Chairman Bilirakis, Congressman Brown, distinguished Subcommittee members, thank you
for inviting us to discuss the Medicare+Choice program. Despite challenges facing this
program, it continues to grow. About 50,000 beneficiaries have enrolled in Medicare+Choice
plans each month since January. There are now more enrollees in the program than there
were before some plans made business decisions last year to trim their participation in
the program. We expect to see continued program growth despite similar decisions by some
plans this year.
The vast majority -- 95% -- of Medicare+Choice enrollees are not affected by pending
changes in plan participation. Nevertheless, we are concerned about the disruption in
service to beneficiaries, particularly to disabled beneficiaries and those who have relied
on prescription drug benefits that they may no longer be able to receive. Because of the recent actions by health plans, we have taken steps to
ensure that beneficiaries being forced to change their health insurance coverage are
informed of their rights to obtain certain Medigap plans regardless of preexisting
conditions. We also are ensuring that they receive clear information about their health
Still, the disruptions underscore the importance of the President's Medicare reform plan. It will stabilize the
Medicare managed care market by:
- setting plan payment rates through market competition rather than a statutory formula;
- ensuring that all beneficiaries have access to affordable drug coverage;
- paying plans directly for providing drug coverage;
- dedicating a significant portion of the budget surplus to Medicare to help ensure that
payment rates will be adequate well into the future; and,
- strengthening protections for beneficiaries when plans withdraw.
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.
Medicare+Choice success is a high priority for us. We believe very strongly that
private plans are important voluntary options next to original Medicare. Medicare managed
care enrollment has tripled under the Clinton Administration, and there are now 6.48
million beneficiaries enrolled in Medicare+Choice plans. We meet regularly with
beneficiary advocates, industry representatives, and others to discuss ways to improve the
program. We launched a national education campaign and participated in more than 1,000
events around the country to help beneficiaries understand their health plan options. And
we are establishing a federal advisory Committee to help us better inform beneficiaries
Reductions in Service
Plans make business decisions each year about the extent to which they will continue
participation in Medicare+Choice. As of the July 1 deadline for plans to notify us about
their participation next year, 99 Medicare+Choice plans will reduce the services they
provide as of January 1, 2000. This includes withdrawals from the program by 41 specific
plans and cuts in the geographic regions served by another 58 plans. These changes affect
about 327,000 beneficiaries in 329 counties in 33 States, or about 5% of all
Medicare+Choice enrollees. The total is less than the 407,000 beneficiaries in 407
counties in 29 States who were affected last year. An even smaller number, 79,000 (1.3%),
will return to traditional Medicare because the only managed care plan available in their
county is leaving. This is more than the 51,000 abandoned enrollees left without access to
another managed care plan last year.
As directed by President Clinton in 1998, we will continue to expedite review and
approval of plans seeking to enter markets that have been left without a plan. We have
approved 41 plans for participation or expansion in the program since last July, and we
are reviewing applications to start or expand participation by another 22 plans. Total
managed care enrollment this year returned to pre-withdrawal levels within just two
Many factors affect plan decisions to trim participation in Medicare+Choice, as was
documented in a report released by the General Accounting Office (GAO) in April. For
instance, plans may have trouble establishing adequate provider networks, enrolling enough
beneficiaries to support fixed costs, or otherwise competing in a given market. Plans
withdrawing from Medicare in specific markets often are withdrawing from those same
markets in their commercial and other business. For example, Pacificare is withdrawing
both Medicare and commercial service in several Washington State counties. And the Federal
Employee Health Benefit Plan expects about about 13 percent of plans to withdraw from its
program this year, affecting about 1% of its enrollees. There are a disproportionate
number of withdrawals this year in rural areas where it is more difficult to maintain
provider networks and enrollment level.
Inadequate reimbursement to plans does not explain plan decisions to trim participation
in the program. Payment is rising in all counties this coming year by an average of 5%,
and will rise by as much as 18% in some areas. Balanced
Budget Act (BBA) payment reforms were designed to increase payment in counties that had
the lowest rates and therefore the fewest number of plans. Yet counties receiving the
largest increases under the BBA payment system are experiencing the most disruption. Plan
withdrawals are affecting 11.1% of enrollees in counties where rates are rising by 10%,
but affecting only 2.3% of enrollees where rates are rising by just 2%.
In fact, despite BBA reforms, aggregate payment to plans continues to be excessive,
according to another GAO report issued in June. BBA reforms may, however, mean that
payments in some counties no longer include enough excess to cover losses in other areas
or to subsidize extra benefits that fee-for-service Medicare does not currently cover,
such as prescription drugs.
As such, plans are less likely to provide extras like drug coverage without charging
premiums. In plans that do offer a drug benefit, its value is declining. In 1998 only a
third of plans capped drug coverage below $1000, but next year nearly three fifths will,
and more than one fourth will cap coverage below $500. Drug coverage by plans is available
mostly in high-paid urban areas, which is unfair to rural beneficiaries who also have the
least access to private retiree drug coverage. Private retiree coverage itself is unstable
and declining, with now less than a third of firms offering it. And at least a third of
all beneficiaries have no drug coverage at all.
Clearly all beneficiaries need a more stable and reliable source of prescription drug
coverage. And, if plans' primary problem is
paying for benefits beyond the Medicare benefit package, the best solution is to improve
the benefit package by providing all beneficiaries with access to an affordable
prescription drug benefit, and paying plans explicitly for what most now offer only in
areas where payments are excessive.
The President's Reform Plan
That is why it is essential to enact the President's
Medicare reform plan. It gives all beneficiaries the option to pay a modest premium for a
prescription drug benefit. This benefit will cover half of all prescription drug costs up
to $5,000 when fully phased in, with no deductible -- all for a modest premium that will
be less than half the price of the average private Medigap policy.
Medicare+Choice plans would be explicitly paid for providing a drug benefit under the
They would no longer have to depend on what the rate is in a given area to determine
whether they can offer to do so.
The President's plan also will modernize the way Medicare pays managed care plans. Rates would be set through competition among plans rather than through a
complicated statutory formula, as they are today. All plans would be paid their full price
through a combination of government and beneficiary payments. The lower the price, the
less beneficiaries pay since the beneficiary contribution rate declines relative to the
price of the plan, as in the Federal Employees' Health Benefits Program. Beneficiaries choosing plans that cost
approximately 80% of traditional fee-for-service will pay no Part B premium.
plan also will preserve beneficiary options and strengthen protections when plans withdraw
from Medicare by:
- giving beneficiaries access to all Medigap plans regardless of preexisting conditions,
including those with prescription drug coverage;
- expanding the Medigap 6-month open enrollment period to newly disabled beneficiaries and
those with end stage renal disease;
- allowing beneficiaries with end stage renal disease to enroll in another plan;
- mandating a special one-time additional Medigap open enrollment period for beneficiaries
who were affected by a plan termination last fall; and
- increasing civil monetary penalties of up to $50,000 per violation plus $5,000 per day
per violation of the Medigap open enrollment requirements.
All these changes will strengthen and stabilize the Medicare managed care market.
plan also dedicates 15 percent of the budget surplus to Medicare for the next 15 years.
This will assure the financial health of the Medicare Trust Fund through at least 2027,
and help ensure that Medicare+Choice plan payment rates will be adequate well into
Encouraging Plan Participation
To assist plans, we worked with Congress to give plans two more months to file the
information used to approve benefit and premium structures. We allowed plans to submit
this "Adjusted Community Rate" data on July 1, rather than May 1, so plans were able to use more current experience when designing benefit
packages and setting cost sharing levels. July 1 is the latest we can accept,
process, and approve premium and benefit package data, have the data validated, and still
mail beneficiaries information about available plans in time for the November open
To further encourage plan participation, we have worked with plans to minimize the
administrative workload associated with participating in Medicare+Choice. In
February, 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 in a plan that leaves the program are entitled to enroll in
remaining locally available plans;
- specifies that changes in plan rules must be made by October 15 so beneficiaries have
information they need to make an informed choice during the November open enrollment;
- allows plans to choose how to conduct the initial health assessment;
- waives the mandatory health assessment within 90 days of enrollment for commercial
enrollees who choose the same insurer's
Medicare+Choice plan when they turn 65, and for enrollees who keep the same primary care
provider when switching plans;
- 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; and,
- allows plans to terminate specialists with the same process for terminating other
We intend to publish a comprehensive final rule with further refinements this fall.
BBA Payment Reforms
While the President's reform plan will use
competition to set plan payment rates, the BBA initiated other important payment reforms
that are already underway. The BBA begins to break the link between managed care and
fee-for-service rates. And, starting in January, the BBA mandates that we Arisk adjust@
payments to account for the health status of each enrollee.
Under the BBA system, a rate for a particular county is the greater of three possible
rates: a new minimum or "floor" payment; a minimum 2% increase over the previous
year's rate, or a blend of the county rate and an input price adjusted national rate. The
new system is phased in over five years, and therefore has several different moving parts.
Medical education costs, which had been included in HMO payments under the old system, are
paid instead directly to teaching hospitals. The blend of county and national rates phases
up to a 50/50 balance. The national rate, local rates and minimum payment amount are
annually updated based on per capita Medicare cost growth. As mentioned above, payments
will increase an average of 5% for next year.
The BBA also established a competitive pricing demonstration in which plan payment
rates will be set through a bidding process, similar to what most employers and unions use
to decide how much to pay plans. To ensure broad community involvement in this project, a
Medicare Competitive Pricing Advisory Commission, chaired by General Motors Health Care
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 established local advisory Committees in
these communities and, at their request, the national advisory commission agreed to delay
implementation for one year in order to ensure adequate time for all parties to prepare
for this essential project.
There is considerable evidence that we have overpaid and continue to overpay plans.
That is because payments are linked to local fee-for-service spending and not adjusted for
risk, according to studies by the Congressional Budget Office, Physician Payment Review
Commission, Mathematica Policy Research, and many others. As mentioned previously, a GAO
report released this June documents that, despite BBA reforms, plans are still being paid
more than it costs them to provide the Medicare covered services that they are required to
provide. The GAO says excess payments to plans totaled $1.3 billion in 1998, and will
increase each year because of a forecasting error that the BBA locked in the statutory
Payment to plans will be more accurate with risk adjustment. Data on each individual
beneficiary use of health care services in a given year will be used to adjust payment for
that beneficiary the following year. Risk adjustment helps assure that payments are more
appropriate, and curtails the disincentive to enroll sicker beneficiaries.
The law does not call for a transition to risk adjustment, but we believe incremental
implementation will prevent disruptions to beneficiaries or the Medicare+Choice program.
We are therefore using flexibility afforded to us in the law to phase in risk adjustment
over five years. In the first year, only 10% of payment to plans for each beneficiary will
be based on the new risk adjustment method, which for the time being is based only on
inpatient data. By 2004, we will be able to use data from all sites of care for risk
adjustment. Then, and only then, will payment to plans be 100% based on risk adjustment.
In the meantime, even with its limitations, the initial risk adjustment system based on
inpatient data alone will increase payment accuracy 5-fold.
It is essential to stress that risk adjustment will not and cannot be budget neutral.
The whole reason for proceeding with risk adjustment is that Medicare has not been paying
plans accurately. 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 vast
majority of beneficiaries enrolled in Medicare+Choice cost far less than what Medicare
pays plans for each enrollee.
Medicare fee-for-service statistics make clear why risk adjustment should not be budget
neutral. More than half of all Medicare fee-for-service beneficiaries cost less than $500
per year, while less than 5% of fee-for-service beneficiaries cost more than $25,000 per
year, according to the latest available statistics for calendar year 1996. The most costly
5% account for more than half of all Medicare fee-for-service spending.
Since Medicare+Choice enrollees tend to be healthier than fee-for-service Medicare
beneficiaries, the ratio of high to low cost beneficiaries in health plans is even more
stark. Clearly, care for the overwhelming majority of Medicare enrollees cost plans much
less than what Medicare pays because our payments are predicated on the average
beneficiary cost of care, calculated by
county. This average includes the most expensive beneficiaries in fee-for-service, who
generally do not enroll in managed care.
Budget neutral risk adjustment would mean 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,
mostly healthy beneficiary mix. Actual savings to taxpayers from risk adjustment will vary
to the extent that less healthy beneficiaries enroll in Medicare+Choice plans, resulting
in higher payments than health plans receive today.
The amount of payment change will vary among plans and depend on each plan's individual enrollees. Overall, we project that
payment on average will change by less than 1% in the first year. How it will change over
time depends on the mix of beneficiaries in each plan. Risk adjustment significantly
changes incentives for plans and could well lead to enrollment of beneficiaries with
greater care needs who could benefit most from managed care. That could result in plans
receiving higher payments. Phasing in risk adjustment also substantially buffers the
financial impact. Taxpayers are forgoing $1.4 billion in the first year and up to $4.5
billion over the full five years because of the phase in.
We are working to help beneficiaries affected by plan withdrawals move to other plans
or back to traditional Medicare. We are working diligently to make sure beneficiaries
affected by plan terminations and service area reductions know about their rights and
options. We are providing plans with a model letter that meets the requirement that they
send all affected beneficiaries an information package by September 15, 1999. This
information should explain options to return to fee-for-service Medicare with supplemental
coverage or to enroll in another Medicare HMO. We review and approve all materials sent by
plans to beneficiaries to ensure that they are accurate.
All beneficiaries have the option of returning to original fee-for-service Medicare.
Most beneficiaries also have the option of enrolling in another Medicare HMO where they
live. If beneficiaries take no action, they will automatically return to original
fee-for-service Medicare on Jan. 1, 2000. If they return to fee-for-service Medicare
before December 31, they may lose important rights to supplemental Medigap coverage.
For example, beneficiaries who remain in a withdrawing plan until December 31 are
guaranteed the right to buy any Medigap plan designated A, B, C, or F available in their
state until March 3, 2000. If they apply for one of these Medigap policies no later than
March 3, companies selling the policies cannot place limits or discriminate in price
because of beneficiary preexisting conditions. These protections are not guaranteed if
beneficiaries disenroll before December 31, 1999 which, as mentioned above, is a policy
that the President's Medicare reform plan will
Help in understanding such rights and options, as well as up-to-date information about
other Medicare+Choice plans available in a given county, is available at 1-800-MEDICARE
(1-800-633-4227), at 1-877-486-2048 for the hearing impaired, and on the Medicare Compare
web page at www.medicare.gov. Many libraries and senior centers can help beneficiaries
obtain Medicare information from the Internet. Beneficiaries also can contact their State
Health Insurance Assistance Program for assistance. And many other groups provide
information about Medicare, including the AARP, local Area Agency on Aging offices,
National Rural Health Association, Social Security Administration and HCFA regional
We are also working diligently to educate all beneficiaries about the Medicare+Choice
program. We launched the National Medicare Education Program to make sure beneficiaries
receive accurate, unbiased information about their benefits, rights, and options. The
- mailing a Medicare & You handbook to explain health plan options;
- a toll-free "1-800-MEDICARE@ [1-800-633-4227] call center with live operators to
answer questions, and provide detailed plan-level information;
- a consumer-friendly Internet site, www.medicare.gov, which includes comparisons
of benefits, costs, quality, and satisfaction ratings for plans available in each zip
- working with more than 120 national aging, consumer, provider, employer, union, and
other organizations who help disseminate information to their constituencies;
- beneficiary counseling from State Health Insurance Assistance Programs;
- a national publicity campaign;
- a Regional Education About Choices in Healthcare (REACH) campaign that will conduct
State and local outreach activities nationwide; and,
- a comprehensive assessment of these efforts.
We tested the system in five States in 1998 and learned how to improve efforts for this
November's open enrollment period. For example,
we have made the Medicare & You handbook easier to use and improve the accuracy
of information about plans that are withdrawing. We have added new links on our Medicare
Compare website at www.medicare.gov to help users find information faster. We are
standardizing plan marketing materials that summarize benefits so beneficiaries can more
easily make apples-to-apples comparisons among plans in this November's open enrollment period. And we have added
information on managed care plan withdrawals to the Important Notes section of the 1999
plan information on our Medicare Compare website.
To help us continually improve our education efforts, we are establishing the Citizens= Advisory Panel on Medicare Education, under the
Federal Advisory Committee Act. The panel will help enhance our effectiveness in informing
beneficiaries through use of public-private partnerships, expand outreach to vulnerable
and underserved communities, and assemble an information base of Abest practices@
for helping beneficiaries evaluate plan options and strengthening community assistance
infrastructure. Panel members will include representatives from the general public, older
Americans, specific disease and disability groups, minority communities, health
communicators, researchers, plans, providers, and other groups.
While market volatility must be expected in the private sector, we are concerned about
the message being sent to beneficiaries about the reliability of Medicare+Choice plans. In
fact, among beneficiaries affected by plan service reductions last year, half of those who
could have chosen another managed care plan instead chose to return to the original
fee-for-service Medicare program. Nonetheless, we remain committed to working with plans
to facilitate participation in the program. And we look forward to working with Congress
to enact the President's Medicare reform
proposals that will increase protections for beneficiaries when plans withdraw from the
program, ensure that plans receive full payment of market-based rates, and guarantee that
all beneficiaries have access to affordable prescription drug coverage. I thank you again
for holding this hearing, and I am happy to answer your questions.