plans (e.g., PPOs) to participate in
Medicare+Choice. The augmented payments to improve beneficiaries' options would
cost $390 million between 2003-05 and would increase Medicare+Choice enrollment
by more than 7% by 2007. As a further immediate step that can be implement ed to
begin to improve benefits in comprehensive legislation, the President's budget
expands on his proposal for improving the Medicare benefit package and for
making it more affordable by proposing that two new Medigap plans be added to
the existing 10. The new Medigap plans would offer prescription drug coverage,
protect beneficiaries against catastrophic illness and include modest
beneficiary cost sharing at a more affordable cost than the most popular current
Medigap plans.
Medigap reform is important to the overall Medicare
reform because two-thirds of seniors rely on individual or employer- sponsored
supplemental plans. Most covered seniors do not understand the difference
between their $54 monthly Medicare premium and their monthly Medigap premium.
The many non-poor seniors who can afford a Medigap policy have no option under
the current Medigap structure that allows them to get the protection they need
from high costs while avoiding the incentives for excess utilization resulting
from first-dollar wraparound coverage. Once they send in their Medigap premium,
costs are out of their hands.
Private health plans generally have better
preventive benefits and better stop-loss protection than Medicare's benefit
package, and all also include some kind of cost-sharing to encourage efficient
care utilization. A key, then, to funding a significant prescription drug
benefit is to include modest incentives for beneficiaries to utilize the rest of
the Medicare program more efficiently, while allowing them to get the protection
they need at a lower cost, freeing existing Medicare beneficiary and program
dollars to help pay for prescription drugs. Therefore, any new
Medicare
prescription drug benefit should be added only in the context of
improvements in the traditional Medicare fee- for-service benefit package, as
well as in an improved Medicare+Choice model. Of course, as the President has
made clear, seniors should be able to keep their existing Medicare coverage with
no changes if they prefer it. Seniors need a drug benefit, and good prescription
drug coverage requires an improved and modernized Medicare program.
CONCLUSION
Four years ago, Washington's bipartisan efforts to
reform Medicare stalled out over a 10-6 logjam of the Medicare Commission. Last
year, there was a serious bipartisan effort to improve
Medicare with
prescription drug coverage. This included a budget resolution with
strong bipartisan support, to set aside substantial funding for a prescription
drug benefit and other overdue improvements in Medicare. It also included
detailed work and discussions in both the House and the Senate to develop
legislation for the fall. But the extraordinary events of September 11th delayed
Congressional action on this top legislative priority. President Bush is
determined to work with Congress to get that process moving again, and he has
started the process by reaffirming his commitment to devoting substantial new
resources to Medicare and to his framework for Medicare legislation. He has also
proposed a number of steps that can be implemented with modernization
legislation that will provide immediate relief to seniors and help implement the
drug benefit and other coverage improvements more effectively. This
Administration understands that Members of Congress have a lot of strong views
regarding Medicare reform, and we are open to any and all ideas as long as they
move the debate forward.
The one option, however, that is completely
unacceptable to the Administration is the status quo. The Administration is
determined to work with Congress to get a prescription drug benefit enacted this
year. In addition, we are determined to begin to offer seniors some relief
immediately through administrative actions like the drug card and the Medicaid
Pharmacy Plus waiver program. Thank you for the opportunity to discuss this very
important topic with you today. I hope that I have been able to express the
Administration's dedication to strengthening Medicare, as well as our commitment
to work with you to do so. I look forward to answering your questions.
LOAD-DATE: March 13, 2002