skip navigational links
DHHS Eagle graphic
ASL Header
Mission Nav Button Division Nav Button Grants Nav Button Testimony Nav Button Other Links Nav Button ASL Home Nav Button
US Capitol Building
HHS Home
Contact Us
dot graphic

Testimony bar

This is an archive page. The links are no longer being updated.


before the


December 4, 2001

Chairman Johnson, Representative Stark, distinguished Subcommittee members, thank you for inviting me to discuss the Medicare+Choice program, and more specifically the level of beneficiary cost sharing some Medicare+Choice enrollees will be asked to pay next year to remain in the plans. Medicare+Choice is an important option for millions of our nation's elderly and disabled, and I appreciate the opportunity to discuss it with you today.

Medicare+Choice has enabled us to take advantage of private sector expertise to give Medicare beneficiaries more services for their premium, often with lower cost sharing and more benefits than are available under traditional Medicare. The private companies that provide Medicare+Choice benefits are required to cover all of the health care services that a beneficiary could receive in original, fee-for-service Medicare. Moreover, Medicare+Choice plans are valuable to beneficiaries because they traditionally improve on fee-for-service Medicare benefits by offering programs and covering services that are not covered under original Medicare. These can include prescription drugs, routine vision care, dental care, and lower copayments. They also make it unnecessary to purchase increasingly costly supplemental Medigap plans, with premiums that are often two or three times higher than the Medicare premium itself. By making these services and additional benefits available, Medicare+Choice provides more options to millions of people who are covered by Medicare in how they receive their health care; and millions are able to lower their health care expenses substantially. In addition, Medicare+Choice plans provide a valuable alternative to fee-for-service Medicare and Medigap, whose out-of-pocket costs are often much higher for beneficiaries.

As you know, the Medicare+Choice program has changed significantly in the last several years. Hundreds of plans have left the program or reduced their service areas affecting hundreds of thousands of beneficiaries. Plans with both zero premiums and no significant beneficiary cost sharing have largely disappeared. In addition, plans are offering less generous drug benefits. This is because annual increases in Federal Medicare+Choice funding have failed to reflect rising health care costs. Unfortunately, as a result, plans that wish to stay in the program are left with two options: reducing benefits or increasing beneficiary cost sharing. We have taken many administrative actions to stabilize the Medicare+Choice program and reduce burden. Congress has acted to increase funding for Medicare+Choice in recent years, but much of the increase was targeted to areas with low enrollment. For example, between 1998Ė2002, Medicare+Choice rates increased 11.5 percent in counties that received the minimum payment update. This compares with a cumulative increase in fee-for-service spending of over 21 percent over the same time period. Thus, the rate of growth in fee-for-service rates is nearly twice that of Medicare+Choice in the counties where 65 percent of Medicare+Choice enrollees live. It is clear that much more needs to be done and we are committed to working with Congress and the plans to protect this valuable option for beneficiaries.

As mentioned above, following the trends in Medicare generally, we are seeing a greater share of Medicare+Choice health care costs borne by beneficiaries. This is similar to what is occurring commercially and in the fee-for-service Medigap market. I am concerned about this and have been tracking it closely. In our guidance to Medicare+Choice organizations earlier this year, we advised them that their 2002 beneficiary cost sharing proposals would be closely examined. This year we identified Medicare+Choice plan cost sharing proposals that we believed may have been unreasonable, and we worked with the identified organizations to make changes to their cost sharing proposals. We also required plans to promptly notify beneficiaries of any changes in their benefits or cost sharing. Because of our experience this year and our desire to protect beneficiaries, as well as to be good business partners to the plans, we are looking at reasonable ways that we can assist plans in setting cost sharing amounts for different benefits in the future. For example, I recently worked extensively with Congressman Kleczka on some tough issues in Wisconsin. I also am happy to announce that because the process for submitting ACRs was delayed this year, we declared a nationwide Special Election Period for all plans during the month of December this year. As a result, for this year only, all beneficiaries will have the option to request disenrollment from their Medicare+Choice plan and return to original Medicare during the month of December and to purchase a Medigap policy using their guaranteed issue rights, which will last until March 4, 2002. Of course, the premiums for these Medigap policiesí premiums are also rising rapidly because of the gaps in benefits in the traditional fee-for-service Medicare program and increasing health costs generally. This is why we need to modernize benefits in the traditional fee-for-service program, as well as make Medicare+Choice payments fairer.

We also are continuing to take important steps in helping to ensure Medicare beneficiaries are informed of their health plan options and are able to get answers to all of their Medicare questions. We are conducting a $30 million beneficiary education advertising campaign, we expanded our toll free beneficiary telephone help line, and we mailed additional materials to advise beneficiaries of health plan changes. This sort of education is vital for beneficiaries to understand their health care options and make the decisions that are best for them, and the education campaign has generated substantial response from beneficiaries.


Medicare has a long history of offering alternatives to the traditional Medicare fee-for-service program to our beneficiaries. In the 1970ís Congress authorized Medicare risk contracting with managed care organizations, and in the 1980ís Congress modified the program to make it more attractive to managed care companies. In the Balanced Budget Act of 1997, Congress created the Medicare+Choice program to expand the types of private entities eligible to contract with Medicare to address some perceived flaws in the risk-contracting program and reduce variation in payment for plans across the country. Since passage of the BBA, Congress has refined the Medicare+Choice program through the Balanced Budget Refinement Act of 1999 and the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA). These changes primarily address payments in the "floor" counties, not the "minimum update" counties that have the majority of Medicare+Choice enrollees and are facing the tightest pressures to control their costs even as health costs and costs in the Medicare fee-for-service program rise more rapidly.

This year about 5.6 million, or nearly 15 percent of all Medicare beneficiaries, were enrolled in a Medicare+Choice plan. For 2002, about 60 percent of all Medicare beneficiaries have access to a Medicare+Choice option, and about 536,000 beneficiaries will be impacted by Medicare+Choice organizations either withdrawing from the program or reducing their service areas. Fortunately, most affected enrollees have at least one other plan available in their area for next year. Of course, these beneficiaries also can choose to enroll in traditional Medicare. The number of beneficiaries affected by the departing plansí decisions this year is smaller than many in the industry predicted and fewer than the number affected last year. However, despite our best efforts to slow the number of plan withdrawals through administrative actions, it is apparent that additional improvements need to be made to the Medicare+Choice program to encourage more plan participation and greater beneficiary access to Medicare options. Simply put, the Medicare+Choice payment system must be more responsive to the health care marketplace, so that the program can meet beneficiariesí needs. I look forward to working with Congress to achieve the important changes that beneficiaries deserve. We owe it to beneficiaries to make these changes soon to ensure that Medicare can continue to provide affordable options for beneficiaries.


One of the most important ways that we can help beneficiaries is by working with Medicare+Choice organizations to ensure the program remains a valuable option. President Bush, Secretary Thompson, and I share the goal of improving the Medicare+Choice program and reversing the decline in plan participation. Yet some Medicare+Choice organizations are struggling with difficult business decisions. In fact, since my confirmation as CMS Administrator, I have personally contacted many of these plans and talked with them about how much the Medicare program and our beneficiaries need their continued participation. Fortunately, many of them have decided to continue to participate in the Medicare+Choice program.

To ensure that Medicare+Choice remains a valuable option for beneficiaries, we have taken a number of steps to reduce administrative burdens on the Medicare+Choice organizations. Earlier this year we announced a number of actions that will reduce administrative burdens on Medicare+Choice plans in a number of ways, including:

  • Permitting Medicare+Choice organizations to submit revised adjusted community rate (ACR) proposals in the fall. Many Medicare+Choice organizations indicated that they would drop out of Medicare+Choice if forced to decide whether or not they would continue to participate in the program and provide final 2002 ACR information by the July 1 deadline. By giving plans until September 17th to make renewal decisions, and permitting them to file revised ACR proposals, which contain their benefit packages and cost sharing structures, as late as that date, we ensured that plans could better evaluate their participation in Medicare+Choice and their products for beneficiaries. We would like to work with Congress to make this change in law.
  • Emphasizing better results for beneficiaries. We will replace calendar-driven audits of Medicare+Choice plans with results-based performance audits, so that we target audits at the plans whose level of performance requires review. This will allow the strong performing plans to spend less time with paper and more time with patients.
  • Providing consistency in quality improvement requirements. We are developing quality measures that are sensible, reflect current industry practice, and build on the success of the private sector. To this end, we are working with industry representatives, such as the American Association of Health Plans, Blue Cross Blue Shield Association, Health Insurance Association of America, and American Medical Association, to plan and enhance the national Quality Assessment Performance Improvement projects. Additionally, we recently allowed quality improvement projects created for private plans and Medicaid to be used for Medicare.
  • Streamlining marketing review. We are working to make the approval process for Medicare+Choice marketing material more sensible and less burdensome on the Medicare+Choice plans. We are taking steps to fast track our review of plan marketing materials, while at the same time ensuring that beneficiaries have timely and accurate information.
  • Expediting plan review. We will expedite our review of potential Medicare+Choice plans that would serve markets left without a Medicare+Choice option or other alternatives to traditional fee-for-service Medicare.
  • Making policy changes quarterly. It is critical that Medicare+Choice organizations have adequate time to adjust to new rules. Additionally, we strive to ensure that policy guidance is issued before Medicare+Choice plans' rate and benefit filings are due. To that end, and to ensure the Medicare Managed Care Manual meets evolving needs, we will update the existing manual chapters quarterly. Any policy changes contained in the updates that create new burdens will not be effective until that policy change can be reflected in an organizationís ACR proposals. We also have committed that no policy changes will become effective until the next contract year.
  • Re-evaluating the risk adjustment system. We suspended our collection of physician and hospital outpatient department encounter data. Fair risk adjustment is an important priority, but risk adjustment must be done in a way that encourages innovation in health care delivery and not in a way that imposes outdated fee-for-service models. We are exploring a way of adjusting Medicare+Choice rates for risk that will balance the accuracy of data and administrative burden.
  • Consolidating private plan functions. Medicare+Choice functions that previously resided within three different components of CMS now are all housed in one place at CMS: the Center for Beneficiary Choices, which will help ensure that we are responsive to the specific needs of Medicare+Choice plans. We are striving to improve coordination between Medicare+Choice and fee-for-service and to be more sensitive to the impact of systems changes on the plans. To this end, our Medicare+Choice staff now participates on the Medicare Change Control Board, which governs carrier and fiscal intermediary systems changes. Their participation helps ensure that the needs of Medicare+Choice plans are considered as the Agency determines future information systems changes.

Furthermore, we recently gave Medicare+Choice organizations new flexibility to work with employer-sponsored health plans so workers can seamlessly merge their pre-retirement benefits into Medicare coverage. This flexibility will give Medicare beneficiaries the kind of private plan choices currently available to many working Americans. Medicare+Choice organizations can tailor plans to the specific needs of employer group members while supplying all Medicare-covered health services, making it easier for them. And we plan to further reinvigorate the Medicare+Choice program by encouraging plans to modify their designs from "closed panel" HMOs to preferred provider organization and point-of-service models that have proved popular in the private sector.


Each contract year, Medicare+Choice organizations submit to us their ACR proposals for the plans they intend to offer to Medicare beneficiaries in the following year. The ACR proposals describe the costs and benefits the plans intend to offer for their enrollees for the following year. We review the proposals to ensure that beneficiary premiums and copayments for basic Medicare+Choice benefits (Parts A and B and additional benefits) do not cost more than beneficiaries would pay on average for fee-for-service Medicare cost sharing. For 2002, the estimated average actuarial value of cost sharing amount is $105.31 per month per person. This $105.31 cap is an aggregate cap, not a per-benefit cap. Under this aggregate cap cost sharing for particular benefits can vary as long as the total average cost sharing (for Parts A and B and additional benefits) does not exceed the aggregate cap of $105.31. This actuarial figure excludes cost sharing for many other benefits that are part of modernized health insurance plans, but not Medicare including prescription drugs and disease management services. While there are not specific cost sharing limits for most Medicare benefits, Medicare+Choice plans cannot set cost sharing amounts for Medicare covered services at dollar amounts that would discourage people who have greater health care needs from enrolling in Medicare+Choice plans.

As a general rule, as long as the premium charged in addition to the actuarial value of cost-sharing under the plan is less than the actuarial value of fee-for-service Medicare deductibles and cost-sharing, the Medicare+Choice organization is free to structure its cost sharing how it sees fit. However, this year we found that some plans proposed charging beneficiaries what we believed were unreasonably high copays for particular services. The situation we witnessed this year is compounded by the fact that payment increases have not kept pace with plan costs nor have they kept pace with the costs of extra benefits that plans provide, particularly prescription drugs. Thus, we have a new challenge in balancing the need for plans to make decisions about their benefit packages and cost sharing amounts with the important requirement that plan designs do not discourage enrollment. The concern is always that high cost sharing could discourage beneficiaries, who have greater health care needs, from enrolling in or remaining a member of these particular plans.

To address this, we worked cooperatively with the plans to ensure that their cost sharing arrangements were made more reasonable, while at the same time helping to make certain that the plans would continue to participate in Medicare+Choice. While the final agreements we reached with the plans were not perfect, they were much more reasonable than they were at the outset. Moreover, the continued participation of the plans in the Medicare+Choice program provides beneficiaries access to additional options and extra benefits. Even with the higher cost sharing, we expect that many beneficiaries will continue to find Medicare+Choice plans as a much more affordable option than the cost sharing and rising Medigap premiums under the traditional Medicare program.

We also are developing specific guidelines that we hope will help address the situation we faced this year regarding plansí ACR submissions. Our guidelines will make it clear that we will not approve cost sharing arrangements that could discourage beneficiaries with high health costs from enrolling or staying in a plan. In developing these guidelines, we will consider a number of factors such as the cost sharing in fee-for-service, the cost sharing of other plans in the service area, changes in the planís cost sharing from previous years, as well as stop-loss protection and limits on cost sharing expenses. Our guidance also will explain how we plan to evaluate plansí benefit and cost sharing proposals.


We know that our outreach efforts to educate beneficiaries about their health care options are vital. We also know from our consumer research with Medicare beneficiaries that far too many of them have a limited understanding of the Medicare program in general, as well as their Medicare+Choice, Medigap, and Medicare Select options. So for this year we added a vastly expanded advertising campaign to educate beneficiaries about the full range of options open to them. And we have enhanced our toll-free telephone help line, 1-800-MEDICARE (1-800-633-4227 or TTY/TDD 1-877-486-2048) with 24-hour service, seven days a week. We also have hired 1,200 customer service representatives at our call centers. These representatives are available to answer specific questions about an individual's health plan options as well as mail beneficiaries hard copies of the customized information immediately after each call.

Additionally, we are continuing to improve the resources we have available on the Internet for beneficiaries and their families to access comparative information and are providing a new decision making tool on our award winning website, Our Medicare Health Plan Compare gives visitors the ability to compare benefits, costs, options, and provider quality information. This expanded information is similar to our other online comparative resources like the Nursing Home Compare and Dialysis Compare websites. With Medicare Health Plan Compare, beneficiaries are able to examine by zip code the Medicare+Choice plan options that are available in their area based on characteristics that are most important to them, such as out-of-pocket costs, whether beneficiaries can go out of network, and extra benefits. They also will be able to compare the direct out-of-pocket costs between all their health insurance options and get more detailed information on the plans that most appropriately fit their needs. In addition, we are working to provide similar State-based comparative information on Medigap options and costs. These outreach efforts are vital to ensuring that Medicare beneficiaries understand the options available to them, and that they can make the decisions that best fit their personal needs.


While Medicare+Choice is still an important option for millions of Medicare beneficiaries, the program has undergone some substantial changes since 1997. The days of plans offering zero premiums and no significant beneficiary cost sharing have for the most part passed. Health care costs continue to rise, and more and more of the financial burden is falling on Medicare beneficiaries. I have followed this transformation closely, and am working hard to educate beneficiaries about these changes as well as their options, monitoring beneficiary cost sharing, and working closely with the plans to ensure that beneficiary choices remain available. We have taken a number of administrative steps where we were able, but it is incumbent that we continue to work with you and Congress to strengthen the Medicare+Choice program for the future. Our beneficiaries depend on the choice that Medicare+Choice provides. Thank you for the opportunity to discuss this with you today, and I am happy to answer your questions.


HHS Home ( | Topics ( | What's New ( | For Kids ( | FAQs ( | Site Info ( | Disclaimers ( | Privacy Notice ( | FOIA ( | Accessibility ( | Contact Us (

Last revised: December 4, 2001