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 The links are no longer being updated.

Testimony on Medicare+Choice by Robert Berenson, M.D.
Director, HCFA Center for Health Plans & Providers; and,
Carol Cronin, Ph.D., Director, HCFA Center for Beneficiary Services,and
Jeff Kang, M.D., Director, HCFA Office of Clinical Standards & Quality
U.S. Department of Health and Human Services

Before the House Ways & Means Health Subcommittee
March 18, 1999

Chairman Thomas, Congressman Stark, distinguished Committee members, thank you for inviting us to discuss progress in implementing the Medicare+Choice program. Medicare+Choice allows private plans to offer beneficiaries a wide range of options, similar to what is available in the private sector today. It requires a massive new beneficiary education campaign to inform beneficiaries about these options. It includes important new protections for patients and providers, as well as statutory requirements for quality assessment and improvement. And it initiates a 5-year transition to a fairer and more accurate payment system.

Successful implementation of Medicare+Choice is a high priority for us, and we have accomplished a great deal. We believe very strongly that managed care and other private insurance plans are important voluntary options, next to original Medicare, and that Medicare beneficiaries need to be equipped with information to make more informed decisions about their health care. Medicare managed care enrollment has nearly tripled under the Clinton Administration, from 2.3 million when the President took office to now 6.8 million. We are meeting regularly with beneficiary advocates and industry representatives, and others to discuss ways to improve the Medicare+Choice program. We are already making refinements based on these comments and discussions.

We have converted the vast majority of former Medicare HMOs to the Medicare+Choice program and published all Balanced Budget Act-mandated Medicare+Choice regulations. Last month, we published initial refinements to these regulations which improve beneficiary protections and access to information while reducing plans' administrative workload to make it easier for plans to offer more options to beneficiaries. And we have met statutory deadlines for reporting to Congress and to plans on how we will risk adjust payment to plans.

We launched a national education campaign and participated in more than 1,000 events around the country to help beneficiaries understand health plan changes. And we are establishing a federal advisory Committee to help us better inform beneficiaries.

Beneficiary Education

Helping beneficiaries understand the Medicare+Choice program is perhaps our most important challenge. As mentioned above, we launched the National Medicare Education Program to make sure beneficiaries receive accurate and unbiased information about their benefits, rights, and options. The campaign includes:

  • mailing a Medicare & You handbook to explain new benefits and health plan options;
  • a toll-free "1-800-MEDICAR(E)" call center with live operators to answer questions and provide additional print information on request;
  • a consumer-friendly Internet site, www.medicare.gov, which includes comparisons of benefits, costs, quality, and satisfaction ratings for plans available in each zip code;
  • work with more than 120 national aging, consumer, provider, employer, union, and other organizations who help disseminate Medicare+Choice information to their constituencies;
  • enhanced beneficiary counseling from State Health Insurance Assistance Programs;
  • a national publicity campaign;
  • more than a thousand individual state and local outreach events around the country in senior centers and town halls, on radio call-in shows and other venues, and in alternative languages, including sign language, Spanish, and Chinese; and,
  • a comprehensive assessment of these efforts.

We tested the whole system in five states -- Arizona, Florida, Ohio, Oregon and Washington in 1998. Unfortunately, the decisions by some plans to withdraw from the program or reduce their service area significantly complicated our task. We learned a great deal in this "dry run."We are also conducting case studies to evaluate the education campaign in five communities in the five pilot States and one community outside the pilot States. And we have conducted focus groups.

We have learned a great deal from our assessment efforts already. For example, we learned that a majority of beneficiaries found the information in the Medicare & You handbook to be informative and useful. Fully 93 percent want to be mailed Medicare & You. However, even with the handbook, they are often confused about differences in plan options and do not always understand the basic Medicare program. We also have learned that, even though there are many places to receive Medicare+Choice information, beneficiaries often do not know where to go for specific types of information, and they tend to seek it only as they need it.

These preliminary results are already suggesting ways to improve our education efforts. We have identified ways to make Medicare & You easier to use. We learned that the number of calls to our toll-free number was lower than we expected, and that the amount of time for each call was about the 7 minutes we had predicted. And we identified additional links we can add to our website to help users find key information faster. Last month, almost 300,000 viewers used the website to review Medicare+Choice plan comparisons, Nursing Home Compare, and view or download HCFA publications. These and other findings will help us to refine efforts for a full-scale, national campaign before the November 1999 open enrollment period.

Also, as mentioned above, we are establishing the Citizens Advisory Panel on Medicare Education, in accordance with the Federal Advisory Committee Act, as a formal mechanism to obtain public input for our education efforts on an ongoing basis. The panel will meet quarterly to help:

  • enhance our effectiveness in informing beneficiaries, including the appropriate use of public-private partnerships;
  • expand outreach to vulnerable and underserved communities, including racial and ethnic minorities; and
  • assemble an information base of "best practices" for helping beneficiaries evaluate plan options and strengthening a community infrastructure for information, counseling, and assistance.

Panel members will include representatives from the general public, older Americans, specific disease and disability group advocates, minority communities, health communicators, health economics researchers, health plans and insurers, providers, and other groups. We are already receiving nominations for the Panel, and expect to announce members and meeting schedules soon.

We are also working with beneficiary advocates and health plans to standardize plan marketing materials that summarize benefits so beneficiaries can make apples-to-apples comparisons. Our goal is to complete this work before the first annual coordinated open enrollment period in November 1999.

Reaching Out to Plans

We have taken several steps to reach out to health plans to encourage participation in the Medicare+Choice program. We have converted the vast majority of Medicare HMOs -- more than 300 -- to the new Medicare+Choice program, and added 12 new plans and expanded service areas for another 11 plans since last November.

We are currently reviewing another 24 new plan applications and 18 service area expansion applications. The newly approved plans include provider sponsored organizations, which are HMOs run by hospitals and physicians rather than insurers. One of these plans is the first to enter Medicare with a federal waiver from State licensure, which is allowed for the first time ever under the Medicare+Choice program.

Last summer, we held outreach sessions attended by more than 1,500 plan representatives, and we continue to strengthen lines of communication with plans. HCFA Administrator Nancy-Ann DeParle has named a senior HCFA official, Tom Gustafson, whom plans can call directly if they have trouble resolving issues through normal HCFA channels.

Last month, we published initial refinements to the Medicare+Choice regulation that improve beneficiary protections and access to information, while making it easier for health plans to offer more options to beneficiaries. The new rule:

  • clarifies that beneficiaries enrolled in an M+C plan that withdraws or is terminated from Medicare are entitled to enroll in other remaining locally available M+C plans;
  • specifies that any changes in plan rules must be made by October 15 to ensure beneficiaries have all the information they need to make an informed choice during the November annual open enrollment period;
  • waives the requirement for an initial health assessment within 90 days of enrollment for commercial health plan enrollees who remain in the same managed care organization=s Medicare+Choice plan when they become eligible for Medicare at age 65, and for enrollees who switch plans but remain under the care of the same primary care provider;
  • allows plans to choose the form of the initial health assessment;
  • stipulates that the coordination of care function can be performed by a range of qualified health care professionals, and is not limited to primary care providers;
  • limits the applicability of provider participation requirements to physicians rather than all health care professionals; and,
  • aligns requirements for terminating specialists with the process for other providers.

We intend to publish a comprehensive final rule with further refinements this fall.

To further facilitate plans' ability to offer choices to Medicare beneficiaries, the President's budget includes a proposal to give plans 2 more months to file the information used to approve benefit and premium structures. This "Adjusted Community Rate" data would not be due until July 1, rather than May 1. The move from May 1 to July 1 should help plans base their cost and premium packages on more current trends and costs in the marketplace. July 1 is the latest we can accept, process, and approve premium and benefit package data, have the data validated by plans, and still mail beneficiaries information about available plans in time for the November 1999 Medicare+Choice open enrollment period. Given legislative schedules and the need to act immediately, we have informed plans that the required filing date this year will be July 1. We look forward to working with you to enact the legislation necessary to support this change that is so important to the success of the Medicare+Choice program.

We have also informed plans that they can continue to segment their service areas, according to the transition rules that were applicable for the 1999 adjusted community rate filings. We are considering whether to make this policy permanent in our final Medicare+Choice regulation.

Payment Reform

The Balanced Budget Act of 1997 requires Medicare to "risk adjust" Medicare+Choice payments starting January 1, 2000. That means we must base payment to plans on the health status of individual plan enrollees. Data on individual beneficiary use of health care services in a given year will be used to adjust payment for each beneficiary enrolled in a Medicare+Choice plan the following year. Health status adjustments are based on the average total cost of care for individuals who had the same diagnoses in the previous year. Risk adjustment represents a vast improvement over the current payment methodology. It helps assure that payments are more appropriate, and curtails the disincentive to enroll sicker beneficiaries.

Risk adjustment will help beneficiaries feel more confident in their Medicare+Choice options. It assures beneficiaries that Medicare pays plans the right amount to provide all necessary care because payments take each enrollee's health status into account. That will help people with serious illnesses, such as cancer or cardiovascular disease, who can benefit most from the coordination of care health plans can provide.

Risk adjustment will help taxpayers by addressing the main reason Medicare has lost rather than saved money on managed care. Many studies show health plans enroll beneficiaries who, on average, are much healthier and less costly than those who remain in original Medicare. That discrepancy has cost taxpayers $2 billion a year.

Risk adjustment will also help level the playing field among Medicare+Choice plans. It tempers the risk of significant financial loss when plans enroll beneficiaries who have expensive care needs. And it focuses competition more on managing care than on avoiding risk. It also will help plans by alleviating concerns among beneficiaries that plans have financial incentives to deny care.

The law requires us to proceed with risk adjustment starting January 1, 2000, and does not specifically call for a transition. However, we believe we must implement these changes in an incremental and prudent fashion, as was done with other new major payment systems. We are, therefore, using flexibility afforded to us in the law to phase in risk adjustment over five years to prevent disruptions to beneficiaries or the Medicare+Choice program.

Initially, we will use data on inpatient hospital stays and move in an orderly fashion, as envisioned in the Balanced Budget Act, to use of data from other health care settings. In the first year, only 10 percent of payment to plans for each beneficiary will be calculated based on the new risk adjustment method. By 2004, we and health plans will be ready to use data from all sites of care, not just inpatient hospital information, for risk adjustment. Then, and only then, will payment to plans be 100 percent based on risk adjustment.

It is essential to stress that risk adjustment will not and cannot be budget neutral if we intend to protect the Medicare Trust Fund and be fair to taxpayers. The whole reason for proceeding with risk adjustment is that Medicare has not been paying plans properly. There is considerable evidence that we overpay plans because payments are not adjusted for health status, and managed care enrollees tend to be healthier than beneficiaries who remain in fee-for-service Medicare.

Congress also recognized that plans have been paid too little for enrollees with costly conditions, and too much for those with minimal care needs. The simple demographic adjustments made now for age, gender, county of residence, Medicaid and institutional status, do not begin to accurately account for the wide variation in patient care costs. Risk adjustment will.

If risk adjustment was budget neutral, Medicare and the taxpayers who fund it would continue to lose billions of dollars each year on Medicare+Choice. Budget neutral risk adjustment would cost taxpayers an estimated $200 million in the first year of the phase-in, and $11.2 billion over five years if health plans maintained their current, more healthy mix of beneficiaries.

The impact on plan revenues during the transition will depend on the extent that less healthy beneficiaries enroll in Medicare+Choice plans, resulting in higher payments than health plans receive today. Total payment may be higher for some plans than it would be under the current system if they enroll a mix of beneficiaries that is more representative of the entire Medicare population.

Overall, we project plan payment to change on average by less than 1 percent the first year. Phasing in risk adjustment substantially buffers the impact. The federal government is foregoing an estimated $1.4 billion in savings in the first year, and as much as $4.5 billion over the full five years because of the phase in. Impact will be further buffered by an annual payment update for 2000 of 5 percent. And, importantly, we estimate that payment rates in 63 percent of counties in 2000 will be based on the higher, blended rates called for in the BBA, thereby further helping plans adjust to risk adjustment.

Competitive Pricing Demonstration

We will soon begin a test of competitive pricing for managed care, as called for in the BBA. This test is an important step in our efforts to learn how to improve and protect Medicare. It will provide objective data that is needed to evaluate Medicare reform proposals that assume savings from rate-based competition among plans.

In this demonstration project, managed care plans will compete to offer benefits at the most reasonable cost. A bidding process, similar to what most employers and unions use to decide how much to pay plans, will be used to set Medicare+Choice rates.

To ensure broad community involvement in this project, a Medicare Competitive Pricing Advisory Commission, chaired by General Motors Health Care Initiative Executive Director James Cubbin, has made recommendations regarding key design features. It also has selected the markets of Phoenix, Arizona and Kansas City, Kansas and Missouri, as initial demonstration sites. We are establishing local advisory Committees in these communities, and they will hold public meetings to ensure that local beneficiaries and other stakeholders have a voice in how the test program will operate. In particular, the local Committees will set the local minimum benefit package on which plans will bid. We will also explore ways to reward plans that provide higher quality care.

Ensuring Quality

The BBA includes important quality provisions for Medicare+Choice. It raises the bar by requiring most plans to not only monitor quality but also to improve quality. The new requirements will be phased in over the next several years. This way beneficiaries can compare plans based on quality, and we can utilize Medicare's substantial market leverage to be a prudent purchaser and promote competition based on quality. We are working to incorporate quality assessment and improvement into orignal fee-for-service Medicare, as well, so beneficiaries will be able to make truly informed choices about all their options. And we have committed to making measurable quality improvements throughout the Medicare program as part of our Government Performance and Review Act objectives for fiscal 2000.

All Medicare+Choice plans must report objective, standardized measurements of how well they provide care and services. They have been using HEDIS, the Health Plan Employer Data and Information Set, for reporting purposes since 1997. HEDIS is the industry standard for measuring health plan performance, and it has been tailored specifically for the Medicare program. As a result of our audit of data from the initial round of HEDIS reporting, we learned that some plans needed to improve data systems, and we are seeing improvement. We will continue to require HEDIS data to be audited before submission to ensure accuracy.

We also are using CAHPS, the Consumer Assessment of Health Plans Study, to objectively measure beneficiary satisfaction with plan care and service. We are in the second year of requiring Medicare HMOs to conduct CAHPS surveys, and got a strong 74 percent beneficiary response rate. Reported results include overall ratings of each health plan's service, overall ratings of each health plan's care, ratings of how well doctors communicate with patients, and ratings of experience in getting referrals to specialists.

This fall, we will conduct a CAHPS survey specifically of beneficiaries who disenroll from plans, asking about the beneficiary's experience and why they left their plan. This will give beneficiaries the perspectives of both those who left and those who stayed. Also, importantly, next year we will conduct a Medicare fee-for-service survey with results available in 2001. This will enable us to provide beneficiaries with comparable data on all options.

The results of both HEDIS and CAHPS are being formatted so beneficiaries can make direct, apples-to-apples comparisons among their plan options, and are posted on our Website at Medicare.gov. Beneficiaries may also request HEDIS and CAHPS information through our 1-800-MEDICAR(E) call center. To the extent possible, we intend to also include this information in the 2000 edition of Medicare & You.

Plans must conduct performance improvement projects and achieve demonstrable and sustained improvement. Eventually, plans will have to meet minimum performance standards. The date for meeting these standards may be delayed until 2001 in order to make sure plans have adequate time to comply. These standards are important because there is wide variation in how well plans provide care. For example, our HEDIS data show that 90 percent of women in some Medicare+Choice plans get yearly mammograms, while less than 50 percent get this essential service in other plans. Also, the National Committee on Quality Assurance State of Managed Care Quality reports that, despite the promise and capacity of managed care to improve quality, the industry's overall performance on HEDIS measures was "essentially unchanged"from 1996 to 1997.

We recognize that it takes time for plans to adapt to the quality improvement requirements, and that a learning curve is involved. Therefore, we made several changes from our draft proposal to help plans comply.

We are requiring plans to conduct two performance improvement projects per year. This workload is comparable to standards imposed by private sector accrediting organizations. Plans can choose projects they believe will target their enrollees' specific concerns.

We are permitting waivers of mandatory participation in a national project each year, and allowing plans to substitute any related ongoing projects of their own. For 1999, the national HCFA-sponsored project focuses on diabetes, but plans with existing diabetes projects can instead continue these projects without obtaining preapproval from HCFA.

We are phasing in quality improvement requirements by giving plans three years before they must achieve demonstrable improvement. In the first contract year, plans need only select a topic, establish performance indicators, and collect baseline data.

We are clarifying the schedule for compliance with minimum performance level requirements. We intend to establish these levels in 1999, first measure compliance in 2000, and require plans to have achieved demonstrable improvement in 2001.

We are giving plans discretion as to where they conduct site visits for provider credentialing, rather than mandating site visits to each provider location. Plans also have discretion in developing criteria for site visits, and they may delegate these functions.

Phasing in enforcement is normal and prudent when implementing new programs or rules. The Medicare+Choice quality improvement requirements remain similar to those in the private sector. We are simply making sure plans have sufficient time to come into compliance.

Appropriate flexibility will be provided so plans with networks that are less structured than traditional HMOs, such as PPOs, can meet these requirements. Our quality improvement systems will be sensitive to different plan structures and their different abilities to affect provider behavior.

We are extremely impressed with the quality improvement project outlines submitted by plans. Most are very thorough and thoughtful. Many include detailed benchmarks and timetables. They make abundantly clear that plans are very capable of achieving what Congress envisioned in the BBA. We will continue to work closely and extensively with plans to help them understand and meet all Medicare+Choice quality requirements. But, if plans do what they have indicated in these outlines, we are confident that they will succeed and, as a result, provide beneficiaries with better care and taxpayers with better value for their money.

Once we have published the final Medicare+Choice rule, we will begin to allow private accrediting organizations to "deem"that plans meet requirements for quality, confidentiality, and records accuracy, as allowed under the BBA. We will continue to review compliance with other requirements.

Market Volatility

As you know, some Medicare HMOs did not convert to the Medicare+Choice program, and others reduced their service areas last year. While we are concerned about the business decision that some Medicare HMOs made to reduce participation in the program, and especially the impact on beneficiaries who were left with no other managed care options, it is important to put those business decisions in context. Some of the plans that withdrew had market positions or internal management issues that made it hard for them to compete. And they faced rising prescription drug prices and other commercial pressures. Many of the disrupted beneficiaries had several other plans to choose from, and all but 50,000 had at least one other plan option.

It is our understanding that the Federal Employees Health Benefits Program experienced a similar rate of plan pullouts. We have observed instances where plans that withdrew Medicare service from specific counties also withdrew from FEHBP in many of those same counties. As mentioned above, the vast majority of Medicare HMOs converted to the Medicare+Choice program. We have approved 23 new plan and service area expansions since November, and are now reviewing applications from another 42 plans that want to get into or expand their role in Medicare+Choice. This suggests that plan withdrawal decisions have more to do with internal plan and larger marketplace issues than with Medicare rates or regulations. In fact, a certain amount of market volatility must be expected when relying on the private sector to serve beneficiaries.

To buffer against such market volatility, the President's budget includes proposals to protect beneficiaries from disruption by plan withdrawals. We have provided for earlier notification of plan withdrawals in our recent refinement to Medicare+Choice regulations. We look forward to working with you on legislation the President has proposed to broaden access to supplemental Medigap polices if beneficiaries lose their plan option, and to allow enrollees with end stage renal disease to move to another plan.


We are making substantial progress in implementing the Medicare+Choice program. We are incorporating lessons learned from our initial beneficiary education campaign to refine future efforts. And we are establishing an advisory Committee to further help improve these essential efforts. We are working with plans to encourage participation. And we are refining regulations so plans will be able to offer beneficiaries more choices. We are proceeding with payment system improvements in a prudent manner that will meet the statutory mandate while minimizing any impact on beneficiaries and plans. We are also proceeding with quality improvement requirements in a prudent manner that will meet the statutory mandate while giving plans reasonable time and flexibility to comply.

We look forward to working with you to enact necessary beneficiary protections and make other adjustments that may be necessary to ensure success of the Medicare+Choice program. We thank you again for holding this hearing, and we are happy to answer your questions.

Privacy Notice (www.hhs.gov/Privacy.html) | FOIA (www.hhs.gov/foia/) | What's New (www.hhs.gov/about/index.html#topiclist) | FAQs (answers.hhs.gov) | Reading Room (www.hhs.gov/read/) | Site Info (www.hhs.gov/SiteMap.html)