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HAS MEDICARE+CHOICE REDUCED VARIATION IN

THE PREMIUMS AND BENEFITS OFFERED BY

PARTICIPATING HEALTH PLANS? A REVIEW

OF MEDICARE+CHOICE PLAN PAYMENT METHODOLOGY

HEARING

BEFORE THE

SUBCOMMITTEE ON

OVERSIGHT AND INVESTIGATIONS

OF THE

COMMITTEE ON ENERGY AND

COMMERCE

HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

FIRST SESSION

MAY 31, 2001

Serial No. 107–39

Printed for the use of the Committee on Energy and Commerce

(

Available via the World Wide Web: http://www.access.gpo.gov/congress/house

2

COMMITTEE ON ENERGY AND COMMERCE

W.J. ‘‘BILLY’’ TAUZIN, Louisiana, Chairman

MICHAEL BILIRAKIS, Florida

JOE BARTON, Texas

FRED UPTON, Michigan

CLIFF STEARNS, Florida

PAUL E. GILLMOR, Ohio

JAMES C. GREENWOOD, Pennsylvania

CHRISTOPHER COX, California

NATHAN DEAL, Georgia

STEVE LARGENT, Oklahoma

RICHARD BURR, North Carolina

ED WHITFIELD, Kentucky

GREG GANSKE, Iowa

CHARLIE NORWOOD, Georgia

BARBARA CUBIN, Wyoming

JOHN SHIMKUS, Illinois

HEATHER WILSON, New Mexico

JOHN B. SHADEGG, Arizona

CHARLES ‘‘CHIP’’ PICKERING, Mississippi

VITO FOSSELLA, New York

ROY BLUNT, Missouri

TOM DAVIS, Virginia

ED BRYANT, Tennessee

ROBERT L. EHRLICH, Jr., Maryland

STEVE BUYER, Indiana

GEORGE RADANOVICH, California

CHARLES F. BASS, New Hampshire

JOSEPH R. PITTS, Pennsylvania

MARY BONO, California

GREG WALDEN, Oregon

LEE TERRY, Nebraska

JOHN D. DINGELL, Michigan

HENRY A. WAXMAN, California

EDWARD J. MARKEY, Massachusetts

RALPH M. HALL, Texas

RICK BOUCHER, Virginia

EDOLPHUS TOWNS, New York

FRANK PALLONE, Jr., New Jersey

SHERROD BROWN, Ohio

BART GORDON, Tennessee

PETER DEUTSCH, Florida

BOBBY L. RUSH, Illinois

ANNA G. ESHOO, California

BART STUPAK, Michigan

ELIOT L. ENGEL, New York

TOM SAWYER, Ohio

ALBERT R. WYNN, Maryland

GENE GREEN, Texas

KAREN MCCARTHY, Missouri

TED STRICKLAND, Ohio

DIANA DEGETTE, Colorado

THOMAS M. BARRETT, Wisconsin

BILL LUTHER, Minnesota

LOIS CAPPS, California

MICHAEL F. DOYLE, Pennsylvania

CHRISTOPHER JOHN, Louisiana

JANE HARMAN, California

DAVID V. MARVENTANO, Staff Director

JAMES D. BARNETTE, General Counsel

REID P.F. STUNTZ, Minority Staff Director and Chief Counsel

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

JAMES C. GREENWOOD, Pennsylvania, Chairman

MICHAEL BILIRAKIS, Florida

CLIFF STEARNS, Florida

PAUL E. GILLMOR, Ohio

STEVE LARGENT, Oklahoma

RICHARD BURR, North Carolina

ED WHITFIELD, Kentucky

Vice Chairman

CHARLES F. BASS, New Hampshire

W.J. ‘‘BILLY’’ TAUZIN, Louisiana

(Ex Officio)

PETER DEUTSCH, Florida

BART STUPAK, Michigan

TED STRICKLAND, Ohio

DIANA DEGETTE, Colorado

CHRISTOPHER JOHN, Louisiana

BOBBY L. RUSH, Illinois

JOHN D. DINGELL, Michigan,

(Ex Officio)

(II)

3

C O N T E N T S

Page

Testimony of:

Berek, Judith, Administrator, Northeast Consortium, Health Care Financing Administration ................................................................................ 58

Blacknell, William ............................................................................................ 7

Dudley, Lois ...................................................................................................... 6

Haggett, William F., Senior Vice President, Government Programs, Independence Blue Cross ..................................................................................... 65

Harmon-Weiss, Sandra, Head, Government Programs, Aetna U.S.

Healthcare ..................................................................................................... 70

Harrison, Scott C., Research Director, Medicare+Choice, Medpac ............... 78

Kirsch, Ila M. .................................................................................................... 6

Kopacz, Lynn, Resident Insurance Manager, Wood River Village ............... 8

Material submitted for the record by:

Saxton, Hon. Jim, a Representative in Congress from the State of New

Jersey, prepared statement of ...................................................................... 94

Tauzin, Hon. W.J. ‘‘Billy’’, Chairman, Committee on Energy and Commerce, prepared statement of ...................................................................... 94

(III)

(1)

HAS MEDICARE+CHOICE REDUCED VARIATION IN THE PREMIUMS AND BENEFITS

OFFERED BY PARTICIPATING HEALTH

PLANS? A REVIEW OF MEDICARE+CHOICE

PLAN PAYMENT METHODOLOGY

THURSDAY, MAY 31, 2001

HOUSE OF REPRESENTATIVES, COMMITTEE ON ENERGY AND COMMERCE, SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS, Levittown, PA.

The subcommittee met, pursuant to notice, at 9:23 a.m., in Bristol Township Senior Center, Levittown, Pennsylvania, Hon. James

C. Greenwood (chairman) presiding.

Members present: Representatives Greenwood and Deutsch.

Also present: Representative Hoeffel.

Staff present: Joe Greenman, majority counsel.

Mr. GREENWOOD. Good morning, everyone. I am Jim Greenwood,

and I have the honor of representing the 8th Congressional District, which consists of all of Bucks County and some of the better

parts of Montgomery County in the District. I also have the honor

of chairing the Oversight and Investigations Subcommittee of the

U.S. House of Representative’s Energy and Commerce Committee.

And I want to thank you all for attending this official field hearing

of the Oversight and Investigations Subcommittee.

We are here, as I suspect you know, to learn about a problem

that affects senior citizens, Medicare beneficiaries, and disabled

Medicare beneficiaries with regard to the premiums that they pay

and the benefits that they receive under the Medicare+Choice plan,

which is, of course, the managed care option under Medicare. I will

make a few statements about that in a moment.

To begin with, I want to thank the Bristol Township Senior Center for hosting us this morning, and I want to thank all of the local

members of the Senior Citizen Center for joining us, as well as seniors from around the region.

I want to also thank and introduce, as I will in a moment, my

colleagues who have come here to attend as well. We have to my

immediate left, Congressman Peter Deutsch. Peter Deutsch is the

ranking member of this subcommittee. That means that, as a Democrat in the minority, he is the most senior member of the minority

party. He covets this gavel. As soon as he can push us into the minority, then he will be the chairman. But he has driven up; he left

Washington this morning at 6 a.m. to get here on time, and we are

glad that he is here. To his left is Congressman Joe Hoeffel. ConVerDate 11-MAY-2000 12:55 Oct 09, 2001 Jkt 073378 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 E:\HEARINGS\73736 pfrm09 PsN: 73736
2

gressman Hoeffel represents the 13th Congressional District of

Pennsylvania, which is, I guess, best described as the balance of

Montgomery County, most of Montgomery County. Mr. Hoeffel is

not a member of the Energy and Commerce Committee, nor of this

subcommittee, but Mr. Hoeffel represents constituents who have

the exact same problem that my constituents have, as they do in

all of the suburbs of Philadelphia, as well as elsewhere in the country. So I asked Mr. Hoeffel if he would come and help out with this

hearing and listen to the testimony this morning.

The Chair asks unanimous consent that the record remain open

for 1 week so that additional documents and testimony may be entered. And without objection, that is so ordered. The Chair recognizes himself for 5 minutes. And it has been suggested by my

trusty staff that I turn on the microphone. I will not start over. I

am hoping that everything I said prior to this is either heard or

not worth repeating.

The reason that we are here is to look at inequities in the Medicare system in our region. Medicare was created in 1965. It was

one of the most important things that the Congress and the Federal Government has ever done. It has put a safety net under retirees and disabled Americans in terms of their healthcare for 36

years now. It has been a tremendous boon to the health, and the

longevity, and the wellbeing of our seniors.

Of course, when the program was created, it did not have a prescription drug benefit, and I have been asked by the local AARP

folks to at this moment put on this little pin here, which says,

Pennsylvania Needs Affordable Prescription Drugs Now. Wear this

ribbon to show your support. So I am going to put this pin on while

Hal Lefcourt takes my photograph. He is the AARP maven here.

And as I showed Hal when I walked in, as of 1 week ago, I now

carry an AARP card in my wallet. I am officially the youngest

member of the AARP in the country.

Medicare began as what we call a fee-for-service system. Recipients receive their benefits card, they go to the doctor and the hospital of their choice, and their bills are reimbursed. Over time,

Medicare developed a managed care alternative so that seniors had

a choice. They could choose a plan that would instead of having

Medicare, the Federal Government, directly pay the bills, insurance

companies would serve as intermediaries and a flat fee would be

paid to those insurance companies, who would then pay the bills

for the recipients within the network.

Over time, we improved that system. We created—and you will

hear this from some of our witnesses—Medicare+Choice. And that

was to improve that system, to ensure the longevity of Medicare,

managed care, and it was, initially, a tremendous opportunity for

beneficiaries. I encouraged my mother and father, who are still

members of the Medicare+Choice Plan to join because suddenly,

when they did, they no longer had to pay Medigap insurance. They

were able to get a very good prescription drug benefit at no premium. And additionally, had better dental care, better eye care, access to hearing aids and so forth that was not available to them

under the traditional Medicare fee-for-service system.

The problem has been that in the last several years, the payments made by the Federal Government to the Medicare plans in

3

our region have not been sufficient. That has been partly the problem of the Congress, it has been partly the problem of the previous

President of the United States. We had lots of tough negotiations

about that, and there is plenty of blame to go around. The bottom

line is that the plans have had to reduce their benefits over time,

and virtually, eliminating the premium-free prescription drug

plans, and they have had to increase premiums.

To make matters worse, and to add insult to the injury, in our

region what has happened is that beginning in the first of this

year, the plans have charged a significant premium. I think it is

at least $59 in some cases, per month, to the beneficiaries who happen to reside in the suburbs of Philadelphia—in Bucks County, in

Montgomery County, in Delaware County, in Chester County—as

well as across the river in New Jersey, while beneficiaries in Philadelphia will not have to pay this additional premium. That is not

fair, that is not right, and that needs to be fixed, and that is why

we are here this morning.

If it were fixable with a wave of a wand, we would have done

that when the first complaints started to come into our offices some

months ago. It is a complex problem and we are going to try to understand that problem better than we do this morning by hearing

from our expert witnesses. And then we will take that information

back to Washington and try to fix this. As I told one gentleman,

we will not fix this any earlier than January 1 of next year. That

is, virtually, impossible. The plans set their premiums and their

benefits in the latter part of the year. They go into effect in January 1. If we work very hard, if we are very successful and somewhat lucky, we may be able to improve this system throughout the

course of this year so that when the new fiscal year begins on October 1, the plans will have enough funds to increase the benefits,

and reduce premiums by next year. No guarantees of that. It is

going to depend upon a lot of cooperation in the House and Senate

and with the President.

That is what we are here for this morning. A question has been

asked as to whether there will be questions allowed or comments

from the audience. I should tell you that that is normally not possible in a Congressional hearing when those hearings operate in

Washington. We have a finite amount of time and a finite list of

experts from whom we can hear and then ask questions. We have

to be out of here in almost exactly 2 hours from now, at 11:30, because lunch is served here then, and we will need to do that. If

there is time, if we have heard from all of our witnesses, if the

Members of Congress here at the panel have had opportunity to

ask all of the questions and have them answered, and we have

time, I will try to set up a system where we can entertain for the

balance of our time here this morning questions and comments

from the audience.

With that, I will now yield 5 minutes for an opening statement

to the gentleman from Florida, Mr. Deutsch.

Mr. DEUTSCH. Thank you, Mr. Chairman, and I won’t take 5

minutes. I want to thank you for inviting me to your district. I

went to school not that far from here. I was an undergraduate in

Swathmore College in Delaware County. Representing south Florida, those of us in south Florida, those who are from Florida, I

4

would like to say that there are two types of Americans, those that

live in Florida and those that want to live in Florida. So I am sure

some of your constituents will become my constituents in the not

too distant future.

This is, obviously, a very important issue. I am looking at the

numbers. I represent three different counties in south Florida and

we have the same sorts of disparities, so it is a national issue. And

I think it is, clearly, something we can work together on, and Congress has been working together on it.

I want to thank the Chairman, and I think this community is

really very blessed to have, really, two outstanding Members of the

U.S. Congress who are the epitome of bipartisanship and working

together to try to solve the problems of America. And knowing the

constraints on time, I yield back the balance of my time.

Mr. GREENWOOD. I thank the gentleman and recognize for an

opening statement, the gentleman from Montgomery County, Mr.

Hoeffel.

Mr. HOEFFEL. Thank you, Mr. Chairman. I want to start by

thanking Jim Greenwood for inviting me. This is an unusual occasion. I am not a member of this committee, and this is not my District, and Jim has reached out in a bipartisan way to include me,

to ask me to provide a witness, and we will hear from Lois Dudley

in a minute, from Montgomery County. And I am very grateful,

and I am impressed, and this is the way Congress ought to work,

and it does not always work this way.

So I am glad to be here and glad to be here with Peter Deutsch

as well. And I was going to say before he did, that many of my constituents will end up his constituents. I didn’t know you were

smart enough to have gone to Swathmore, Peter. I am very impressed with that.

Mr. DEUTSCH. I was a wrestler so——

Mr. HOEFFEL. Oh, he was a wrestler, he says. All right.

Mr. DEUTSCH. I didn’t get there on my brains.

Mr. HOEFFEL. I am delighted to be here in Bucks County. I want

to acknowledge someplace in the back, State Representative Matthew Wright.

Mr. GREENWOOD. Oh, I didn’t know Matt was here.

Mr. HOEFFEL. Yes. Wave your hand. I said hello to Matt when

he came in. I served with his father, Jim Wright, when I was in

the State Legislature, the same when Jim Greenwood was in the

State Legislature, and we are in the Jim Gallagher Memorial Senior Center here, and I served with Jim as well. So I am delighted

to be here today.

My constituents have complained to me just as Jim Greenwood’s

have complained to him, and Peter Deutsch’s to him, about the different premiums that they are charged by the Medicare+Choice

providers. I am sure we will hear today of the disparity in the

amount that Medicare pays the providers for each Medicare beneficiary. In this region, effective March of 2001, Medicare pays providers in Montgomery County $560 per month per beneficiary; they

pay in Bucks County $623 per month per beneficiary; and in Philadelphia County, $762 per month per beneficiary, over $200 more

than they pay for Montgomery County.

5

Now, that may be a very legitimate difference in payments based

upon the cost of providing the service. Philadelphia has a larger

low income population, more teaching hospitals, hospitals that

have more poor people going there, and there may be legitimate

differences that require Medicare to reimburse differently, county

by county.

What Jim Greenwood is saying with his leadership today by calling this hearing is let us see if we cannot level out the premiums

that are, in turn, charged to the beneficiaries. It is fine for the Government to pay different rates to the providers based upon the provider’s costs, but it is not so fine in, for example, the service area

of Independence Blue Cross, or any other healthcare insurer, for

the beneficiaries, the customers, to pay different premiums simply

based upon where they live. We ought to be able to figure out a

way in Washington so that a health insurer charges the same premiums every place within that insurer’s service area, whether it is

one county or five counties, when they are delivering the same

product throughout that entire service area. I think that is the

focus of our concern.

I, again, compliment Chairman Greenwood for holding this hearing and inviting me, and I yield back the balance of my time.

Mr. GREENWOOD. The Chair thanks the gentleman, and we are

delighted to have him join us. I was not aware that State Representative Matt Wright is here, but I am delighted that he is. The

rules—I have checked with the counsel. The rules of the House do

not permit Mr. Wright to ask questions of the witnesses, but I have

checked; there is no objection to his coming up and joining us at

the panel. So Matt, if you would like to, you are welcome to come

on up here and have a seat at the front table or you can—or not,

as——

Mr. WRIGHT. I am going to stay back here.

Mr. GREENWOOD. You will stay back with the real people? Okay.

Mr. HOEFFEL. That means he might heckle.

Mr. GREENWOOD. Okay. With that, we welcome our first of two

panels of witnesses. And they are Ms. Ila M. Kirsch from

Langhorne; Ms. Lois Dudley of Hatboro; Mr. William Blacknell of

Ben Salem; and Ms. Lynn Kopacz, who is a Resident Insurance

Manager of Wood River Village in Ben Salem, as well. We thank

you all for being with us.

You have probably been informed that the committee is holding

an investigative hearing, and when doing so, has had the practice

of taking testimony under oath. I need to ask you, do you any of

you have objections to taking testimony under oath? So you are all

going to be honest with us. That is good. The Chair then advises

you that under the rules of the House and the rules of the committee, you are entitled to be advised by counsel. Do you desire to

be advised by counsel during your testimony today? Usually, we

are investigating bad guys; that is why we have to ask these questions.

In that case, if you would please rise and raise your right hand,

I will swear you in.

[Witnesses sworn.]

6

Mr. GREENWOOD. Thank you. You are now under oath, and I

would invite, beginning with Ms. Kirsch, you to take 5 minutes to

summarize your testimony. Do the witnesses have microphones?

Ms. KIRSCH. Is this okay?

Mr. GREENWOOD. This is perfect. Thank you very much for being

with us this morning. Can you hear back there now? Okay.

TESTIMONY OF ILA M. KIRSCH; LOIS DUDLEY; WILLIAM

BLACKNELL; AND LYNN KOPACZ, RESIDENT INSURANCE

MANAGER, WOOD RIVER VILLAGE

Ms. KIRSCH. I went with Aetna U.S. Healthcare 7 years ago, and my premium was $30. That was fine. I had to get notice from another doctor to see another doctor, but they canceled all that out.

And gradually, it built up to this year, which is $50. Now, I can

handle that; that is not bad. It is the prescriptions that is giving

me the problem. The first of the year, Healthcare deleted it entirely. I have to pay 100 percent. It is $111 for 30 pills, and I take

two different prescriptions. It is quite a dig into my check and I

can’t see any reason for it to be so high. I mean, it is just awful.

I just hope, you know, that our Government will help us—all the

seniors, not just me, but all of us—to try to get the drug companies

to realize, you know, what a problem this is. And with your help,

maybe it can be done. That is all I have to say. It is not 5 minutes,

but I am sorry.

Mr. GREENWOOD. When we are in Washington, no one has ever

spoken for less than 5 minutes before so we are delighted and we

will have some questions for you as we proceed.

Ms. KIRSCH. Okay.

Mr. GREENWOOD. Thank you. Ms. Dudley, you are now recognized for 5 minutes, or so much time as you choose to use.

TESTIMONY OF LOIS DUDLEY

Ms. DUDLEY. Thank you. Hopefully, mine will not be that long

either. As you can see, I have a tape here. When I was asked to

represent our district, I went back to my records. I kind of keep

a very detailed budget, and I went back and took last year. And

as I have written on this, you know, I started out with a zero fee,

as you had said, and now we are up to $50, also, my husband and

I. And when I spent over what I was allowed—we always had a

bank. It was $1,500 the first year, of which it would be reduced as

I used it. Then it got to $1,000, then it got to $500, then it got to

nothing. So we are doing the total cost also. And I just looked, and

I would have been spending $675 for the prescriptions that we are

using at this point. We are now spending $2,973, along with the

$1,200 fee now for the two of us, and the $1,200 coming out of our

Medicare. So we have jumped extremely, you know, in our budget.

We are on a fixed income, and it is really very difficult.

Let me show you the problem I had. I said, all right. Now, I am

going to go out and see where I can get the least expensive drugs.

Well, as I wrote on my thing, the pharmacies will not divulge the

cost of the various medicines and is preventing us from getting the

best price. What happened is when I would call the different pharmacies, they say, well, I have to have your prescription. Well, I described everything from the ones I already had. I didn’t have a preVerDate 11-MAY-2000 12:55 Oct 09, 2001 Jkt 073378 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 E:\HEARINGS\73736 pfrm09 PsN: 73736
7

scription at that point to take to them, and to run to every pharmacy with this prescription, then they would tell me what the cost

was. I had no way to prepare. So therefore, I am stuck with whoever I am getting my medicine from.

Also, the experience my husband had was we went to—we do not

get the company. In other words, we do not have our Medicare—

I am with U.S. Healthcare, also, Aetna U.S. Healthcare. It is not

a company backed where some of my friends are in it and they do

get prescriptions. I do not and neither does my husband. And so

what happens is, not being able to get the best price, we went with

one drug company and they, literally, told our doctor to change his

prescription. Now, you have a pharmaceutical company, or a prescription company, telling my doctor what to give my husband.

They wanted to change it. Now, my husband was not able to take

that particular medicine, but it was one they made. And that is a

problem when your doctor is being told—to turn down the doctor’s

note, that he could not use theirs, it was accepted, but there is a

problem. It could be sometime where maybe it wouldn’t.

So I feel that—I hope I am not going over my 5 minutes, but I

do feel that it is very important that Congress realize that where

there is so much pharmaceutical power, and lobbying, and money

going into campaign, and all that sort of thing, and they say, well,

we need the money for research—let us get a lot of money into the

research and not into this false campaigning, and let us get some

prescription help from Congress.

Mr. GREENWOOD. Thank you very much, Ms. Dudley. Mr.

Blacknell. Oh, I am sorry. Let me also recognize—I have been just

notified that State Representative Tony Melio has joined us. Tony,

where are you? Welcome. Thank you for joining us and thank you

for your interest. Mr. Blacknell.

TESTIMONY OF WILLIAM BLACKNELL

Mr. BLACKNELL. Last December, Congress voted $11 billion for

Medicare HMO’s. We saw a rate decrease in our Keystone 65 premiums of $6. ‘‘Congress was assured that every penny would go to

increase benefits and reduce premiums,’’ says Representative Pete

Stark of California, a leading Democratic spokesman on healthcare.

With no formal amendment and just before the bill was brought to

the final vote, the wording changed to allow HMO’s another option

for spending money. They would be able to pay more to networks

of hospitals and doctors that provide care for their beneficiaries.

On average, plans can devote 70 percent or more to this added

option. To add to the mix, Keystone 65 says that providing

healthcare for Philadelphia compared to the four surrounding counties, there is very little difference. Philadelphia residents who are

enrolled in Keystone 65 pay only for the prescription part of the

plan, which amounts to $35 for generic brands or $65 for brand

names. The surrounding counties may pay an additional $59 per

month on top of the 35/65 fee paid by Philadelphia Keystone members. The HCFA, which administers the program, has never explained why there is such a disparity in funding. For example,

HCFA funds $762 for each Philadelphia Keystone member as opposed to only $559 for each member in the suburbs.

8

I have been in contact with Representative Greenwood’s office

over the past few months and have been told that they are working

on the problem. Why is there a difference in the way HCFA funds

Philadelphia versus the suburbs? Why after years of zero cost to

seniors enrolled in Keystone 65 do we now pay $89 per month for

a generic drug plan and Philadelphia pays only $35 for the same

plan?

Show us the formula that justifies the fee difference because

HCFA’s imbalance of funding. This affects myself as well as other

seniors in the following examples. As of January 2001, the annual

premium for an individual went from zero to $1,068. the annual

premium for a married couple went from zero to $2,136, or as high

as $2,556 if the brand name plan is necessary. Not to mention,

having a co-pay for doctor visits and prescriptions.

I have a seasonal job. I am concerned about how I will manage

this financial burden if the day comes when I no longer am able

to work. I would be reduced to a fixed income and having also to

meet the obligations of paying almost $4,000 in local property

taxes. As of now, I don’t qualify for State programs such as PACE,

et cetera, unless parameters are changed to include seniors in my

similar situation.

Thank you for allowing me to voice my concerns and opinions on

this very serious matter.

Mr. GREENWOOD. Thank you very much, Mr. Blacknell, for your

testimony. We appreciate it.

Just to explain the process here, you have asked a lot of questions about why things are the way they are. In the next panel, we

will begin to get those answers as we ask those questions of the

Health Care Financing Administration and the insurance company

themselves.

Ms. Kopacz. And please speak as directly into the microphone as

you can so everyone in the back can hear.

Ms. KOPACZ. How is this?

Mr. GREENWOOD. That is great. Thank you.

TESTIMONY OF LYNN KOPACZ

Ms. KOPACZ. Good morning. My name is Lynn Kopacz. I am an

insurance manager at Wood River Village, a retirement community

in Ben Salem. What I do is help all the seniors at our facility with

their health insurance problems, issues with bills, premiums, and

different plans, which is the best for their particular physical

needs.

With U.S. Healthcare, with the difference in the premiums, comparisons in premiums, I did find yesterday in Bucks County, Aetna

U.S. Healthcare cost $50 per month. That includes no prescription

drugs. In Philadelphia County, the same plan is a zero dollar premium. In New Jersey, Mercer County, the same plan is $93 a

month. I did find out in Philadelphia they offer an additional plan

for $40 a month that will give you $500 in annual prescription

costs. However, if you multiply the $40 a month times the 12

months, you are, actually, paying $480 for them to give you $500

worth of coverage.

Mr. GREENWOOD. Less postage.

9

Mr. KOPACZ. Right. When you add in your co-pays, you are actually paying them. So that is part of the problem. I didn’t get the

Keystone premium difference information, unfortunately.

One of the issues I wanted to talk about was the impact of the

decreased prescription benefits and the effect on seniors. I have one

resident that was paying a $30 co-payment for a non-formulary

brand name prescription. When her prescription benefit was exhausted in April this year, the cost went up to $130.28 for that one

prescription, which was just one of maybe seven or eight prescriptions she takes. Her total bill did go to $827.21 for the month.

Another issue we have with the HMO’s is the communication

problem. While these seniors here are—I consider them barely even

seniors. They are very young and capable. The average age at

our——

Mr. GREENWOOD. We are the politicians up here.

Mr. KOPACZ. Sorry. The average age at our facility, I know, last

year was 88 years old. So what happens with an 88-year old person

is many other complications. For example, when they need referrals or they need to compare prescription drug costs, they cannot

hop into their car and drive to Target, and CVS, and K-Mart, and

all the different areas to find different cost differences. They are,

basically, at our facility and have to get the different pharmacies

that we have that deliver to our facility.

We also have an issue with safety with the many different number of prescriptions that some of the seniors take. We use a pharmacy that prepackages medications for them, and that way, if they

need help with their medications, a nurse can come up on an a.m.

and p.m. basis, give them the proper amount of dosage and pills

that they are supposed to take, which also is an added cost to the

seniors, too. And also, it doesn’t allow them to use mail order pharmacies, which can also be a big savings.

The other issue I wanted to talk about was the communication

issue. Poor vision and poor hearing create confusion when trying

to deal with automated telephone systems, voice mail, referrals,

and pre-authorization requirements. A situation I had when I was

trying to help a resident was I called Keystone 65, and I was told

that all their representatives were busy, I would have to leave a

message, and I would receive a call back within 24 hours. Three

days later, I got the call back. I was unable to take the call at that

time. They told me this is, basically, your chance, and if you don’t

take it, you miss your opportunity, which, unfortunately, I did. I

had to go back through. They told me I had to call the member

services number again and go back through the whole situation

again, leaving frustration. Many of them are very frustrated, as

well as myself. I find it is very frustrating to have to leave a voice

mail message and hope that someone gets back to you.

Also, there is questionable knowledge of the insurance company

representatives. I have found a situation where I have called one

of the particular HMO’s four times on the same issue and received

four different answers. Keystone 65, one of the problems is they

don’t have the automated referral system, so the members are supposed to go to their doctor’s office and pick up their referrals, which

is another problem.

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And the last thing I wanted to say—I could go on, and on, and

on, because there are so many problems that the seniors are having

with this, with the HMO’s. One is the ability to understand the

benefits and make an educated choice based on the plan comparisons provided by the insurance company. The information mailed

out is lengthy, confusing, and overwhelming. And I find that I

know—I, at one time in my job I did, I used to interpret contract

language for different insurance plans for union and salaried members, and the information in the language that they send out in the

packets of information does not include a lot of the information

that you need to know, and there is a very big gray area regarding

what is covered, what is not covered, how to get it, and how to be

eligible for the benefits that you are guaranteed.

I know I have an issue with Keystone 65, someone that had a

hearing aid purchase, and they had to call through to get to the

phone. You first had to get on the phone to get somebody to mail

you out the form that had to be completed to send back in to get

reimbursed. And this took at least three phone calls for me to get

the form to be sent out.

And just one other thing I want to mention, too. I had a resident

who was 90 years old, was informed by her company she was covered as a retiree for a company she worked for 30-something years.

She was informed this year that they can no longer afford to supply

their retirees with health insurance benefits, that she would have

to find new coverage. She was paying $87 a month for coverage

with prescription costs. We sat down and went through all of the

different Keystone plans and U.S. Healthcare plans, got a prescription printout from her pharmacy listing all of her brand name

medications, her generic medications, figured out the actual cost, if

we had co-pays, if they are on the formulary, if they are a preferred

brand name or a non-preferred brand name, and figured out with

each particular plan what the cost would be per month. I don’t

think that this 90-year old woman would have been able to do it

if I had not helped her do it.

But interestingly enough, what I did find out as the actual cost

between all of the plans, with U.S. Healthcare included, not paying

any prescriptions was a difference of maybe $20 over the whole

month. So that is, you know—thank you.

Mr. GREENWOOD. Thank you very much for your testimony.

The Chair recognizes himself for 5 minutes for inquiry, and let

me address my question to you, Ms. Kopacz, if I may. A few years

ago, three or 4 years ago, it seemed to me to be a very—as I said

in my opening statement, a very excellent choice to choose a

Medicare+Choice plan because you saved the money that you might

may a Medigap policy. You get the prescription drug plan you

didn’t have access to otherwise, and other health benefits as well.

As the prescription drug benefit has vanished for most intents and

purposes, and as the premium has now climbed to $50 a month,

help me with the math. At what point—is it still advantageous for

most beneficiaries to remain on the managed care plan as opposed

to going back to fee-for-service where they would have no—they

wouldn’t pay the premium but, of course, they would either have

to go out and buy a Medigap policy or take the risk of paying out

of their pocket for what Medigap covers should they need it? How

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do you advise your residents as to whether they are better off on

a fee-for-service plan or a Medicare+Choice plan?

Ms. KOPACZ. Well, actually, what I found is that each individual

person differs. And like I said, with this particular woman, we had

to—and this is what I have done with everyone. I get a printout

of all of their pharmacy costs for the month. You have to compare

how many generic they have, how many brand name they have,

what is the actual cost, are they on the formulary, will it cost them

$25, $10, $15, is there unlimited coverage. Every person really differs based on the amount of brand name prescriptions that they actually take. Actually, it gets to the point of even how many specialists you have to go to, a $20 co-pay versus a $10 co-pay. When you

are on a fixed income, $3 makes a big difference. And I find that

people are willing to change their insurance plan based on a $3 copay extra per month.

What I found with this particular one, like I said, that she, even

with no prescription coverage, the cost of her—which is minimal.

She takes a minimal amount of prescriptions. What I am finding

is the average cost per month with no insurance is $500, I would

say, average that seniors are paying. This woman, in particular,

only has seven medications. Her total was $190.29 per month. So

adding in the premiums, deducting her co-pays, figuring out if it

is generic formula, or nonpreferred, or preferred, it came to a difference of $20 between plans. However, with people that are on a

high cost brand name prescription usually exhaust the benefit in

the first 2 months of the year and end up, they are paying the additional premium of $90, $130 in some cases, a month, plus they

end up paying for the last 10 months of the year the actual cost

of the plan—I mean, the actual cost of the prescriptions.

Mr. GREENWOOD. Thank you very much. And obviously, your

residents are very fortunate because they have you to, with all of

your experience and ability, to come and walk them through this

very complex process. The average senior out there may find that

an overwhelming process to make all of those calculations and decide what is the best choice.

Let me direct a question to Ms. Kirsch, and I am going to ask

Ms. Dudley and Mr. Blacknell to answer as well. Can you give us

a sense of now that you are having to pay these additional burdens,

both for your premium and prescription, what has that done to

your budget at home? What are you doing without that you might

have enjoyed otherwise?

Ms. KIRSCH. Well, what I do is I put it——

Mr. GREENWOOD. Before you respond, I am going to ask that the

microphone be sent down to you, and if you will speak directly into

it, some of my staff are hard of hearing and I want to make sure

that they can hear.

Ms. KIRSCH. Okay. What I do is I put it on my credit card, because with the two of them, it comes up to $254 a month.

Mr. GREENWOOD. What do you put on the credit card, the——

Ms. KIRSCH. My prescriptions.

Mr. GREENWOOD. The prescriptions.

Ms. KIRSCH. At the drugstore, I give them my credit card, and

then when my bill comes in, I pay half of it. And then the next

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month, I pay the other half. That is the only way I can see to do

it. Then I don’t put out all that money at one time.

Mr. GREENWOOD. But if I do the math then, what happens is

your credit card balance is going to grow month by month by

month.

Ms. KIRSCH. Exactly.

Mr. GREENWOOD. So you are, basically, plunging yourself into

debt just to take the medications.

Ms. KIRSCH. I just started doing that. I don’t like to do it. I hate

it. It worries me. But what else can I do? I can’t expect my kids— I won’t let my kids do this, you know. They have their families, and

I just won’t do it. So I just try to go along and do it that way. And

also, I went with three different mail order companies. And right

now with Pace, the price has not dropped one cent. It is still up

to $101 for one prescription. I thought with Pace I would get a

break. NO.

Mr. GREENWOOD. Well, do you qualify for the Pace program or

the Pace net program?

Ms. KIRSCH. Yeah, I have the card. I sent in my form. I sent in

everything that they needed, and I don’t understand that. Of

course, there is no generic for what I take. I take cholesterol and

high blood pressure, and the doctor said I have to take it, but there

is no generic so I don’t get a break on the cost.

Mr. GREENWOOD. Okay. Ms. Dudley, can you comment? If you— it is a fairly personal question, but I am trying to get a sense of

what this has meant to your lifestyle.

Ms. DUDLEY. Yes, it has changed mine, but I have taken it out

of many other funds and switched it into the medical fund. And we

don’t know—I don’t know if I have enough in there. I have to wait

until the end of the year to see how I am coming up. But I agree

with what you are saying, if you can’t get the generic—and I was

on Brocardia and there was no generic. It has just become generic,

and so there is a huge difference in the money on that particular— but I did want to answer when you said about is it still advantageous to say in the managed care versus going to fee. My husband told me that on his visit that he has to take twice a year because he has a heart problem, it is $250. So now, you take $250

twice, you have $500. He is paying $600 into managed. And so that

is just for those two visits. That is not for anything when he goes

to the heart doctor. And so you can see, we stay in it just only for

that reason at this time. We haven’t found that it would be—to

drop out. Otherwise, everything else is gone, the help for all kinds

of aid. Dental is definitely gone. There is nothing in that line. So

we do pay quite a high fee for that.

But that is what I had to do with my budget. I had to really take

from other things that I have allotted and put it into the medical.

And with the fuel, it is going to happen with utilities also. So it

does come out of food, it does come out of entertainment, which we

do very little of, and you wonder where it is going to come from.

And I am sorry to hear that you have to put that on a credit card,

because it is going to snowball with the interest.

Mr. GREENWOOD. Thank you. Mr. Blacknell—would you pass the

microphone over—and could you respond to the same inquiry as to

how this has affected your family budget?

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Mr. BLACKNELL. Well, as I mentioned, I have a seasonal job, approximately, I work 6 months to 61⁄2 months. What I tried to do

is I went to the Veterans Administration, and there you can get 90

days supply for $6, except that they don’t carry all drugs. My cholesterol is great, but my good cholesterol is low—it is always something. So anyhow, they don’t have it, so you have to go out and pay

for it. And I won’t mention the two stores, but one was $76 for a

month’s supply and the other was $65. So there is a disparity

there, which sort of ties in with what they are saying. And that is,

basically, it for now. But as I mentioned, when I stop working, I

will be in a different category.

Mr. GREENWOOD. That is great to shop around, but I think it was

one of these ladies—was it Ms. Dudley—said that if they won’t give

you the information over the telephone, it is an impossible task to

drive to ten different pharmacies to find out which one has the best

price.

Mr. BLACKNELL. Well, as it happened with me, I just went to

one, and I paid for the prescription, and I just happened to go to

another one after the usage of that and found out it was more advantageous to go to that drugstore.

Mr. GREENWOOD. Very well. Mr. Blacknell mentioned the Veterans Administration. Of course, the problem is that if you go to

the, or call the VA in this area to schedule an appointment at the

Willow Grove Base, for instance, so that you can qualify, because

you have to get a physical, you are told there is almost a year’s

wait before you can even get it. And I want to let you know, let

everyone know here, that this is something I am very involved in.

We have a meeting at 2, I think it is this afternoon, or tomorrow

afternoon at 2, with the VA and with the Captain at the base, and

some others, and we are going to try to find a location where we

can expand the facilities at the base so that we can bring more

nurses and other personnel in there so we can get these physicals

done more quickly so we can get those who qualify for the VA benefits on that prescription plan sooner rather than later.

Thank you all. And now we will turn to Mr. Deutsch for 5 minutes for his questions.

Mr. DEUTSCH. Thank you, Mr. Chairman. I am trying to get a

sense in this community, and I guess what I have heard is that

there are no Medicare+Choice providers that provide any type of

prescription drug coverage in this period?

Ms. DUDLEY. Unless you are with a company.

Mr. DEUTSCH. And when, just for whoever can answer, when did

that change?

Ms. KOPACZ. The first of the year.

Mr. GREENWOOD. Don’t forget to—I am sorry that we don’t have

four microphones, but if you would just always pass the microphone back so that the folks in the back can hear, please.

Ms. KOPACZ. In our particular area, Keystone 65 does offer four

different plans, and each increase is, you know, premium increases

with the actual amount of benefit they give you for your prescription drugs.

Mr. DEUTSCH. So that changed as of January 1, but what are the

four plans?

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Ms. KOPACZ. There are four different plans. The first plan has no prescription coverage, is $59 a month. Drug Option 1 is $89 per

month, covers unlimited generic drugs with a $10 co-pay, no brand

name prescriptions. Unfortunately, most people need the brand

name prescriptions. Drug Option 2 is $124 per month, unlimited

generic, $10 co-pay, brand name prescription. Here is the catch on

this. $750 brand name prescription, $10, $15, $25 co-pays with a

formulary. It is limited to $375 every 6 months. Drug Option 3 is

$136 per month. They give you unlimited generic with a $10 copay, $1,000 in brand name coverage, $500, broken down into $500

every 6 months, with the $10, $15, $25 co-pays with the formulary.

Formulary is very confusing, it is very hard to understand. I, myself, cannot even find half of the medications that the doctor orders

on there. I don’t know if there is different names, or if they are generic, or what the situation is with that.

Mr. DEUTSCH. So I guess the bottom line, though, is that if you

live here in this community, and you have high prescription drug

cost, and you are a middle class senior, you are in serious trouble.

Ms. KOPACZ. Yes, that is exactly—— Mr. DEUTSCH. I mean, that is the bottom line.

Ms. KOPACZ. Yes.

Mr. DEUTSCH. And I mean, prior to January 1, you did have an

option, but you really don’t have that option anymore?

Ms. DUDLEY. No.

Mr. DEUTSCH. And so I mean, as a practical sort of thing, you

know, what are you telling your friends, what are you doing as

choices? I mean, you are making the choice. You talked about less

entertainment, less food, putting things on credit cards. I mean,

are those the options that seniors—is practical? And let me tell you

again, I mean, one of the—in Philadelphia, if the people here lived

in Philadelphia, what would the choices be?

Mr. BLACKNELL. It would be $35 for the generic or $65 for the

brand name.

Mr. DEUTSCH. And would that be total coverage for brand name

drugs, similar to prior to January 1?

Mr. BLACKNELL. Well, that is the question.

Mr. DEUTSCH. I mean, I don’t want to, you know, recommend

anyone do something improper or illegal, but do you have friends

who are using addresses in Philadelphia to get prescription drug

coverage?

Mr. BLACKNELL. No, not that I know of.

Ms. DUDLEY. We don’t like to do that.

Mr. DEUTSCH. I wouldn’t recommend it to anyone but, you know,

given the choice of survival—I mean, I think seniors start doing

things that maybe we don’t want them to do.

Ms. KIRSCH. They catch up with you then.

Mr. BLACKNELL. Anything is possible.

Mr. DEUTSCH. Let me talk about that in a direct sense also, because one of the things Congress is, in fact, you know, addressing—

and our committee, actually, has jurisdiction over it—is the idea of

having prescription drug coverage as a benefit of Medicare, you

know. Just to give people some sense of that, you know, there are

some interesting statistics about Medicare. One is that prior to

when it was created 36 years ago—and there are two interesting

15

statistics that I like to mention, occasionally. One interesting statistic is the average life expectancy for Americans 36 years ago was

65 years old. The good news is 36 years later, it is over 80 years

old. So in a period of 36 years, we have had a real high class problem, people living a lot longer. One of the reasons they are living

a lot longer is prescription drugs, as a variety of other things as

well. But one of the things that is clear is if we were today creating

a Medicare system, it is 100 percent certain we would include prescription drug coverage. You couldn’t conceive of a healthcare system without prescription drug coverage today.

I think the truth of the debate of what is going on is who should

that prescription drug coverage cover, and there have been different proposals. And this is where I think, you know, a real debate

is going on in Congress because, unfortunately, the President has

made a proposal that limits that coverage to, really, low income

seniors. And the threshold level in many cases is $15,000 a year

as total income. Mr. Blacknell mentioned, you pay $4,000 a year

in property taxes. And whatever else—if you are talking about your

premium and other things, I don’t think—you know, at what level,

you know, is it appropriate. I mean, you know, what level is appropriate for—my perception is that it should apply to all Medicare

beneficiaries, and I think that is really the debate.

So maybe if you can comment—I mean, if Congress does implement the prescription drug plan, do you think there should be an

income standard for that or, I mean, should it be part of Medicare

as a whole?

Ms. KOPACZ. I just want to comment that, actually, when President Bush was running for president, he was stating that they

didn’t feel that Government wanted—or the people didn’t want

Government involved in their prescription drug plans. I went back

to Wood River Village and did a spreadsheet on how many people,

the people that lived at Wood River Village, which is a retirement

community. You have to have a little bit of money to get in there.

I did a comparison of how many people actually did have prescription drug coverage. What I found was that not including the

HMO’s, because they were at that time giving prescription coverage, the people without coverage worked out to about 65 percent

of the people, of seniors, had no coverage; 4 percent actually qualified for Pace; 22 percent did have coverage through a private company, and they were all government workers. It was the Federal

employees, teachers, and Bell Atlantic. And besides that, the majority of the people did not have any prescription coverage.

Mr. DEUTSCH. Does anyone else want to comment? I mean, if we

are going to implement prescription drug coverage for Medicare, do

you believe there should be income standards?

Ms. DUDLEY. Absolutely. It should be every—and that is my

opinion. Because what happens when they put this cap on your income, it is never in with the middle. It is always for some very

poor, which I would hope that they would be able to get their prescriptions, period, without having to pay if they have no money.

And I am not asking for a free ride, and I don’t think many of us

are. We don’t mind contributing toward prescriptions, but it has to

be a reasonable, and it needs to be to cover all the drugs. And I

can understand how people are running to Canada. I mean,

16

Ananan printed their address, and believe me, I saved it, of where

in this country we can join this group to go to Canada if it gets

that bad. I don’t want to do that; we shouldn’t have to.

Mr. DEUTSCH. I could tell you you can come to Florida, because

the HMO’s there still provide a prescription drug coverage. That is

one more reason to move.

Let me mention, though, one final thing, and that is, you know,

this threshold amount of $15,000. I mean, do you consider that, you

know, a threshold amount that is appropriate in terms of, you

know, seniors. I mean, it is sort of if you have more than $15,000,

can you afford to pay for your prescription drugs in terms of income? And it is actually—I think it is $17,000 for a couple. I mean,

what does that mean in the real world of seniors living in this community?

Mr. BLACKNELL. The VA, their threshold is $27,000. So there is

a $10,000 difference; they are in the real world.

Mr. DEUTSCH. Okay. All right. Thank you very much.

Mr. GREENWOOD. The Chair thanks the gentleman for his questions. If I may insert an editorial opinion, what we are likely to do

in the Congress, and what the House of Representatives did last

year and the Senate didn’t get to, is pass legislation that would

provide at the lower tier, 130 percent of poverty or thereabout, that

it would, basically, pay for everything. There would be no co-pays,

there would be no premiums, and the drug benefit would be covered. What we are fortunate—and then above that, there would be

more of a sharing between what the Federal Government pays and

what the beneficiary pays. We are fortunate here in Pennsylvania

because we do have this very strong Pace program that right now

is focused entirely on the lower income folks of Pennsylvania. The

idea is that if the Medicare Program steps in and covers entirely

the lowest income residents of Pennsylvania, then the Pennsylvania legislature and our Governor will be able to use the lottery

monies that are now used for the Pace to now pay for the middle

class to help make up the difference between what Medicare pays

and what the beneficiaries pay. So because we have such a strong

program in Pennsylvania, no matter what we do in Washington,

Pennsylvanians will probably fare better than most.

The Chair recognizes for 5 minutes the gentleman from Montgomery County, Mr. Hoeffel.

Mr. HOEFFEL. Thank you, Mr. Chairman. I wanted to ask Ms.

Kirsch, Ms. Dudley, and Mr. Blacknell to respond to some of the

comments of Ms. Kopacz, who seemed to strike quite a nerve—I

saw lots of heads nodding up and down when she was talking—regarding when you try to compare Medicare+Choice plans, you get

confusing information, automated messages, it is difficult to communicate, bureaucratic hurdles, confusing differences in plans.

Have the three of you experienced something like that?

Ms. DUDLEY. We were in, as I said, Aetna U.S. Healthcare. We

wanted to make a change because we weren’t—we were told we

weren’t going to get the prescription coverage, or we were having

a reduced prescription coverage. So the man from Keystone came

out. He had his whole spread. None of my husband’s medications

were on that, none of them. So that ended Keystone.

17

Mr. HOEFFEL. And most of the difficulty is over the prescription

coverage?

Ms. DUDLEY. That is absolutely right.

Mr. BLACKNELL. My wife is with Aetna, and on prescriptions, she

takes Libertore, and she received a letter asking her to take the

generic two times, and her doctor insists that Libertore does the job

for her. And the formulary and——

Mr. HOEFFEL. What was the upshot of that? How did you resolve

that problem?

Mr. BLACKNELL. Well, it is still the same. She is taking

Libertore. They never got back again and said, you know—it is a

must.

Ms. DUDLEY. That wasn’t even on Keystone.

Mr. BLACKNELL. Well, she is Aetna.

Mr. HOEFFEL. And is that being covered?

Mr. BLACKNELL. Pardon?

Mr. HOEFFEL. Is Aetna covering that?

Mr. BLACKNELL. Yes, but she had received two letters from them

stating she should be taking whatever, the generic or whatever

brand it was.

Ms. DUDLEY. Well, are they covering it now with the no

prescription——

Mr. BLACKNELL. Yes, they——

Ms. DUDLEY. Oh, then you have something different.

Mr. BLACKNELL. They never got back to her and said, you know,

you must change.

Mr. HOEFFEL. So you felt some pressure from them, but they

have continued to cover it?

Mr. BLACKNELL. Right.

Mr. HOEFFEL. All right. Ms. Kirsch?

Ms. KIRSCH. I just take two pills, Flexeril and high blood pressure. They are both over the counter drugs. And my doctor, I asked

him. I said, can I go generic? He said, I will tell you the truth,

there is no generic, so I had no choice. That is what it has to be.

Mr. HOEFFEL. Have you had problems trying to figure out what

coverage is best for you?

Ms. KIRSCH. No. I only take the pills, I have no fatal disease.

Mr. HOEFFEL. I am glad to hear that.

Ms. KIRSCH. I just went along with what they said.

Mr. HOEFFEL. Let me ask the panel this question regarding prescription coverage. There were two basic plans offered in Congress

last year, one that would have extra dollars given to the insurance

industry to encourage them to offer drug policies that seniors could

then evaluate and choose the policy that provided them with the

best prescription coverage. The other plan was to simply put a prescription drug plan into Medicare where it would be a universal

plan, the same for everybody, with significant co-pays. I don’t want

you to respond to the differences in cost here. I am trying to determine what the best method is, whether we should be encouraging

the private insurance industry to be providing drug only policies

that you could evaluate and choose or would you prefer a Medicare

prescription coverage that you would take your card to the pharmacy and pay your share of that plan based upon the economics,

18

but not have to deal with private insurance companies? Do the

three of you have a view of that choice?

Ms. DUDLEY. I definitely have a view on that. Definitely, absolutely, no question, it should be through the Congress because, first

of all, you have the profit making institutions, and some how or

other, that gets deteriorated. The money gets allotted to things

that it shouldn’t be allotted to and it is going to go and it is going

to change. If it is mandated in Congress for everybody, at least you

have a chance.

Ms. KIRSCH. Yes, I heartily agree with that.

Mr. BLACKNELL. I have never been in Medicare, so I don’t know

as far as that. But I think if it was administered by the Government, it would probably be better.

Mr. HOEFFEL. All right. Thank you. I thank you very much and

I yield back my time.

Mr. GREENWOOD. The Chair thanks the gentleman, and we

thank the witnesses very much for coming here this morning and

for your testimony. It is very helpful and we will take it to heart.

You are excused and we call forward the next panel.

And they are Ms. Judy Berek, who is the Administrator for the

Northeast Consortium of the Health Care Financing Administration; that is HCFA, Medicare; William F. Haggett, Senior Vice

President, Government Programs, Independence Blue Cross; Dr.

Sandra Harmon-Weiss, the Head of Government Programs for

Aetna U.S. Healthcare; and Dr. Scott Harrison, who is Research

Director for Medicare+Choice of MedPAC.

Thank you all for being here. I appreciate your presence this

morning. Let me, as I did with the first panel, note that I am sure

that you are aware that the committee is holding an investigative

hearing, and in doing so, has had the practice of taking testimony

under oath. Do any of you have objections to taking testimony

under oath? Hearing none, the Chair then advises you that under

the rules of the House and the rules of the committee, you are entitled to be advised by counsel. Do you desire to be advised by counsel during your testimony? The answer is no. In that case, would

you please rise and raise your right hand, and I will swear you in.

[Witnesses sworn.]

Mr. GREENWOOD. So saying, you are now under oath, and you

will be recognized to give a 5-minute summary of your written

statement, and we will begin with Ms. Berek from the Health Care

Financing Agency. Thank you for being with us this morning.

Oh, and let me, before I take your testimony, let me ask unanimous consent to enter into the record the letter that I sent to the

Health Care Financing Agency requesting reimbursement data in

Bucks and Philadelphia Counties, and HCFA’s response to me, and

the chart that I prepared on Medicare+Choice spending to my left.

Without objection, those documents will be entered into the record.

[The documents follow:]

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Mr. GREENWOOD. You are recognized for your testimony, Ms.

Berek. Thank you.

TESTIMONY OF JUDITH BEREK, ADMINISTRATOR, NORTHEAST

CONSORTIUM, HEALTH CARE FINANCING ADMINISTRATION;

WILLIAM F. HAGGETT, SENIOR VICE PRESIDENT, GOVERNMENT PROGRAMS, INDEPENDENCE BLUE CROSS; SANDRA

HARMON-WEISS, HEAD, GOVERNMENT PROGRAMS, AETNA

U.S. HEALTHCARE; AND SCOTT C. HARRISON, RESEARCH DIRECTOR, MEDICARE+CHOICE, MEDPAC

Ms. BEREK. Thank you, Chairman Greenwood, and Congressmen

Deutsch and Hoeffel, for holding this hearing. And thank you for

inviting me to discuss the Medicare managed care program,

Medicare+Choice.

Medicare+Choice offers Medicare beneficiaries a range of health

plan options and allows them to choose the types of health plans

that bet suit their individual needs. Both Secretary Thompson and

the new HCFA Administrator, Tom Scully, will be placing a high

priority on working with you and other Members of Congress to revitalize the Medicare+Choice program. Just this week, Secretary

Thompson gave Medicare+Choice plans the extra time they have

been asking for to prepare and submit benefit proposals and to

make their participation decisions for next year.

The Balanced Budget Act of 1997, which is often just called BBA,

and subsequent amendments to that law, have reduced the substantial geographic variation in county payment rates that existed

under the previous Average Adjustment Per Capita Cost, or

AAPCC, which is the classic jargon term for how we pay managed

care plans methodology.

In the first chart, which my Vanna White has put up there, you

will see that in 1997, the county with the highest payment rate in

the country was Richmond County. And for those of you who would

like that decoded, that is Staten Island. Richmond County is Staten

Island, New York for those of you who want to know where it is.

And the lowest payment rate in the country was Arthur County in

Nebraska. And you will see that in 1997, the ratio was 3.47. In

other words, the rate was 3.47——

Mr. GREENWOOD. That microphone is very directional. You might

want to hold it in your hand, take it from its stand and hold it in

your hand, and that should make it——

Ms. BEREK. Is it working now? Okay. Richmond County was 3.47

times higher than the rate in Author County. Now, in 2002, we

have reduced that variation so that although it is now $856 in

Richmond, it is $500 in Arthur County. And one of the goals of the

BBA was to reduce that difference. This chart also highlights how

reductions within States were reduced, and you will notice that in

Nebraska, in 2002, the very highest rate in Nebraska was $433,

and the lowest rate in Nebraska was $221, and it has now been

narrowed so there is only a $53 difference. And if you look at New

York, you will see that the lowest county, which is Lewis County,

where the rate was $303 in 1997, is now $500, and so the difference, again, was dramatically reduced.

Although the BBA reduced payment variation in the

Medicare+Choice payment, the payment between counties still varVerDate 11-MAY-2000 12:55 Oct 09, 2001 Jkt 073378 PO 00000 Frm 00062 Fmt 6633 Sfmt 6602 E:\HEARINGS\73736 pfrm09 PsN: 73736
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ies. The second chart that Paul, AKA Vanna, is putting up, shows

you the difference between Bucks and Philadelphia Counties and

the underlying utilization difference between the counties. And I

hope this hopes to answer some of the questions raised.

And if you look at in 2002, we have two ways of calculating the

rate. One is based on the demographics, which looks at the age

rates in the county, and if you look at Bucks and the utilization,

the cost in that way would be $629, and in Philadelphia it would

$769, where the difference is 22 percent. We are, gradually, modifying the way we pay using a risk rate where, if you look at Bucks

County, the cost would be $586 if it were risk adjusted and in

Philly, it would $671, and the difference is 14 percent. And those

two rates are blended, actually, in the payment rate.

But to look at the underlying reason for some of that difference,

you need to look at the lower half of the chart, which shows you

the utilization rate in terms of—and this answers the question of

why we pay more money in Philadelphia County, because the formula requires us to pay based on the historic costs, which are driven in this case by utilization. And in fact, people in Philadelphia

County use hospitals 27 percent more, they use home health agencies 60 percent more, skilled nursing facilities 22 percent more,

physicians 4 percent more, DME, Durable Medical Equipment, 50

percent more, and interestingly, hospice services 13 percent less.

But in everything but hospice services, you will notice that the

costs are much greater than Philadelphia, and that is the underlying reason.

The difference—we know the differences in payment rate can be

very frustrating for Medicare beneficiaries, but this is the way the

law is written. We have to use the data that produces this in order

to calculate the rates.

Before I conclude, I would like to briefly highlight some of the

resources available to help beneficiaries understand health plan options. We have a wealth of resources available, including a

Medicare+Choice handbook, which is sent to all of you annually.

We have a toll free number, 1-800-MEDICARE. We have information on our web site, which is an award winning website called

www.Medicare.gov, and all of those locations will provide information to you. I know that our new administrator is very committed

to improving the quality of our 800 number and making it a 24-

hour-a-day number, if possible.

We also have a State Health Insurance Counseling program,

which is run by grants from HCFA to the State of Pennsylvania,

and there are individuals available who will counsel people one on

one. For those of you who are here who have individual personal

questions, we have two people here from the Beneficiary Services

Branch in HCFA. They are Pamela Bragg and Sue Pellella, and

they are here to handle any questions you may have, individually,

after this hearing is over. We have two people here from our

managed——

Mr. GREENWOOD. Would those individuals identify themselves in

case there are questions? Okay. These two ladies in the front row.

Ms. BEREK. And we have two people here from our Managed

Care Branch, John Waylan and Sharon Graham, and they will also

be available to help anyone with any individual problems. And to

60

those of you who have some really technical questions that I can’t

answer, Bob Donnelly, who is the Director of our Division of Program Policy for Medicare Managed Care is also here with me

today. So if any of us can help you, we will be happy to.

[The prepared statement of Judith Berek follows:]

PREPARED STATEMENT OF JUDY BEREK, REGIONAL CONSORTIUM ADMINISTRATOR, HEALTH CARE FINANCING ADMINISTRATION

Chairman Greenwood, Congressman Deutsch, other distinguished members of the

Subcommittee, thank you for inviting me to discuss the history and current status

of the Medicare managed care program, Medicare+Choice. Medicare+Choice offers

Medicare beneficiaries a range of health plan options, including the traditional feefor-service Medicare program, and allows them to choose the types of health plans

that best suit their individual needs, according to the options offered by the plans.

It provides valuable alternatives to traditional fee-for-service Medicare, and we are

committed to strengthening this program.

Our new Administration, both Secretary of Health and Human Services Tommy

Thompson and Health Care Financing Administration (HCFA) Administrator Tom

Scully, will be placing a high priority on protecting and improving Medicare+Choice.

For instance, this week, Secretary Thompson gave Medicare+Choice plans the extra

time they have been asking for to prepare and submit benefit proposals and to make

participation decisions for next year. Health care costs in recent years have been

less predictable, as have decisions by providers to contract with Medicare+Choice

plans. This action will allow plans more time to collect information on their costs

and determine the viability of their provider networks before having to make decisions about their benefit offerings and service areas for next year. We are committed

to working with you and health plans toward our goal of making more health plan

options available to our beneficiaries in all parts of the country, while helping beneficiaries to better understand these options.

Medicare has a long history of offering alternatives to the traditional Medicare

fee-for-service program to our beneficiaries. In the 1970’s Congress authorized Medicare risk contracting with managed care plans, and in the 1980’s Congress modified

the program to make it more attractive to managed care companies. Under that program, HMOs contracted with Medicare to provide the full range of Medicare benefits

in return for monthly ‘‘per person’’ or ‘‘capitated’’ payment rates. In the Balanced

Budget Act of 1997 (BBA), Congress created the Medicare+Choice program to correct perceived flaws in the risk contracting program, including payment differences.

Since then, Congress has refined the Medicare+Choice program through the Balanced Budget Refinement Act of 1999 (BBRA) and the Medicare, Medicaid, and

SCHIP Benefits Improvement and Protection Act of 2000 (BIPA).

Today, 64 percent of all Medicare beneficiaries have access to a Medicare+Choice

option; and about 5.5 million, or about 15 percent of all Medicare beneficiaries, have

chosen to enroll in a Medicare+Choice plan. As was the case with the risk contracting program prior to the BBA, payments under the Medicare+Choice program

vary by county, and plans have the option of varying their additional benefits or

premiums from county to county. The differences in benefits across the country and

between adjacent counties was an issue with the risk contracting program, and remains an issue with the Medicare+Choice program today.

BACKGROUND

Medicare pays for the health care of almost 40 million beneficiaries, involving

nearly one billion claims from more than one million physicians, hospitals, and

other health care providers. As the administrator of this program, the Health Care

Financing Administration (HCFA) oversees Medicare’s various health care plan options, including the Medicare+Choice program. For beneficiaries in Medicare+

Choice, we ensure access to providers, approve promotional materials, and calculate

capitated payment rates. Before the BBA became law in 1997, Medicare calculated

capitation rates under a methodology known as the Adjusted Average Per Capita

Cost, or AAPCC.

Under the AAPCC methodology, we determined, for each county, the average per

person cost for fee-for-service Medicare beneficiaries living in that county. Health

expenditures were not attributed to the county where services were provided, but

to the county in which the beneficiary lived. For example, if a beneficiary living in

Bucks County received a service in Philadelphia, that expenditure was included in

the AAPCC for Bucks County. The per capita amounts were then ‘‘standardized’’ to

account for differences between the demographic characteristics of Medicare beneVerDate 11-MAY-2000 12:55 Oct 09, 2001 Jkt 073378 PO 00000 Frm 00064 Fmt 6633 Sfmt 6621 E:\HEARINGS\73736 pfrm09 PsN: 73736
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ficiaries in the county and the demographic characteristics of Medicare beneficiaries

across the nation. Additionally, capitation rates were set at 95 percent of the

AAPCC, with the 5 percent reduction reflecting the assumption that managed care

plans could achieve savings through discounts and more efficient management of

health services. The following example illustrates how payment was made:

Example: Beneficiaries in Bucks County, PA, CY 19975

Demographic

Factor,

Part A

Demographic

Factor,

Part B

Monthly county

capitation

rate * factor

Monthly

payment

per person

Male, non-institutionalized, Age 65 to 69 1.15 1.10 Part A: $ 422.05 $651.55

Medicaid eligible Part B: $ 229.50

Female, non-institutionalized, Age 80 to 84 1.70 1.25 Part A: $ 623.90 $884.70

Medicaid eligible Part B: $ 260.80

Under the AAPCC method, Medicare capitation rates varied widely. Since county

fee-for-service costs were used to calculate county capitation rates, the rates reflected differences among counties in fee-for-service health service usage and payment levels. In addition to the substantial variation in rates across the country,

there were a number of other concerns with the AAPCC payment method, including:

• Payment rates changed unpredictably from year to year in each county, based on

fee-for-service costs in each particular county;

• Payment rates could vary widely across adjoining counties;

• Generally, rates were lower in rural areas; and

• Hospitals were concerned that HMOs did not compensate them for medical education like fee-for-service Medicare.

RECENT CHANGES TO AAPCC

In the BBA, Congress replaced the risk contract program with Medicare+Choice.

The BBA modified Medicare+Choice payment rate calculations to address a number

of concerns with the AAPCC methodology. It broke the direct link to fee-for-service

spending in a county, and moved to reduce wide disparities in county capitation

rates by bringing both high and low payment rates closer to the national average

payment rate. In addition to adjusting the payment rates based on demographic factors, the BBA required payment rates to be adjusted for beneficiary health status,

sometimes referred to as a ‘‘risk adjusted method’’ of payment. It also provided direct payments to teaching hospitals for Medicare+Choice patients to ensure these

hospitals were receiving appropriate medical education payments for their Medicare

managed care patients. The BBA also mandated that the 1997 AAPCC rates would

serve as the basis for the Medicare+Choice rates, and the rates for particular counties would be equal to the largest one of three amounts:

1. Minimum 2 percent increase over the prior year’s rates, which protected

high payment areas as the medical education reductions and reductions in geographic disparities took effect.

2. Minimum amount or ‘‘floor’’ amount that increases rates in historically lowerrate counties where Medicare managed care plans generally have not been offered. Beginning in 1998, the BBA set the floor rate at $367; this floor has been

adjusted annually by the rate of growth of the overall Medicare program.

3. Blended amount, which is calculated by blending county and national rates,

thus increasing rates in historically lower-rate counties while reducing rates in

historically higher-rate counties. Each year, from 1998-2003, a greater percentage of the payment amount is based on the national rate, until a 50/50 blend

is reached. The blend percentage for 2001 was 66 percent county and 34 percent

national rates. The ‘‘national rate’’ for each county is calculated by adjusting the

national rate by each county’s Medicare hospital wage index and geographic

physician practice cost index.

ADDITIONAL BENEFITS AND PREMIUM REDUCTIONS

As was the case under prior law, the BBA requires plans to compute whether

their projected Medicare revenues, based on Medicare capitation payments, will exceed their projected costs for providing Medicare services (excluding Medicare

deductibles and coinsurance). If revenues exceed costs, the plan must use those

funds to provide additional (non-Medicare) benefits to enrollees at no additional cost

to the enrollee. In 2001, on the national level, Medicare+Choice plans are using an

average of about 19 percent of their Medicare revenues to provide these additional

benefits, such as routine vision care, dental care, and prescription drugs, which are

not available through fee-for-service Medicare.

62

As was also the case under prior law, the BBA mandated that plan premiums or

other charges, such as copayments, for services covered by Medicare may not exceed

the actuarial value of fee-for-service beneficiary cost sharing. For 2001, that amount

is $100.66. Medicare+Choice plans may also offer supplemental benefits that Medicare does not cover, such as prescription drugs, and may charge premiums for those

benefits. Depending on the supplemental benefits that a plan offers, this plan premium may exceed $100 per month.

Congress revised the BBA changes in 1999, through the BBRA, and again in

2000, through BIPA. The BBRA included changes to the Medicare+Choice program

to make it easier for beneficiaries and plans to participate, including giving plans

more flexibility in their benefits and cost-sharing, and increasing payments. The

BBRA also included incentives for plans to offer plans in areas without a

Medicare+Choice plan already in place. Similarly, BIPA increased Medicare+Choice

payments and expanded the incentive program for managed care plans to offer

Medicare+Choice in areas without such options. Congress increased both the minimum percentage payment rate increase for 2001 only (from 2 percent to 3 percent),

as well as the payment rate floor amount, to $525 in Metropolitan Statistical Areas

with a population of 250,000 or more, and to $475 in al other areas.

REDUCTION IN GEOGRAPHIC VARIATION

The BBA and subsequent amendments have reduced the variation in payment

rates at the national level. In 1997, the county with the highest payment rate was

Richmond County in New York and the county with the lowest payment rate was

Arthur County in Nebraska; their rates were $767 and $221, respectively (Chart 1).

The ratio of the Richmond County rate to the Arthur County rate was 3.47, that

is, the rate in Richmond County was about 250 percent higher than the rate in Arthur County. In 2002, the rates in Richmond and Arthur counties will be $856 and

$500, respectively. The ratio of the rates will be 1.71, a dramatic reduction from

1997.

This chart also highlights how variation within states was reduced. In 1997, in

Nebraska, the ratio of the highest to the lowest county was 1.96, that is, the rate

in Douglas County was about 100 percent higher than the rate in Arthur County.

In 2002, that ratio will be reduced to only 1.11. There will be a similar reduction

in New York, from 2.53 to 1.71 in 2002. Thus, the BBA changes effectively reduced

both national and state level variation in payment rates.

PHILADELPHIA AND BUCKS COUNTY

The second chart (Chart 2) looks specifically at Medicare payment rates and utilization rates in Bucks and Philadelphia Counties. The Medicare law requires payments to Medicare+Choice organizations in 2001 to be based 90% on the demographic method and 10% on the risk adjusted method. The first row in the chart

indicates that under the rates used in 2001 for the demographic portion of payments, the rate for the average beneficiary in Philadelphia County is 22 percent

higher than the Bucks County rate. The next row on the table shows the percentage

difference for rates under the risk adjustment method. For the risk adjusted portion

of payments, the rate in Philadelphia County is 14 percent higher than the Bucks

County rate. The difference between the risk method rates in the two counties

would indicate that, on average, beneficiaries in Bucks County are healthier than

beneficiaries in Philadelphia.

Turning to the comparison of the utilization of services in the two counties, the

table shows that beneficiaries in Philadelphia County utilize more services than

those in Bucks County. In particular, they use more hospital, home health, skilled

nursing facilities, and durable medical equipment services than beneficiaries in

Bucks County. The greater use of these relatively costly services would be associated with a population that is sicker and therefore has a greater need for medical

services. This higher use of services corresponds with the higher 1997 base rate for

Philadelphia County.

Differences in payment rates as well as in benefits and premiums between adjacent counties were an issue prior to the BBA and remain an issue today. These premium and benefit differences are influenced not only by Medicare payment rates,

but also by the ability of the Medicare+Choice organization to negotiate favorable

payment rates with providers and the presence of other Medicare+Choice options in

the market area.

CONCLUSION

We are working hard to ensure that Medicare beneficiaries receive high quality

health care, and have a variety of options to choose from so their health plans most

63

closely meet their individual needs. The Medicare+Choice program is one important

way we accomplish this goal. As the name suggests, Medicare+Choice offers many

beneficiaries a guarantee of traditional Medicare fee-for-service benefits, as well as

a choice of other options, which vary from plan to plan. Congress has made several

important improvements to Medicare+Choice over the last few years, and our new

Administrator is strongly committed to working with you and health plans to expand and revitalize the Medicare+Choice program. Thank you for the opportunity

to discuss this with you today, and I am happy to answer your questions.

64

65

Mr. GREENWOOD. Thank you for your testimony. If you will pass

that highly directional microphone to Mr. Haggett, he will now try

to——

TESTIMONY OF WILLIAM F. HAGGETT

Mr. HAGGETT. Good morning, Mr. Chairman, Congressman

Deutsch, Congressman Hoeffel. Thank you very much for the opportunity to represent Independence Blue Cross at this hearing. It

is also a pleasure to see many of our members of Keystone 65, and

Personal Choice 65 are here with us this morning as well.

Just by way of context, I want to just underscore the longstanding commitment that our company has to the Government

business, Medicaid, Medicare, and CHIP. We currently enroll,

through our various companies, a total of 900,000 Medicaid managed care beneficiaries, 250,000 which are located in this region,

25,000 CHIP members and, currently, about a little over 150,000

Medicare+Choice members. It has been a longstanding series of

programs that our company has offered. It is something that we

feel very strongly about. It is part of what Independence blue Cross

stands for. We are concerned, however, about our ability to continue, specifically, the Medicare+Choice program given the current

trends and direction in which we are heading.

One other point I would like to make is that under the legislation

that created the Medicare+Choice program, Congress was looking

for the opportunity to present choices to beneficiaries. We have,

since 1997, offered a PPO product, Personal Choice 65, in this marketplace. It was the first PPO that was brought in under the

Medicare+Choice program. It still continues to be a very viable— or popular product, I should say. The viability of that product, however, is something that we are very concerned about given the current rules and direction.

I do and have submitted written testimony, so I won’t focus on

some of the context and background beyond what I have just mentioned, but would like to get to the heart of the matter. January

2001, for us, was a very difficult time. We, at that point, instituted

significant price increases and benefit adjustments related to the

funding limitations that had been put in place over the last several

years. What that meant was that many of our members no longer

had as part of their base medical plan prescription drug coverage

that was available to all of our members. However, it was available

at an additional cost. Annual limits on the drug program continued

over the last several years to be decreased, and the co-pay limits

that were passed onto our members have been increased as well.

We spent a lot of time last fall talking to our members. We posted over 125 meetings in community centers such as this throughout the five-county region, reached and talked to about 7,000 of our

members. We serviced over 500,000 phone calls from our members

during the 4-month transition period. We provided members with

information about the State PACE program, about the VA program, to make them aware of other programs that were available,

are available, and can assist them in meeting all of their needs, not

just those that are related to their specific healthcare needs. But

given the disproportionate and growing portion of their budget that

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ments, and so forth, we feel an obligation to provide as much information to our members as possible to assist them in all of the aspects that are converging on their tight budget dollars.

This marketplace has been one of the so-called 2 percent markets. Since 1998, our increases in premium have been limited to 2

percent during that period of time. Contrast that, though, on the

cost side of the equation, and specific to our Medicare members in

this market, the average increase in costs over that same period of

time was 12 percent each year. So during that, and even with the

additional bump that we got through the BIPA dollars, a total of

9 percent increase in Federal funding, contrasted with a 48 percent

increase in cost of providing services. That gap is what has caused

the reduction in benefit levels, the increase in co-payments, and

most recently, the significant increases that we have had to impose

with regard to monthly premium.

Additionally, this year we made the decision and struggled with

the decision to make a differentiation, or create a differentiation,

between pricing between Philadelphia County and the four suburban counties. I think some of the members who—beneficiaries,

rather—who were up before, pointed to this concern and to this

issue, and you will hear, certainly, more about that. For us, the

published AAPCC’s for this region are Philadelphia to Bucks County, for example, an 18 percent differential. For 2002, the specific

dollars are $144 less for Bucks County residents than they are for

Philadelphia County; there is an 18 percent differential. For our

members in our marketplace, the price differential, the cost of providing services to our members is 8 percent. So it cost us 8 percent,

an aggregate 8 percent less for Bucks County residents than it does

for Philadelphia County. However, the Federal formula says that

that should be 18 percent; it is not for this marketplace for our

members. That has and continues to be the driving reason for the

differentiation in the Philadelphia/Bucks County payment issues.

Another somewhat more technical issue has to do with the extraction of the graduate medical education dollars. We are fortunate in this region to be the location of a number of medical

schools, training programs, tertiary care facilities, all of which receive additional dollars for the—to help support these programs

with the Medicare program. Those dollars have been gradually extracted from the Medicare+Choice payment levels, and the thought,

I believe, was that our plans, plans such as ours, would go back

and work with hospitals to renegotiate lower payment rates on a

gradual basis, along with—to coincide with, rather, the differentiation that was being pulled out of the rates.

I can tell you that for us, that has not happened. In talking to

plans throughout the country, that has not happened. Hospitals

have not been willing to adjust their payment levels to us based

on these additional dollars. So they are able to collect it directly

from Medicare, it is being extracted from our rates, and yet, we are

not in a position to be able to renegotiate with them to, you know,

see a commensurate situation. Again, our estimates put that impact for our Keystone 65 business about over $30 million now since

it is fully phased in that is off the table as a result of that.

Just to give you an order of magnitude, the BIPA dollars for us

represented about a $7 million increase. The GME is almost four

67

times, a little bit over four times, that amount so it is a significant

issue that is specific to this marketplace and many other similarly

situated marketplaces throughout the country.

The last point that I would just like to make, and I know it is

not the particular focus of this hearing, but the regulatory burden

and oversight imposed by HCFA continues to be a burdensome one.

And I think there has been, certainly, recognition within the agency. There have been many steps moving forward, but some of it is

in statutes, some of it is in regulations, some of it is trying to fit

managed care into a deeper service environment, and to require

some of the same of managed care, some of the same things which

are in effect in the fee-for-service program. The one size fits all approach doesn’t work in this case.

Again, we are very committed to this program. We are committed

to Medicare beneficiaries in this region. We also offer Medigap coverage and we are concerned and believe that managed care does

continue to offer a viable alternative and significant value added to

our members. However, as we extend and we look a year or 2, 3

years, out, it is going to be more expensive to be in a managed care

program than it will be to be in a Medigap program. We are very

concerned about that eventuality and don’t think it serves the best

interest of the Medicare beneficiaries, especially, in this region, and

likewise throughout the country. Thank you.

[The prepared statement of William F. Haggett follows:]

PREPARED STATEMENT OF WILLIAM F. HAGGETT, SENIOR VICE PRESIDENT,

GOVERNMENT PROGRAMS, INDEPENDENCE BLUE CROSS

Mr. Chairman and Members of the Sub-committee: I am William Haggett, Senior

Vice President for Government Programs with Independence Blue Cross (IBC). As

a participant in the Medicare+Choice program since 1993, IBC is pleased to have

this opportunity to present testimony to the committee on the current state of

Medicare+Choice in the southeastern Pennsylvania region.

By way of background, Independence Blue Cross is a Pennsylvania non-profit hospital plan corporation licensed to provide financing for health care coverage to residents in this region. IBC has a subscriber base of 2.8 million members in southeastern Pennsylvania and another 1.6 million subscribers in other regions. Our company has a long-standing history as an active participant in government business—

Medicare, Medicaid and CHIP.

Through our family of affiliated companies, IBC currently provides healthcare coverage to 900,000 Medicaid members, 24,000 CHIP members and 152,000

Medicare+Choice members. In short, our company has a long-standing and active

commitment to these government programs and the members they serve.

With regard to the Medicare program, IBC offers coverage to 277,000 beneficiaries—125,000 through Medigap coverage and 152,000 through Medicare+Choice

products. The first and largest Medicare+Choice product is Keystone 65, an HMO

program which enrolls 122,000 in southeastern Pennsylvania. The second is Personal Choice 65, a preferred provider organization product, which has 18,000 members in southeastern Pennsylvania. This is the first PPO offered through the

Medicare+Choice program. The third product is offered in southern New Jersey

under the name of AmeriHealth 65. Approximately 12,000 are enrolled in that HMO

product.

Our membership enrolls voluntarily in our products. The average length of enrollment is nearly four years and growing each month. Disenrollment by members on

a voluntary basis has been well below national averages for many years. More than

80% of our members reside in households with annual incomes under $25,000.

Members of our plans repeatedly rank our programs as providing high quality and

value and producing high satisfaction levels. The results of formal surveys such as

the Consumer Assessment of Health Plans (CHAPS), Health Outcome Studies

(HOS), Health Employer Data Information Set (HEDIS) and various self-assessments completed as part of national accreditation processes, all document this high

level of satisfaction and quality of care.

68

Our members, too, enjoy wide access to a substantial network of providers in this

region. More than 10,000 physicians and 65 hospitals are participating providers.

Members with congestive heart failure, diabetes, respiratory illness and complex

medical conditions have access to and participate in successful care management

programs. Here are some examples of those programs:

—Congestive Heart Failure Care Management Program—Studies have shown that

for members enrolled in this program, the numbers of inpatient hospital days

decreased and members reported higher daily living indicator scores—Several

hundred of our Medicare members received $150 reimbursement for health facility dues as part of their wellness program benefit. —Pre Surgical Outreach Program—Members whose physicians request authorization for surgery are contacted by our care management nurses. In cooperation

with the member’s surgeon, a comprehensive readiness review is completed. For

example, discharge planning and placement is completed prior to the admission

to assure that appropriate care is in place. —Health Risk Assessments—All new members receive, and more than 75% return,

health risk assessment questionnaires. The data from the questionnaires allow

us to identify high risk members who are contacted by our care management

nurses. Assessments are completed and coordinated care plans are developed in

conjunction with the member, their family and their physicians.

I want to also note that these value-added services are an integral part of the

managed care approach our company takes. They are not available in a fee for service environment.

Keystone 65 and AmeriHealth 65 are both accredited at the excellent level by the

National Commission on Quality Assurance (NCQA). Additionally, Personal Choice

65 was recently reviewed and granted full accreditation as a PPO by NCQA. The

significance of these ratings cannot be understated—they represent the highest

ranking possible from the national accreditation agency for our industry.

In short, our members report high satisfaction levels, our outreach efforts and

specialized programs are well subscribed and proven effective and the national accreditation agency has awarded our programs with the highest level of recognition.

Strong programs—satisfied members.

Our ability to continue these products, however, is at significant jeopardy. The

challenges we now face are several. The most urgent, however, relates to funding

levels afforded under the current law and regulation governing the Medicare+Choice

program.

January 2001 saw significant increases in monthly premiums paid by our members. The increases were unlike any we have had to institute since the program inception. Since the enactment of the Balanced Budget Act in 1997, we have also been

forced to reduce the level of benefits offered to our members, most specifically related to prescription drug coverage. Annual coverage limits have been decreased, copayments for each prescription have increased, and most recently, prescription drug

coverage has been dropped from our basic medical plan. These changes are the result of the limitations placed on federal funding for the Medicare+Choice program.

Those decisions made about 2001 premium increases were not easy ones. We

worked very long and hard at fully explaining the reasons for these increases to our

members both through annual notification mailings as well as more than 120 community meetings hosted by IBC last Fall. These meetings provided an opportunity

for our Medicare staff to fully explain and take questions from our members on the

changes necessitated in 2001. The number one question asked was why the significant premium increases and why the difference between Philadelphia and the surrounding counties.

Because of the impact health care premiums are having on their tight budget dollars, we found it even more important than in past years to provide information to

our members regarding other sources of support for prescription drugs, assistance

in premium payments, and other general needs (e.g., utility payments).

Even with this assistance, several thousand of our members have had to cancel

their membership with IBC and transfer back to fee for service Medicare. They are

not able to afford the new 2001 premium payments. We are concerned about these

members as most report that they will have to take their chances with traditional

Medicare coverage, not sure how the copayment and coinsurance amounts will be

paid. With the current trends, more and more Medicare beneficiaries will be impacted like these vulnerable members.

With the implementation of the provisions of the Balanced Budget Act of 1997,

IBC has received 2% increases in funding since 1998. With the onetime increase to

3% provided by the Benefits Improvement and Protection Act (BIPA) of 2000, that

totals 9% over four years. During that same period of time, the cost of providing

our members with the care and services they are entitled to increased an average

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12% each year. For the same four year period, that represents a 48% increase in

the cost of providing care. The substantial gap between funding levels and costs is

having a significant impact. This gap has resulted in lower benefit levels and higher

member copays and monthly premium payments.

Reimbursement to Medicare+Choice plans is based on county level average adjusted per capita cost (AAPCC) figures and, more recently, risk adjustment factors.

The payment amounts are determined by HCFA each year. Prior to the Balanced

Budget Act of 1997, the AAPCC calculation was the government’s estimate of 95%

of the projected Medicare payments for the fee for service costs in a given county.

Since the 1997 AAPCCs are the basis of the current payment levels in the 2% counties, this reduction is built into the base figures. The adjustments made since 1997

have been national percentage adjustments, not actual cost adjustments.

In addition, since plans are paid based on the AAPCCs which were established

in 1997, this does not take into account marketplace conditions—provider consolidations, dramatic changes in patterns and sources of care.

Additionally, the impact of legislation since 1997 has distorted even more the relationship between Medicare+Choice and Medicare fee for service payments. By way

of example, with Congress’ action, the floor payment levels paid in any county

throughout the country was raised several times and will be $500 for 2002. When

compared to the fee for service costs in many of those counties, the new

Medicare+Choice payment level is 119% of the cost of fee for service members (according to the Medicare Payment Advisory Commission). Contrast that with the socalled 2% counties (those who have been limited to annual increases of 2% since

1998), where the Medicare+Choice payments are less than fee for service costs. This

means that plans like Keystone 65 are being paid less than what it would cost the

Medicare program if those members received their services through the fee for service program. Alternately, Medicare+Choice plans in floor counties would be paid

19% more than the fee for service costs.

An additional complication for this and other similar markets is the significant

variation in payment levels from county to county. The current Medicare+Choice

payment methodology uses counties as the unit of payment. In this region, there is

a significant discrepancy in the AAPPCs of Philadelphia County and the four surrounding suburban counties. By way of illustration, the 2002 AAPPC for Philadelphia is $785. The 2002 AAPPC for Bucks County is $641. The Bucks County rate

is $144 or 18% lower than that of Philadelphia.

(Note: These figures are the aged AAPCCs. The AAPCCs for disabled members

also differ by county, but the difference is 10% rather than 18%.)

On the cost side of the equation, the variation between Bucks County and Philadelphia County is 8%. That means for our Medicare members, the cost of providing

care is 8% less for Bucks County members than it is for Philadelphia County members. The payment we receive for Bucks County members, however, is 18% less.

The unfortunate result is that our Bucks County members are forced to pay higher monthly premiums than their Philadelphia counterparts do. That is why in 2001,

for identical products, Bucks County residents pay $59 per month compared to $0

per month for Philadelphia County members.

Historically, there has been some level of variation between those counties. However, with the changes and adjustments made by Congress to the Medicare+Choice

program over the past several years, the variations have grown.

These payment issues are urgent to our members and to the future of IBC’s ability to participate in the Medicare+Choice program. So where do we go from here?

First, attention needs to be paid to the 2% funding limitations in place in

many parts of the country. Specifically, there are hundreds of counties, which

have been kept at the 2% funding increase level since 1998. Our entire marketplace

fits into that category. Unless there is relief provided, Medicare+Choice will be

eliminated from this market within the next two years. Companies will be unable

to support even the most basic Medicare benefits at the funding levels provided. We

support the establishment of payment levels which are not lower than an established percent of a county’s fee for service costs (e.g., Medicare+Choice payments

will not be less than a specified percent of fee for service payments).

Second, the disparity between urban and surrounding suburban counties

needs to be remedied. The 18% variation I mentioned earlier between Philadelphia and Bucks County payment levels is problematic when imposed on a health

care system that is a regional enterprise. In all other lines of business, our pricing

and costs are blended across the natural healthcare delivery marketplace. The funding approach currently in place for Medicare+Choice plans runs counter to marketplace conditions and establishes artificial pricing arrangements to the detriment of

members in suburban counties. We strongly support a regional funding approach,

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which accounts for the cost of providing care in the actual marketplaces (e.g.,

SMSA) in which Medicare+Choice plans operate.

Third, the Philadelphia region enjoys a rich fabric of health care facilities, medical schools and training programs. As such, this region has been disproportionately impacted by the elimination of graduate medical education from the

Medicare+Choice rating structure. The initial intent in removing this category of expenditure was, we believe, to allow providers to recoup the costs of these educational

programs costs directly from the Medicare program. Plans would then recoup,

through negotiations with those facilities, the dollars lost in their federal reimbursement. This has not happened—neither here in the Philadelphia region nor in other

parts of the country. This GME ‘‘take away’’ needs to be corrected.

Fourth, HCFA’s regulatory oversight is unnecessarily burdensome. Since

last fall, our company alone has undergone four audits, six surveys conducted by

HCFA contractors, three biennial comprehensive site visits and responded to several

hundred assorted HCFA inquiries. This is in addition to our transitioning our members to the 2001 level of benefits and premiums, which resulted in an unprecedented

number of phone calls, enrollment transactions, and inquiries. We are fully appreciative of the oversight role HCFA is required to play, in fact we support that oversight function.

Much of the Medicare+Choice program is inextricably woven to the fee for service

program. In fact, many of our requirements are based upon those in place in the

fee for service program. Acknowledgment needs to be made that a managed care

program is very different than a fee for service program. We strongly urge that the

national managed care industry standards be acknowledged as viable approaches to

achieving the needed beneficiary protections, quality outcomes, and provision of

services beneficiaries deserve and should depend on. A one-size fits all approach has

not and cannot work going forward.

Our concern is not with the what but rather the how and how much. Significant

organizational energy is diverted to responding to the numerous, often overlapping

regulatory requirements and requests. That energy would be better spent on educating and servicing our members.

In summary, I want to reiterate our company’s strong commitment to and hope

that we are able to continue with the Medicare+Choice program. We are fully cognizant that Medicare+Choice is not the answer for all beneficiaries. However, we

strongly believe that a viable Medicare+Choice program provides significant value

to the beneficiaries who have made that choice. It is a choice that needs to be maintained and extended to even more Medicare beneficiaries throughout this country.

Mr. GREENWOOD. Thank you very much, Mr. Haggett. And now

for her testimony, Dr. Harmon-Weiss, I will remind the audience,

who is the Head of Government Programs for Aetna U.S.

Healthcare.

TESTIMONY OF SANDRA HARMON-WEISS

Ms. HARMON-WEISS. Thank you, Mr. Chairman and members of

the committee. I am Dr. Sandra Harmon-Weiss, a family physician

and geriatrician, working for Aetna as Head of Government Programs and Medicare Compliance Officer.

I am testifying today on behalf of Aetna. Aetna is the Nation’s

largest health benefits company and offers Medicare+Choice plans

in five States, covering 278,000 Medicare beneficiaries. Aetna has

offered a Medicare managed care plan in Pennsylvania since 1985.

Currently, there are more than 100,000 Aetna Golden Medicare

Plan enrollees in Pennsylvania and more than 15,500 enrollees in

Bucks County, some of whom we heard from this morning. I am

pleased to have served Medicare beneficiaries in Pennsylvania as

a geriatrician and family physician in private practice, as well as

in my role at Aetna since 1985, when the Medicare managed care

plan began.

The Medicare+Choice program was created by the Balanced

Budget Act of 1997, replacing the former Medicare Risk contracts.

The Medicare+Choice program was adjusted with legislation in

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1999, the Balanced Budget Refinement Act, BBRA, followed by

BIPA in 2000, the Benefits Improvement and Protection Act. I

want to share some of our principal concerns with the

Medicare+Choice program in its current state.

Aetna is concerned about the low Medicare+Choice Organization

payment rate increases, the limits on the annual increases in capitation rates to plans, even though approved by BIPA, continue to

pose a threat to the continued success of Medicare+Choice program. Program rules must allow payment rates that recognize and

adjust for the actual costs of providing healthcare and complying

with the increased administrative burden stemming from BBA. The

payment options of the blended capitation rate, minimum county

rate, or the 2 percent increase in the AAPCC rates, despite the additional 1 percent for 10 months only in 2001 do not meet the current threshold of medical expenses in 2001, which are expected to

increase approximately 10 percent from our viewpoint.

The practical result, based upon actual Medicare+Choice enrollment, is that the organizations serving the majority of the Medicare beneficiaries receive rate increases of 2 percent per year, with

the exception as noted in 2001. Aetna suggests that the annual increases in Medicare+Choice payment rates be sufficient to cover

medical inflation as experienced in local markets.

Aetna has concern about the risk adjuster impact. The risk adjuster impact was introduced in 2000. It reduces payments to

Medicare+Choice Organizations. HCFA has released data on the

risk adjuster impact on health plan payments with a phase-in of

a 10 percent risk adjusted rate and 90 percent demographic rates.

The net impact was a reduction of, approximately 1 percent in premium for health plans in 2000 and a reduction in payment for

health plans in 2001 of 1 percent. The risk adjuster is based upon

inpatient hospital encountered data projected on a model based in

Medicare fee-for-service experience in 1995. This model is not reflective of the current managed care experience of providing access

to the most appropriate care in the most appropriate setting.

The BBRA clearly noted in the report language in Section 511

the Congress intent that the risk adjuster be implemented in the

budget neutral basis for 2000 and beyond. To date, HCFA has chosen to ignore the direction of Congress reflected in this report language. This takes medical benefits away from Medicare+Choice enrollees.

In my written testimony, I describe concerns about the requirements to collecting counter data on all beneficiaries in outpatient

hospital settings and for physician-related services. I applaud the

responsiveness of the Government to our concerns. On May 29,

2001, we received a letter from HHS Secretary Thompson, suspending collection of outpatient encounters and physician encounter data until July 2002. Secretary Thompson further promised to

examine the risk adjustment methodology with interested parties

to find a better system for this purpose. Aetna is extremely pleased

with this positive move on the part of the Government to work collaboratively with the managed care industry.

The low payment rate increases for Montgomery for

Medicare+Choice impact Medicare beneficiaries in Bucks County.

In 1998, Aetna was able to offer a zero premium plan in southVerDate 11-MAY-2000 12:55 Oct 09, 2001 Jkt 073378 PO 00000 Frm 00075 Fmt 6633 Sfmt 6602 E:\HEARINGS\73736 pfrm09 PsN: 73736
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eastern Pennsylvania, which included a $5 co-pay for primary care

physicians and for specialist visits. The comprehensive benefit

package included pharmacy coverage of $1,800 in prescriptions

with a nominal co-pay of $12 per script. Other benefits included

eyewear coverage of $70, as well as a hearing aid allowance of

$500—and those of you know, Medicare doesn’t cover hearing aids,

wellness programs for healthy eating, healthy breathing, and fitness.

Because of cutbacks in reimbursement attributable to BBA, including legislated user fees, and added regulatory burden over the

past 3 years, Aetna has had to move in the opposite direction.

Member premium has been introduced in Bucks County; currently,

it is $50 per month. Primary care physician co-pays have risen to

$10, and specialist co-pay visits have risen to $20 per visit. There

is no pharmacy program available, except for discounts on prescription drugs of up to 40 percent off retail. Aetna can no longer offer

eyewear reimbursement to those who need glasses or lenses.

The average rate of monthly HCFA capitation payment in Bucks County in 2001 is $554, a scant 3 percent greater than in 2000.

This lags far behind the real medical inflation rate of, approximately, 10 percent.

Aetna has additional concerns about Medicare+Choice oversight,

as you heard from my colleague. The current oversight infrastructure for Medicare+Choice plans by HCFA includes three separate

HCFA centers, which often results in fragmented unnecessarily

complex policymaking. Consolidating Medicare+Choice program administration within one HCFA division would go a long way toward

improving partnerships between HCFA and the plans.

Aetna, last, strongly encourages repeal of the enrollment lock-in.

BBA provided that beginning in 2002, beneficiaries are allowed to

switch Medicare plans outside the annual enrollment period only

one time per year. Previously, there were no limits on switching.

Allowing beneficiaries to switch plans when they are dissatisfied

allows market forces, rather than increased layers of regulation, to

encourage Medicare+Choice Organizations to provide coverage for

quality care and quality service. It also allows beneficiaries to continue with their chosen physician if their physician leaves the

plan’s network, thereby, impacting continuity of care.

In closing, Aetna believes that the opportunity exists now to create a regulatory framework that will assist Medicare+Choice in fulfilling its promise of preserving and expanding healthcare choices

for all Medicare beneficiaries. If Congress is to make adjustments

to the program, it really has to act now; time is wasting.

Thank you for the opportunity to appear today. I will be happy

to answer questions.

[The prepared statement of Sandra Harmon-Weiss follows:]

PREPARED STATEMENT OF SANDRA HARMON-WEISS, HEAD OF GOVERNMENT

PROGRAMS AND MEDICARE COMPLIANCE OFFICER, AETNA, INC.

Mr. Chairman and members of the Committee, I am Dr. Sandra Harmon-Weiss,

a family physician and geriatrician working for Aetna, Inc. as Head of Government

Programs and Medicare Compliance Officer. I am testifying today on behalf of

Aetna.

Aetna is the nation’s largest health benefits company and offers Medicare+Choice

plans in 5 states, serving 278,000 Medicare beneficiaries. Aetna has offered a Medicare managed care plan in Pennsylvania since 1985. Currently, there are more than

73

1The budget for fiscal year 2000 included funding for original fee-for-service Medicare that

reflects anticipated increases in medical costs over a five year period of 27% and an increase

in the Federal Employee Health Benefit Program of about 50%. Estimates of the likely growth

for Medicare+Choice plan payments in high paying counties for the same period is less than

10%.

100,000 Aetna Golden Medicare Plan enrollees in Pennsylvania and more than

15,500 enrollees in Bucks County. I am pleased that I have served Medicare beneficiaries in Pennsylvania as a geriatrician and family physician in private practice

as well as in my role at Aetna since 1985 when the program of Medicare managed

care began.

In March, 1999, I had the opportunity to testify before the House Ways and

Means Subcommittee on Health on the implementation of the Medicare+Choice program. I am pleased to have this opportunity to discuss further the Medicare+Choice

program and the developments in this program over the past two years. I want to

share a few of our principle concerns. Aetna believes that the Medicare+Choice program represents an essential component of the government’s effort to help ensure

the financial survival of the Medicare program and to meet the health care needs

of the baby boom generation as we move into the 21st century. However, our experience with Medicare+Choice up to the present suggests that Congress has additional

work to guarantee a viable Medicare+Choice program. To ensure the promise of the

reform in the Balanced Budget Act of 1997 (BBA), the Balanced Budget Refinement

Act of 1999 (BBRA), and the Benefits Improvement and Protection Act of 2000

(BIPA), and to facilitate beneficiary choice under the Medicare program, additional

legislation and policy modification must be made.

CONCERNS ABOUT LOW MEDICARE+CHOICE ORGANIZATION PAYMENT RATE INCREASES.

1. Limits on Annual Increases in Capitation Rates and Concerns Regarding the New

Risk Adjustment Methodology Threaten the Continued Attractiveness of the

Medicare+Choice Program to Beneficiaries and Providers.

a. Most Plans Have Experienced Cost Increases From Medical Inflation That Exceed Payment Increases During the Coming Year.—Perhaps the greatest threat to

the success of the Medicare+Choice program is the collective impact of changes in

Medicare’s payment methodology enacted by the BBA. In order to achieve a successful partnership between the federal government and Medicare+Choice organizations,

program rules must: (1) allow payment rates that recognize and adjust for the actual costs of covering quality health care services and complying with the increased

administrative burdens imposed by the BBA, BBRA and BIPA, and permit necessary investment in clinical and operational improvements, and (2) incorporate financial incentives to reward those Medicare+Choice organizations that achieve the

government’s economic, quality and operational objectives.

As set forth in Section 1853(c) of the BBA, Medicare+Choice organizations will be

paid the greater of:

(a) a blended capitation rate, which is the sum of a percentage of the area-specific

capitation rate and a percentage of the national Medicare+Choice capitation

rate (the percentage balance will change over time until it reaches a 50/50 blend

in 2002); or

(b) a minimum amount, which is $475 per enrollee per month in 2001 (from BIPA);

or

(c) a minimum percentage increase equal to an increase of 2 percent of the 1997

Adjusted Average Per Capita Cost (AAPCC) rate for the particular county for

1998, with increases of 2 percent in each subsequent year.

The practical result, based on actual Medicare+Choice enrollment, is that

Medicare+Choice organizations serving a majority of Medicare beneficiaries enrolled

in such organizations receive rate increase of the minimum 2 percent. For most, if

not all, of these organizations, this 2 percent increase is not sufficient to cover the

increased cost of covering basic Medicare and additional services, given projected

medical inflation.1 This, combined with the fact that many Medicare+Choice organizations experienced significant losses in 1998, 1999 and 2000, forecasts continuing

trouble for the program.

Indeed, inadequate reimbursement rates for 1999, 2000 and for 2001 largely were

responsible for the retrenchment of Medicare+Choice plans over the past three

years. Congress passed the BIPA legislation in 2000 which added 1% to the payment rates for 10 months of 2001. Most health plans (70%) used this money to ensure or stabilize access to services for beneficiaries by paying additional money to

contracted providers for this purpose.

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2Medicare+Choice: Plan Withdrawals Indicate Difficulty of Providing Choice While Achieving

Savings (GAO/HEHS-00-183), September 2000. 3 Medicare+Choice organizations essentially pay a ‘‘head tax’’ (i.e., an amount based on the

number of Medicare+Choice enrollees in their plan) to support the public information program.

Since Medicare+Choice began in 1999, numerous health plans have terminated or

reduced their contracts. Of 309 Medicare+Choice plans serving Medicare beneficiaries at the end of 1999, 99 plans terminated their contracts or reduced the number of counties they served in 2000 and 118 plans terminated or reduced service

areas for the 2001 contract year. These withdrawals affected approximately 328,000

enrollees in 2000 and nearly 1 million enrollees in 2001.2 These withdrawals can

mean higher out-of-pocket costs and be disruptive for those beneficiaries who lost

access to relatively inexpensive drug benefits or must switch health care providers.

To put this into perspective, HCFA averaged two Medicare risk contract cancellations per year from 1993 through 1997.

Aetna strongly believes that additional adjustments beyond BIPA are necessary

to attract and maintain the number and diversity of Medicare+Choice organizations

necessary to establish a sound and attractive market-based alternative to the traditional Medicare fee-for-service program.

Accordingly, Aetna urges Congress to reconsider the artificial and arbitrary limits

on capitation rate increases set forth in the BBA and BIPA. Specifically, Aetna suggests that annual increases in Medicare+Choice payment rates be sufficient to fully

cover medical inflation experienced in the local markets. Because local employer

health plans and other commercial customers have a tremendous incentive to keep

costs down, they will positively affect the inflation rate in each market. Under the

current structure, more Medicare+Choice organizations have found it necessary to

withdraw from areas served and beneficiaries enrolled in the remaining plans will

again experience premium increases or reduced benefits. Finally, as

Medicare+Choice plans leave the market, the original Medicare program (with its

higher per capita costs) will have more beneficiaries and put additional strain on

both the Part A Trust Fund and the budget.

b. The New Risk Adjustment Methodology Will Substantially Reduce Payments to

Medicare+Choice Organizations.—Change in the Medicare+Choice payment methodology is all the more necessary because the risk adjustment process which HCFA

is implementing will substantially reduce aggregate payments to Medicare+Choice

plans while adding additional administrative requirements and expenses. According

to HCFA estimates, total Medicare+Choice revenues for the year 2000 were $200

million less than they would have been under the Average Adjusted Per Capita Cost

(AAPCC) payment method. As a result, most plans saw even their minimum two

percent increase eroded in 2000 as the risk adjustment methodology was phased in.

Thus, what began as a well-intended effort to compensate plans for the health care

costs of their particular members did, in reality, result in an overall reduction in

funds to Medicare+Choice organizations.

This development runs counter to Aetna’s understanding of Congressional intent,

i.e., that the savings resulting from the percentage reduction in plan payments for

years 1998 through 2002 was intended to be in lieu of any net program savings from

risk adjustment. (Indeed, the Congressional Budget Office did not score any projected savings in connection with the risk adjustment program under BBA 97). The

new methodology, and huge projected revenue reductions, underscores Aetna’s con- cerns regarding the inadequacy of plan payments under Medicare+Choice. To the

extent that the proposed HCFA risk adjustment methodology translates into a significant overall decrease in payments for the Medicare+Choice program, it is an additional deterrent to program participation. Accordingly, Aetna urges Congress to

require HCFA to modify the risk adjustment methodology so that aggregate payments to Medicare+Choice plans for 2000 and beyond are based on aggregate BBA

adjustments, making the risk adjustment process budget neutral.

c. The User-Fee ‘‘Tax’’ on Medicare+Choice Organizations for Beneficiary Education is Inequitable and Reduces Even Further Payments to Medicare+Choice Organizations. 3—Aetna strongly supports educating and informing Medicare beneficiaries about all coverage options, including the Medicare+Choice program, and

supplying beneficiaries with straightforward, unbiased information to help them

choose appropriate coverage. That said, we are concerned that the BBA, to support

beneficiary education activities for all 37 million beneficiaries, placed a ‘‘user fee

tax’’ on Medicare+Choice organizations only. The educational campaign is a benefit

to all Medicare beneficiaries. Indeed, initial information suggests that the toll-free

number HCFA established in 1999 with funds from the $95 million dollar ‘‘tax’’ assessed upon Medicare+Choice organizations primarily fielded calls from beneficiaries seeking information about the fee-for-service program. Considerations of eqVerDate 11-MAY-2000 12:55 Oct 09, 2001 Jkt 073378 PO 00000 Frm 00078 Fmt 6633 Sfmt 6621 E:\HEARINGS\73736 pfrm09 PsN: 73736
75

uity dictate that the educational program which informs beneficiaries about basic

program benefits and requirements be funded from the Medicare Trust Fund, or another broad-based source of revenue, as are other such essential program functions.

This ‘‘user fee tax’’ equaled .355% of the total monthly payments to each

Medicare+Choice plan in 1999 and .34% in 2000. While BBRA reduced the ‘‘user fee

tax’’, it remains a factor in the erosion of monthly payments to Medicare+Choice organizations.

d. The Bucks County Experience and the Pennsylvania Experience.—Aetna examined the type of coverage we provided previously to Medicare beneficiaries. As recently as four years ago (1998), Aetna was able to offer a ‘‘Zero Premium’’ plan in

Southeastern Pennsylvania which included a $5 copay for Primary Care Physician

and Specialist visits. The comprehensive benefit package included pharmacy coverage for $1800 in prescriptions with a nominal copay of $12. Eyewear coverage of

$70 was included as well as a $500 hearing aid allowance (not covered by Original

fee-for-service Medicare) and Wellness Programs for Healthy Eating, Healthy

Breathing and Fitness (not covered by Original fee-for-service Medicare). This was

a great plan for more than 14,400 seniors and disabled Medicare beneficiaries in

Bucks County.

Because of cutbacks in reimbursement attributable to the Balanced Budget Act

of 1997 (BBA) and new legislated fees on Medicare+Choice organizations and added

regulatory burdens over the past three years, Aetna has had to move in the opposite

direction. Aetna has been forced to introduce premium in Bucks County ($50 per

month), raise Primary Care Physician copays to $10 and Specialist copays to $20.

There is no pharmacy program available except for discounts on prescription drugs

of up to 40% off retail. Aetna no longer can offer eyewear reimbursement to those

who need glasses or lenses. As such, the Aetna Golden Medicare Plan TM is less attractive to Medicare beneficiaries and the enrollment has dropped by 500 over the

past year.

Aetna has been forced to withdraw from certain areas in Pennsylvania. The counties where we withdrew were those where our medical expenses, not even counting

administrative expenses, exceeded the reimbursement provided to us by the Health

Care Financing Administration (HCFA) and where we determined that we could not

offer a plan with sufficient benefits at a competitive price. No Medicare+Choice organization, or any company in any sector of the economy for that matter, can keep

doing business as usual when there is not enough revenue even to start covering

administrative expenses. In the areas where we have remained, we had to increase

premiums and reduce benefits in order to try to cover those basic medical and administrative costs. We do not make these changes lightly, nor do we make them

without the involvement and approval of HCFA.

It is a useful exercise to examine more closely the monthly HCFA premium in

Bucks County for 2000 and 2001 for each Medicare beneficiary enrolled in Aetna.

The chart below outlines the HCFA premium payment rates on a per member per

month basis. Following the multiple adjustments to the rates, the final average rate

of monthly payment in Bucks County for 2001 is $554, a scant 3% greater than in

2000. This lags far behind the real inflation percentage reflecting the true medical

trend which is approximately 10%. From 2000 to 2001, it was necessary for Aetna

to raise the member premium in Bucks County from $10 to $50, raise co-payments

for Primary Care Physician visits (from $5 to $10) raise co-payments for Specialist

visits (from $10 to $20) and eliminate the pharmacy benefit (except for discounts

on each covered prescription). This benefit package remains more valuable than an

equivalent Medicare with Medigap coverage package. The Medicare with Medigap

coverage includes fewer benefits with higher premiums.

Bucks County—HCFA Premium Per Member Per Month

2000

Jan-Dec

2001

Jan-Feb

2001

March-Dec

Published HFCA monthly payment rates ............................................................................ 611 623 629

Aetna monthly payment rates as a result of demographic adjustments (age, sex) ........ 544 554 560

Aetna monthly payment rates as a result of Risk Adjustment ......................................... 539 548 554

Aetna monthly payment rates as a result of ‘‘user tax.’’ ................................................. 537 548* 554*

*Assessment of user fee is less than $1 per month ($0.42) as a result of new methodology.

One of the important changes in HR 3075 (the Balanced Budget Refinement Act

of 1999 ‘‘BBRA’’) was a change that could lead to lower premiums and better benefits for seniors. In the report language to Section 511, it clearly notes that Congress

intends the risk adjuster to be implemented in a budget-neutral fashion; that is,

76

that money taken away from plans with younger, healthier populations be kept

within the Medicare+Choice program and be channeled directly to plans with older,

sicker populations. The language goes on to urge HCFA to revise the risk adjuster

to implement it on a budget-neutral basis in 2000 and beyond. HCFA has, to date,

chosen to ignore the clear direction of Congress reflected in this report language,

thereby, taking medical benefits away from Medicare+Choice enrollees.

IN MANY PLACES THE REGULATIONS ARE OVERLY RIGID AND DEMANDING SO THEY

BECOME AN IMPEDIMENT TO ALL MEDICARE+CHOICE ORGANIZATIONS.

1. The Proposed Risk Adjustment Policy is Ill-conceived.

On March 1, 1999, HCFA reported to Congress on its methodology for implementing the risk adjustment mandate set forth in BBA. While Aetna believes that

improved risk adjustment is an appropriate and essential long-term goal for the program, we have serious concerns regarding the current HCFA proposal, which calls

for the initial use of only inpatient hospital data. During the Administration’s proposed phase-in period, plans would receive capitated payments based on a blend of

payment amounts under the current demographic system and the interim (PIPDCG) risk adjustment methodology. For the year 2000, for instance, the HCFA plan

included separate capitated payment rates for each enrollee based 90% on the demographic method and 10% on the risk adjustment methodology.

By 2004, payment rates would be 30% based on comprehensive risk adjustment

using full (i.e., inpatient and other) encounter data and 70% on the demographic

method. By 2007, payment rates would be based solely on comprehensive risk adjustment from encounter-based data with no demographic adjustments. HCFA estimates a much greater negative impact on Medicare+Choice plan revenues, on average, with the switch to full encounter data risk adjusters. Aetna’s concerns are both

practical and programmatic.

First, the practical. The timeframe for implementation outlined by HCFA is simply far too short. Given the significant technological considerations involved, it is

unreasonable for the agency to require that all Medicare+Choice organizations be

able to provide physician, outpatient hospital, skilled nursing facility and home

health data beginning as early as October 1, 2000. The collection, verification, transmission, acceptance and analysis of ‘‘representative’’ encounter data is a complicated

endeavor. Capturing these data in a valid, accurate and transferable manner is a

major challenge for M+C organizations.

The process by which information is communicated to, and received by, HCFA

presents significant technological problems as well. Aetna has experienced, and continues to experience, problems in ensuring that accurate inpatient hospital data is

transmitted via Medicare fiscal intermediaries to HCFA. Long delays in uploading

information into the Common Working File, poorly responsive fiscal intermediary

contractors, technical difficulties because of using a system meant to pay fee-forservice claims to collect HMO data, all have added enormous expense and resource

consumption to Medicare+Choice plans.

Difficulties have occurred as HCFA attempts to manipulate significant amounts

of data for the PIP-DCG risk adjustment model. The methodology developed by

HCFA is complicated and requires numerous steps. HCFA faces a monumental task

in getting the PIP-DCG system to work. To date, HCFA is unable to accept all inpatient encounters for current Medicare+Choice enrollees.

As if all this were not reason enough to delay implementation, Aetna has significant programmatic concerns regarding the proposed risk adjustment model. First,

Aetna is concerned that variations resulting from excessive payments under the

original Medicare fee-for-service program have been incorporated into the risk adjustment calculation. Additional, unnecessary hospitalizations that have occurred

within the original Medicare Part A fee-for-service program, despite HCFA’s attempt to fight this, are still significant. As a result, Medicare+Choice organizations

will receive lower payments through the proposed risk adjustment methodology.

HCFA should not penalize the managed care portion of Medicare for the program’s

failure to limit certain false or fraudulent claims and medically unnecessary hospitalizations. One approach to avoid this would be to limit the use of risk adjustment so that the total amount paid to all Medicare+Choice plans is not reduced but

instead redistributed among Medicare+Choice plans only.

Second, recognizing the fact that most federal agencies rely on sampling, HCFA’s

expectation of reported data on all individuals seems excessive. Given that even the

more comprehensive risk adjuster will not be able to fully reflect all differences,

Aetna believes that Congress should require HCFA to re-examine the use of planbased sampling to reduce the administrative burden on the plans, reduce the potenVerDate 11-MAY-2000 12:55 Oct 09, 2001 Jkt 073378 PO 00000 Frm 00080 Fmt 6633 Sfmt 6621 E:\HEARINGS\73736 pfrm09 PsN: 73736
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tial for errors in the early phases, and increase the privacy of each individual’s sensitive medical information.

Third, Aetna strongly believes that is poor public policy to base risk adjustment,

even temporarily, on inpatient hospital data only. Such an approach rewards

Medicare+Choice plans that, through inferior utilization management or poorer

quality, experience excessive hospital use, and penalizes plans that have more effectively reduced inpatient hospitalizations and focused on providing more care on an

outpatient basis and improving quality through preventive care. The incentives created by a risk adjustment methodology based exclusively on inpatient hospital data

would inevitably result in increased inappropriate hospital use, increased avoidable

costs, and a setback in the effort to realize greater efficiency and quality in the

health care system. Beneficiaries enrolled in plans with a relatively high proportion

of members who receive care for expensive chronic illnesses outside the hospital setting would be particularly harmed.

For all these reasons, Aetna urges HCFA to consider less burdensome alternatives

that meet the goals of risk adjustment.

2. Improve Partnerships Between HCFA and Medicare+Choice Organizations by Establishing Single Administrative Unit for Medicare+Choice Program Oversight.

Aetna recognizes that HCFA has many competing demands and responsibilities.

However, the current oversight infrastructure for Medicare+Choice which involves

three separate centers has often resulted in fragmented and unnecessarily complex

policy making which has been problematic for Medicare+Choice organizations and

beneficiaries. We believe that consolidating Medicare+Choice program administration within one HCFA division, which has a Director who reports directly to the

HCFA Administrator, would go a long way toward improving the partnerships between HCFA and plans.

3. Create Consistency Between HCFA Central and Regional Offices.

Medicare+Choice organizations across the country frequently receive different instructions and policy interpretations for the ten HCFA Regional Offices and the

HCFA Central Office. This has a large impact on national plans such as Aetna with

Medicare+Choice organizations overseen by three HCFA Regional Offices. HCFA Regional Office Administrators and HCFA Center Directors report directly to the

HCFA Administrator with no direct authority on the part of the Centers to require

consistent implementation of Central Office policies in the Regions. HCFA should

establish communication procedures to help ensure that the Agency and its regional

offices speak with one voice.

4. Set Priorities for Policy Making Based on the Costs and Benefits of Different Regulatory Options.

The costs of compliance are opportunity costs borne directly by Medicare beneficiaries. For every dollar Medicare+Choice organizations spend on regulatory compliance, there is one dollar less to spend on enrollee benefits. Adding or changing

program regulations should be considered in this context. Also, periodic assessments

should be made to ensure that the benefits of compliance requirements exceed their

costs.

The frequency and content of new regulatory and policy changes has increased

staff time and resources considerably. In 2000, HCFA issued 15 new Operational

Policy Letters (OPLs) two revisions of one OPL, and the final Medicare+Choice regulations. Inconsistencies between HCFA Regional Offices and Central HCFA add to

the strain of regulatory interpretation, particularly for national health care organizations such as Aetna.

5. Improve the HCFA Review of Marketing Materials.

The new marketing and member communication requirements, particularly the

45-day review period, make it very difficult to get materials finalized in a timely

manner. This can prove particularly problematic for employer group marketing materials. The 45-day period has had a particular impact on our ability to communicate product changes with our members in a timely manner, often leading to confusion for those who hear about changes in media reports, but then fail to receive

notice until much later. In some markets, we hear from the reviewers that they do

not plan to comment on the materials until the end of the review period. If they

ask for changes on day 44, the 45-day review period begins all over again. Moreover,

the prescriptive nature of the review often requires the materials to be very generic,

taking away our ability to make statements reflecting our unique attributes.

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6. Repeal the Enrollment Lock-In.

Congress should immediately repeal the enrollment lock-in provision of the Balanced Budget Act of 1997.

BBA provided that, beginning in 2002, beneficiaries are allowed to switch Medicare plans outside the annual enrollment period only one time per year. Previously,

there were no limits on switching.

Allowing beneficiaries to switch plans when they are dissatisfied allows market

forces, rather than increasing layers of regulation, to encourage Medicare+Choice organizations to provide coverage for quality care and quality service. It also allows

beneficiaries to continue with their chosen physician if their physician leaves the

plan’s network, thereby impacting continuity of care.

Enrollment rules in the Medicare+Choice program are extremely complex. HCFA’s

regulatory guidance exceeds 100 pages! Adding lock-in rules to the current rules will

significantly increase the confusion of beneficiaries, beneficiary advocates and the

Medicare+Choice organizations. It will, without doubt, result in unhappy beneficiaries, pressure for more and more ‘‘special enrollment’’ opportunities, an even

more complex and bizarre set of enrollment rules. In addition, implementing the enrollment lock-in will require both Medicare+Choice organizations and HCFA to

make system changes and adopt costly and burdensome new administrative procedures, all for little or no gains in enrollee well-being or Medicare+Choice program

functioning.

SUMMARY AND CONCLUSIONS

If the Medicare program is to be sustained for the next generation of beneficiaries

and beyond, it is crucial that the federal government employ every strategy appropriate to enhance quality health care options for beneficiaries and encourage the development of lower cost options rather than relying on burdensome regulations

which will reduce choice and funnel more people into the highest cost option, feefor-service Medicare. The Medicare+Choice program already is at a crossroad where

improvements can allow it to flourish but neglect of necessary change will doom it

to failure. It would be wiser, in the long run, for the government to employ marketoriented strategies to ensure that there are Medicare+Choice options available to

beneficiaries and to create incentives for private health insurers and providers to

deliver value in the context of the Medicare program. Because it is a critical building block in this market-based strategy, Medicare+Choice must be successful.

In summary, Aetna believes that the prospect for success will be greatly improved

if the following steps are taken with respect tot he Medicare+Choice program:

• Adjust the payment structure so that increases cover medical inflation;

• Delay and revise the proposed risk adjustment model to reduce the cost of reporting and system development;

• Modify the role of risk adjustment so that overall revenues to the

Medicare+Choice program are not reduced, but simply reallocated among

Medicare+Choice plans based on the health status of enrollees;

• Issue revised regulations to reduce costly administrative burdens on all

Medicare+Choice plans;

• Streamline the HCFA oversight on Medicare+Choice organizations; and

• Repeal the enrollment lock-in.

The opportunity exists now to create a new regulatory framework that will assist

Medicare+Choice in fulfilling its promise of preserving and expanding health care

choices for all Medicare beneficiaries. If Congress is to make adjustments to the program, it should act now.

Mr. GREENWOOD. Thank you for your testimony. We now turn to

Dr. Harrison. For those in the audience, let me explain who he is,

because it may be a little confusing. Several years ago, 3 or 4 years

ago, the Congress created MedPAC, which is the Medicare Payment Advisory Commission. It is a group of experts that we rely

upon to study the cost of Medicare and the policies involved and

give us, the Congress, some advice as to what is the best policy.

And we are delighted to have you with us, Dr. Harris.

TESTIMONY OF SCOTT C. HARRISON

Mr. HARRISON. Thank you, Chairman Greenwood, Congressman

Deutsch. I am Scott Harrison, Research Director at MedPAC. I am

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pleased to be here this morning to discuss the Medicare+Choice

program. My testimony draws on the recommendations and analysis in MedPAC’s march 2001 report to Congress.

MedPAC is concerned about the sometimes large differences in

payment to Medicare+Choice plans between adjacent counties within healthcare markets. The situation here in the Philadelphia Metropolitan area is a good example of local county payment rate differences. In Pennsylvania’s five-county area, the highest county payment rate is about $200 per month higher than the lowest rate.

Many of the residents of the lower rate suburban counties, as you

have heard today, are concerned about having to pay an extra $700

a year for a plan compared to their follow beneficiaries across the

county line in Philadelphia.

These payment rate differences arise from differences in Medicare per-beneficiary spending under the traditional fee-for-service

Medicare program. In our March report, we recommended that the

Secretary of Health and Human Services study the differences in

spending under the traditional Medicare program to determine its

causes and to make recommendations on how and whether the differences should be incorporated into Medicare fee-for-service and

Medicare+Choice payment rates.

Also in the report, we recommended that the Secretary consider

using payment areas with more Medicare beneficiaries than are

typically found in counties in order to raise the reliability of the

spending data on which the payment rates are calculated. However, the Commission did not feel it was ready to recommend using

metropolitan areas, specifically, because of concerns that such

areas might be too large to represent homogenous healthcare markets. Instead, MedPAC is interested in seeing the results of ongoing work dedicated to finding better criteria to delineate healthcare

market areas.

Despite all of the recent changes to the Medicare+Choice ratesetting formula, the percentage differences in the payment rates

among Bucks, Chester, Delaware, Montgomery, and Philadelphia

Counties remain as they were in 1997. All five counties have received the annual minimum update since then, and thus, the relative payments have not changed.

While there is a lot that MedPAC does not know about the reasons why Philadelphia rates are least 19 percent higher than the

rates of most of the suburban counties, some factors are known.

Between $35 and $55 of the difference in rates can be traced back

to the higher spending for graduate medical education related to

stays in Philadelphia teaching hospitals. Half of these differences

will be removed as counties move to blended rates, but the removal

may yet take several years, as none of the counties have received

blended rates yet. Another factor that partially explains why Philadelphia has higher spending is its health risks, according to the

risk adjustment model that HCFA uses. If that risk adjustment

model were fully implemented, the payment rate differences between Philadelphia and the rest of the area would shrink by $45

to $75 per month.

And what effect do the higher payments in Philadelphia have?

Clearly, there are differences in plan availability and benefit packages between Philadelphia and the suburban counties. There are

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seven plans available in Philadelphia and only three plans available in most of the other counties. In Philadelphia, there are several plans that do not charge a premium, including some that cover

prescription drugs. The lowest premium charged by a plan in

Bucks County is $50 per month, and the only basic plan that offers

prescription drug coverage there charges a premium of $114 a

month.

However, the differences are not always consistent. Of the three

plans operating in Bucks County, all have the same benefits across

the county lines. One plan, actually, does charge the same premium in Bucks and Philadelphia, and the other two charge, as you

have heard, $50 and $59, respectively, in Bucks, while not charging

anything in Philadelphia.

MedPAC has recommended that Medicare+Choice payment rates

be set equal to fee-for-service spending in the local market. The

best way to define these local markets, however, awaits further research. If local interest felt that the local rate differences were not

appropriate, they could petition their State’s Governor, who has the

power under current Medicare law to redefine payment areas. Allowed options include a single statewide payment area and a metropolitan based system where each metropolitan area would be a

separate payment area, and all rural counties in the State would

be grouped together in one payment area.

Any redefinition, however, must be budget-neutral across the

State as a whole. Now, if we took, as an example—if the five-county area had been designated as a single payment area for 2001, the

rate would have been about $670 per month. That would have

meant an increase of about $100 per month for Chester and Montgomery Counties, an increase of about $25 to $40 for Delaware and

Bucks Counties, and about $100 decrease for Philadelphia. So you

have your work cut out for you.

Thank you, and I look forward to your questions.

[The prepared statement of Scott C. Harrison follows:]

PREPARED STATEMENT OF SCOTT C. HARRISON, RESEARCH DIRECTOR, MEDICARE

PAYMENT ADVISORY COMMISSION

Chairman Greenwood, members of the Subcommittee. I am Scott Harrison, research director for Medicare+Choice issues at the Medicare Payment Advisory Commission (MedPAC). I am pleased to be here this morning to discuss the

Medicare+Choice (M+C) program. My testimony draws on the recommendations and

analysis in MedPAC’s March 2001 report to the Congress.

MedPAC is concerned about the sometimes large differences in payments to

Medicare+Choice plans between adjacent counties within healthcare markets. The

situation here in the Philadelphia metropolitan area is a good example of local county payment rate differences. In Pennsylvania’s five-county metropolitan area including Philadelphia, the highest county Medicare+Choice payment rate is $200 per

month higher than the lowest rate. Many of the residents of the lower-rate suburban counties are upset at having to pay an extra $700 a year for a plan compared

with their fellow beneficiaries across the county line in Philadelphia.

These payment rate differences were created by differences in the Medicare perbeneficiary spending on behalf of county residents in the traditional fee-for-service

Medicare program. MedPAC, in our March 2001 Report to the Congress, recommended that the Secretary of Health and Human Services study the variation

in spending under the traditional Medicare program to determine how much is

caused by differences in input prices and health risk and how much is caused by

differences in provider practice patterns, the availability of providers and services,

and beneficiary preferences. He should report to the congress and make recommendations on whether and how the differences in use and preferences should

be incorporated into Medicare fee-for-service payments and Medicare+Choice payVerDate 11-MAY-2000 12:55 Oct 09, 2001 Jkt 073378 PO 00000 Frm 00084 Fmt 6633 Sfmt 6621 E:\HEARINGS\73736 pfrm09 PsN: 73736
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ment rates.Also in the Report to Congress, the Commission recommended that the

Secretary consider using payment areas that contained larger numbers of Medicare

beneficiaries than are typically found within counties to raise the reliability of the

spending data. However, the Commission did not feel it was ready to recommend

using metropolitan areas specifically because of concerns that such areas might be

too large to represent homogenous healthcare markets. Instead, MedPAC is interested in seeing the results of ongoing work dedicated to finding better criteria to

delineate healthcare market areas.

Setting Medicare+Choice payment rates

Before the Balanced Budget Act of 1997 (BBA), county payment rates (per beneficiary per month) were based on the fee-for-service (FFS) costs of Medicare beneficiaries in that county. The BBA established a new payment method, under which

the county Medicare Choice(M+C) rate is the maximum of:

• a floor rate • a minimum update applied to the previous year’s rate • a blended rate

The floor rate was set at $367 for 1998 and is increased by an update factor

based on the projected growth in Medicare expenditures per capita each year thereafter. As a result, the floor payment was $380 in 1999 and $402 in 2000. The Medicare, Medicaid, and SCHIP Benefit Improvement and Protection Act of 2000 (BIPA)

raised the floor rate to $475 for 2001, and established a new floor rate of $525 for

counties in Metropolitan Statistical Areas (MSAs) with a population greater than

250,000. The minimum update is 2 percent, with BIPA adding a one-time increase

to 3 percent for 2001. The blended rate combines a national rate and the local

rate. (The local rate is the 1997 payment rate trended forward by a national update

factor.) The intent of blending was to reduce the variation in payments across the

country by lowering the highest rates (subject to the minimum update) and increasing the lowest rates. Blended rates are being phased in over six years. In 1998, the

blend was 10 percent national and 90 percent local. As of 2003 and thereafter, the

blend is 50-50 national and local. The actual computation of blended rates is complicated by several factors and the application of those rates is limited by a budgetneutrality provision. The provision limits total payments in the M+C program to

what total spending would have been if county payments were based on strictly

local rates. Because the floor payment rate and the minimum update percentage are

set in law, total projected payments may nonetheless equal or exceed the budget

neutrality limit. When this happens all counties either receive the new floor rate

or last year’s rate raised by the minimum update and no county receives a blended

rate. The budget neutrality provision resulted in no blended rates being applied in

1998, 1999, and 2001. Other factors that complicate the blend calculation are:

• The graduate medical education (GME) adjustment. Local rates are decreased by

a percentage of 1997 GME spending beginning with 20 percent in 1998 and increasing by 20 percent a year to 100 percent by 2002. (Teaching hospitals will

be paid separately for the teaching costs associated with M+C admissions).

• The update factor. Local rates for each year are calculated by multiplying the previous year’s local rate and the update factor mentioned above. The BBA decreased the update factor by 0.008 in 1998 and by 0.005 from 1999 to 2002. The

Balanced Budget Refinement Act (BBRA) changed the reduction to 0.003 for

2002.

The national rate is the average of the local rates weighted by the number of

Medicare beneficiaries in each county. According to the phase-in schedule, that national rate is input-price adjusted and blended with the local rates to come up with

the blended rate per county. If the budget neutrality provision permits, that rate

becomes the blended rate per county that is then compared with the floor rate and

minimum update to determine the actual county M+C payment rate.

Differences in payments across the five-county-area

Despite all of the changes to the Medicare+Choice rate-setting formula, the percentage differences in the payment rates among Bucks, Chester, Delaware, Montgomery, and Philadelphia counties (as high as 36 percent) remain as they were before the Balanced Budget Act of 1997 created the Medicare+Choice program. All five

counties have received the annual minimum updates of 2 percent (3 percent in

2001), thus relative payments have not changed. None of these counties have yet

received a blended rate update because their local rate components are above the

national rate components that would be used for the blend.

While there is a lot that MedPAC does not know about the reasons why the Philadelphia rates are at least 19 percent higher than the rates of the suburban counties,

some factors are known. Between $35 and $55 of the difference in rates can be

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traced back to the higher spending for graduate medical education related to stays

in Philadelphia teaching hospitals. Half of these differences will be removed as

counties move to blended rates, but the removal may yet take several more years.

Similarly, some of the difference may reflect higher disproportionate share (DSH)

payments to Philadelphia hospitals, which are more likely than suburban hospitals

to get those payments for treating low income patients.

The special teaching and disproportionate share payments to hospitals follow the

patients who use the hospitals. Because beneficiaries are most likely to use hospitals in their counties of residence, counties that have these facilities are more likely to have higher spending associated with the special hospital payments. For example, MedPAC staff found that residents of Philadelphia overwhelmingly went to

Philadelphia hospitals. Medicare beneficiaries who live in Levittown, however, went

to Philadelphia hospitals only about 10 percent of the time.

The health risk of the Medicare population is another factor that partially explains why Philadelphia has higher per capita spending than its suburbs. According

to the risk-adjustment model that HCFA uses to adjust payments to

Medicare+Choice plans, the per capita Medicare spending in Philadelphia would be

expected to be 10%-13% higher than in the suburban counties because the Medicare

beneficiaries in Philadelphia tend to have greater health risk.

What effect do the higher payments in Philadelphia have?

Clearly there are differences in plan availability and benefit packages between

Philadelphia and the suburban counties. There are seven M+C HMO plans available

in Philadelphia, and only three HMO plans available in most of the other counties.

In Philadelphia, there are several plans that do not charge a premium (in addition

to the standard Part B Medicare premium), including some that cover prescription

drugs. The lowest additional premium charged by a plan in Bucks County is $50

per month, and the only plan that offers prescription drug coverage there charges

a premium of $114 per month.

However, the differences are not always consistent. Of the three plans operating

in Bucks County, two have exactly the same benefits and premium that are offered

in Philadelphia, even though the plans receive $140 less per month in Bucks County. The third plan charges no premium in Philadelphia and a $59 premium in Bucks

County.

If the plans did not face different costs in the different counties in relation to the

payment rates they receive from the Medicare program, how could they afford to

offer the same benefits for the same price? One way is for the plan to set the price

higher in Philadelphia so that the higher profits there would offset lower profits (or

losses) in the suburban counties. Another way is for the plan to become more efficient in managing the benefit by serving a larger number of beneficiaries than it

could attract if it were only in Philadelphia. Or, the plan may simply view the entire

five-county area as one market instead of five.

MedPAC staff briefly examined the Medigap market in the five-county area and

found that the insurers generally charged the same rates across all five counties.

This suggests that they viewed the area as one market with similar costs. One

should remember, however, that Medigap insurers are not responsible for the special payments associated with teaching and DSH hospitals because they only pay

the standard hospital deductible, not the DRG payments made by the Medicare program.

Options

MedPAC has recommended that Medicare+Choice payment rates be set equal to

the expected Medicare fee-for-service per capita spending in the local market. The

best way to define local markets, however, awaits further research. State governors

may redefine payment areas in the state under a provision of the BBA. Allowed options include a single statewide Medicare+Choice payment area, and a metropolitanbased system where each Metropolitan Statistical Area is a separate payment area

and all rural counties are grouped as one payment area. Any redefinition must be

budget-neutral across the state as a whole. If the five-county area had been designated as a single payment area for 2001, the rate would have been about $670

per month. That would have meant an increase of about $100 per month for Chester

and Montgomery counties, an increase of about $25-$40 for Delaware and Bucks

counties, and about a $100 decrease for Philadelphia.

Mr. GREENWOOD. Thank you very much for your testimony.

The Chair recognizes himself for 5 minutes for questions. And let

me turn my first question to Ms. Berek from the Health Care Financing Administration. We have heard from Mr. Haggett of IndeVerDate 11-MAY-2000 12:55 Oct 09, 2001 Jkt 073378 PO 00000 Frm 00086 Fmt 6633 Sfmt 6602 E:\HEARINGS\73736 pfrm09 PsN: 73736
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pendence Blue Cross that yes, it is more expensive to provide

healthcare to Philadelphians. They tend to be less healthy than the

beautifully robust healthy people that we have here in Bucks County. They tend to demand more healthcare, and that healthcare is

more expensive per unit, the doctors charge more, the hospitals

charge more, the home health services providers more. What he

tells us, though, is that the difference is 8 percent, that it costs on

average 8 percent more to provide healthcare to someone from

Philadelphia than it does from Bucks County. Yet, the payments to

Philadelphia are 18 percent more rather than 8 percent more. I am

not blaming HCFA for that because Congress, essentially, locked

that formula in, and you haven’t had time to adjust it.

My question is isn’t the theory of adjusting these payments, having a different payment for different counties around the country,

supposed to result in, basically, no apparent difference to the beneficiaries. Isn’t it the case the beneficiaries should all, basically, be,

in a region like ours, ideally, and in theory, should be getting the

same benefits, the same prescription drug benefits, for instance,

paying the same premiums. The only difference is that we would—

that Medicare would pay insurance companies a little bit more to

make up the difference in providing those benefits. Isn’t that the

way this thing is supposed to work?

Ms. BEREK. That is the theory of the original formula for calculating the AAPCC. I mean, that was what it was supposed to bring

us in terms of information. That, at this point, is a 1997 number,

and we are in the process, and I know June is only tomorrow, but

we hope early in the month of June to have definitive data on what

1998 and 1999 information would be for calculating what the actual costs were. Now, again, that is still formula driven and it is

not going to be perfect, but we will have more current numbers.

Mr. GREENWOOD. Is that nationwide, you are doing that?

Ms. BEREK. Nationwide, yes. We are about to—one of the things

that was asked for in BIPA was that we recalculate those numbers,

and we are a little bit behind schedule.

Mr. GREENWOOD. And when do you expect to have those calculations completed?

Ms. BEREK. In briefing me for this hearing, I was, actually, told

that they might be able to tell them to me yesterday, and my answer was, if they are not public, don’t tell them to me. But my

guess is they will be public sometime next week, or at the latest,

the week after. And I think that will help us look at the question.

The other thing which HCFA doesn’t calculate and look at is the

difference in the actual structure of the healthcare system in a locality, which is the difference in a managed care plan’s ability to

negotiate rates. And depending on how competitive the marketplace is, the managed care plan can or cannot negotiate discounts

and rates, and depending on their penetration in the market. And

our formulas don’t account for that at all, and that is one of the

variables which—and I can’t speak to this region, but I know if the

New York Metropolitan area, which has similar problems between

the urban center, Richmond, as was on the chart, and Nassau, Suffolk, and Westchester, which are suburban, it has exactly the same

rate problems. And a lot of that is based on the ability to negotiate

84

rates and market penetration in terms of not just cost. So I think

those are the two factors.

Mr. GREENWOOD. Thank you. I want to address another question,

and I am going to ask our other three witnesses to respond to this.

There are a couple of ways we can fix this problem. One of them

is to update the formula, and we just heard that we are going to

have new calculations on the average area per capita cost, and if

Congress wanted to, Congress could go back to that system and we

would probably get the 8 percent variation between Bucks and

Philadelphia instead of the 18 percent, and we would have an

equalization in benefits and premiums throughout the region,

which would be good.

There is another way to go about this. And the reason it has

been suggested is because what we really want to guarantee is we

want to guarantee the availability of Medicare+Choice managed

care Medicare throughout the country, and we want to make sure

that the payments to the companies are sufficient so that the beneficiaries can go back to the good old days of just a few years ago

where they had really excellent coverage at really low premiums,

or no premiums, and were very happy there.

The way that has been suggested, one way has been suggested

to do that, is instead of using these very complex formulae, where

you have to gather all this data and hope that it is accurate, and

then make a different calculation for every county, is as was suggested under the Breaux-Frist proposal, would basically be say to

the companies, you come in and bid on these plans. What do you

need in terms of premiums in order to provide benefits, and we are

going to have several companies come in and compete against each

other, and then Medicare will, essentially, decide what is the best

deal, and then pay the premium based on that competitive bidding

as opposed to this formula.

Could each, Mr. Haggett, Dr. Harmon-Weiss, and Dr. Harrison,

comment on what do you think is the better of those two fixes or

a third fix if you think it is best yet?

Mr. HAGGETT. I believe the whole competitive bidding issue is

one that we have looked at and are, I guess, conceptually, not opposed to. We are concerned about what the details are, as you

would expect. One of the issues that is in play in this marketplace,

and I suspect many other marketplaces throughout the country, is

really the competitive aspect of the Medicare+Choice marketplace.

When you have a county like Philadelphia County, and four suburban counties where there is a significant difference in payment

rates, you also have companies—we have got competitors that operate only in Philadelphia. So they are at an advantage to that extent, that their service area is different than ours. And I am not

sure if that would be a concern when you go into a competitive situation, you know, would it be a county by county type of situation,

and would we, in effect, use a different methodology to get to the

same results, where, you know, unless the underpinning fee-forservice, or whatever the base costs are, were modified to acknowledge that type of thing.

I think, also, one of the aspects in terms of updating the formula,

the data that is currently being used is 1997 data. Significant

changes have happened, certainly, in this marketplace, other marVerDate 11-MAY-2000 12:55 Oct 09, 2001 Jkt 073378 PO 00000 Frm 00088 Fmt 6633 Sfmt 6602 E:\HEARINGS\73736 pfrm09 PsN: 73736
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ketplaces throughout the country, provider consolidations, you

know. There are many more separate hospitals, many more of the

physician practices were independent. They are now all wrapped

together and our ability to negotiate is very different than it was

5 years ago when this data, upon which we are paid now, was collected and used.

So to your point, I think the concept of competitive bidding is

something, you know, that we are not necessarily opposed to. It is

something, however, that there are a lot of component parts to that

that really need to be thought through to really get to the result

that looks at more natural regions. To us, when we look at the—

and we rate any of our other business, it is on a regional basis.

Healthcare in this community is a regional enterprise. The pricing

structure that is in place right now is artificial to the detriment of

suburban Medicare beneficiaries. I can think of, virtually, no other

marketplace, no other product line that we operate in, that is similar. Medicaid contracts are done on a regional service area basis,

not on a specific county basis, and I think some acknowledgement

of what is real in the marketplace being factored into whatever approach is taken is an absolute must.

Mr. GREENWOOD. Dr. Harmon-Weiss.

Ms. HARMON-WEISS. Thank you. We, certainly, as both Mr.

Haggett and I have emphasized, there needs to be a way for the

Medicare+Choice rates to be raised, reflective of the medical cost

inflation that we are experiencing. We, certainly, do have issues

with the rates being so disparate in Philadelphia versus Bucks and

Montgomery County, and we would like to see some resolution on

that issue.

As far as moving to a competitive bidding system, I would have

similar reservations that Mr. Haggett has expressed, and that is as

long as it is not based upon some draconian formula reflecting arcane data. We feel that this would be of great interest because it

should be able to be reflective of the true cost of providing

healthcare in this market. We feel that the market based forces are

really important in setting health insurance rates. So for example,

our plan sponsored commercially insured members are the bulk of

our business. There are 10 or 20 times the number of beneficiaries

in the market that are commercially insured. The plan sponsors

have no intention of spending more money than they have to. They,

actually, drive the business and they, actually, drive the health

plan to get the lowest rates possible with the limitations that my

colleague has expressed within this market. So we really feel that

using market based forces is far to the benefit of every Medicare

beneficiary in this country.

Mr. GREENWOOD. Dr. Harrison.

Mr. HARRISON. MedPAC has recommended, basically, going back

to the old system.

Mr. GREENWOOD. The old system being the AAPCC?

Mr. HARRISON. The AAPCC, where we look at the county-based

rates, although, we are not wedded to stay with the counties, and

issues do come into play as they would in competitive bidding as

to what you want to make the market areas, and I think we need

some more work. I know HCFA, some people at HCFA, have been

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doing some work to try to better define the market areas, and I

think we need to do that.

Mr. GREENWOOD. I have a question for Mr. Haggett and another

question for Dr. Harmon-Weiss, and I am, obviously, exceeding my

5-minute limit. I will do the same for the other gentlemen.

Can you tell us what your profit margin is in this region here?

And if you could include what were your administrative costs and

your profit margin on these products in the Philadelphia region?

Mr. HAGGETT. Yeah. For the—maybe take it by product by product. Keystone 65, by far, our largest program, has generated a margin between the 2 and 3 percent range over the last 5 years. That

has, progressively, declined and this year is projected to be less

than 1 percent.

Our administrative costs have run over the last 5 years between

5.5 and 6 percent of the total revenue dollars, which when we look

at the State, or even the national standard, is extremely competitive. On the commercial side, you would expect to see anywhere

from 10 to 12 percent, so it is significantly lower.

Personal Choice, the margins have been lower, less than 2 percent since the beginning of that program, and that continues to be

the case. Our administrative cost there, likewise, in the 6 percent

range. And our product in New Jersey, and while I know we are

focusing on Pennsylvania, but we do offer product in New Jersey

that is very comparable to the Keystone 65 product. We have never

made any money in that market. We have been in it for 4 years.

Ms. HARMON-WEISS. I have been advised by my financial colleague who accompanied me today that we are seeing the same

trends that have been expressed by my colleague.

Mr. GREENWOOD. A final question, and then I will ask—let us be

mannerly here in Bucks County, please.

An interesting—to me, an interesting phenomena occurred here

this morning. That is when our first panelists were, the beneficiaries, were asked questions that had to do with is it a better

deal for you to be on a Medicare+Choice plan administered by a

private insurance company or is it better for you, financially, to be

on regular fee-for-service Medicare, most of the beneficiaries’ responses were, oh, we are still better off, financially. And Ms.

Kopacz said in terms of advising her clients, in many cases, you are

still better off, financially, to be with a private insurer than on the

Medicare fee-for-service. And yet, when I think Mr. Hoeffel asked

a question, which was when it comes to prescription drugs, would

you rather be in a Medicare regular fee-for-service system or would

you rather see that constructed in the private insurance system, I

think they all, unanimously, said, oh, we don’t want to be with the

private company, we want to be with regular old Medicare. So you

have this sort of irony here, and that is, when you look at what

people are receiving, even though they are unhappy with it, they

think—they don’t believe you when you tell them you are making

1 or 2 percent profit. They don’t really love you very much if you

haven’t noticed. And yet, they are still better off with you than

they are in Medicare fee-for-service, for the most part.

Why do you think it is that even though, theoretically, you can

offer better option in many instances than the regular Medicare

fee-for-service, people don’t really trust the companies and don’t

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really believe that they are going to get a better deal when, for instance, it comes to prescription drugs? Why do you think they have

this credibility issue?

Mr. HAGGETT. In today’s environment, over the last couple of

years, we have been the ones on the front line cutting back on the

benefits and increasing the premiums. I am the one who signs the

letters for our Keystone members; it doesn’t come from Congress,

it doesn’t come from HCFA. So we are, to a certain extent, the face

that is put on the adjustments that need to be made.

I would counter that, however, by looking at our company’s and

program’s disenrollment rates, which on a voluntary basis, annually, run less than 5 percent, which is significantly lower than the

national average. We look at the satisfaction results that come

through the standardized surveys and so forth that are done. More

than 85 percent of our members report high levels of satisfaction

with the plan. We look at our outcomes, clinic outcomes data, we

look at the accreditation agencies and so forth, and frankly, I am

very proud to offer—to continue to offer the product.

Can we get it right all the time? No, we don’t. I get concerned

when I hear any member saying they can’t get through, they can’t

get an answer to the question, and believe me, that is something

that we take very seriously. I, personally, monitor phone calls from

our members. I, personally, was out and did about 30 of these community meetings, as did other people within our management

team. We try in every way to help support and make it as easy and

financially affordable, however, the game in which we are playing

is a tough one right now, as we all acknowledge. So that is, hopefully, the response to your question.

Mr. GREENWOOD. Dr. Harmon-Weiss?

Ms. HARMON-WEISS. I agree that we are on the front lines and

we have been in the very painful position of having to decrease

benefits. And the citizens of Bucks County and Montgomery County were very pleased with our benefit package, and they complained bitterly, including my own relatives, that we are not providing the same benefits. At the same time, we do, in fact, provide

them the opportunities to switch plans if they are unhappy. If they

are dissatisfied, they can switch plans, they can join another plant.

They always have the opportunity to go back to fee-for-service

Medicare, and we find that they don’t do that.

There were 308 individual members who are effective with our

health plan on November 1, 1985; 47 of them in Bucks County remained enrolled to this day. They have been with us through the

thick and thin, even though we have had to change the benefit

package and change the premiums. Similarly, in Montgomery

County, there were 142 members who were enrolled with us on 11-

1-85, who have been continuously enrolled. We have kept them

healthy, and they still remain enrolled at this time. That is a great

deal of loyalty. We have a great deal of loyalty out there with our

members.

Also, as my colleague was emphasizing, we provide coordinated

care to Medicare beneficiaries. We provide services and make sure

that Medicare beneficiaries have their preventative care. We, currently, can show that 80 percent of the Medicare enrollees in our

plan have received mammography, whereas when you look at the

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fee-for-service data in Pennsylvania, for example, only 40 percent

of the Medicare beneficiaries in Pennsylvania received the service

even though it has been covered by Medicare for several years.

That is just one example. There are many, many examples of the

benefits that we can bring to the beneficiaries under managed care

by coordinating their care.

Mr. GREENWOOD. Thank you all. I now yield 10 minutes to the

gentleman from Florida, Mr. Deutsch.

Mr. DEUTSCH. Thank you, Mr. Chairman. One of the things that

is interesting, I guess, if you can, when January 1 rolled around

for the two plans, how many people actually dropped coverage?

How many people dropped out based upon the change in premium?

Mr. HAGGETT. For Keystone 65, the total number through the

first quarter of the year, through the 1st of March, which we really

view as our transition period, a total of about 7,000 members

dropped coverage from our plan. However, at the same time, about

5,000 new members joined. And part of that 7,000 are people who

are not eligible for Medicare any longer, people who died, so it is

not just the voluntary folks. I mean, that is the reality of our business, every month that is there.

Mr. DEUTSCH. Okay. Dr. Harmon-Weiss?

Ms. HARMON-WEISS. I have the information for you in Bucks

County. With the change in benefits for 2001 and the introduction

of the higher premium, we have a decrease in our enrollment of

500 members in Bucks County. And as I mentioned before, that is

against a 16,000 member enrollment previously in Bucks County.

Mr. DEUTSCH. One of the, you know, sort of interesting issues,

you know, you mention, I guess, you have been providing

Medicare+Choice since 1985, and Keystone——

Mr. HAGGETT. 1993.

Mr. DEUTSCH. 1993. I guess at some point, there was the sort of

glory days, you know, where you were really providing the type of

service that you felt you really wanted to. You know, could you describe—I mean, what was the glory year, I mean, when you felt you

were really providing the benefits that you wanted to provide for

your beneficiaries? And then sort of, how much more would it cost

to get to that level? I assume you are not providing hearing aids

anymore. Is that accurate for both of you?

Mr. HAGGETT. We do.

Ms. HARMON-WEISS. We do.

Mr. DEUTSCH. All right. And prescription glasses, are you——

Mr. HAGGETT. We do.

Mr. DEUTSCH. They are not your—are there other benefits that

you have dropped, or the main dropping was prescription drugs?

Mr. HAGGETT. Correct.

Mr. DEUTSCH. All right. So were there other cutbacks on any

other benefits you provided? You provided glasses at one point and

then you chose not to?

Ms. HARMON-WEISS. In 2001, we have a discount vision program,

but no benefit coverage dollar limit for glasses.

Mr. DEUTSCH. No healthcare memberships?

Ms. HARMON-WEISS. Pardon me?

Mr. DEUTSCH. Healthcare memberships.

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Ms. HARMON-WEISS. Fitness benefit? We had a fitness benefit

previously that provided healthcare memberships. We had a dental

benefit, and now we have a discount dental program. Dental, as

you be aware, is becoming much more of an important issue to

Medicare beneficiaries. Previously, when that care was enacted,

Medicare beneficiaries were dentureless, at least 55 percent of

them were, but now they have teeth and care about them through

the attrition.

Mr. DEUTSCH. So I mean, I guess the question sort of is, you

know, how much more would you need to provide it under the existing system? How much more money would you need on a monthly basis to get back to the point where you can provide coverage

and say, hey, to every beneficiary, you are not going to have one

out-of-pocket dollar for prescription drug coverage? Because the reality, that is what seniors want. I mean, when seniors joined

HMO’s, what they wanted was the acknowledgement that when

they chose to join an HMO, the healthcare costs, for all intents and

purposes, were over. Their decision was to join the HMO or not to

join the HMO, and their filing issues were over, and it gave them,

you know, extreme comfort. And I guess what I am really hearing

is that extreme comfort is gone.

Ms. HARMON-WEISS. As we mentioned previously, the years leading up to BBA included updates to our fees annually. They were

quite different in different parts of the country, but as we heard

from our colleague in MedPAC, they were based upon the fee-forservice experience on a county by county basis. At that time, this

would be in the early 1990’s, we were able to provide prescription

drug coverage, we were able to take the Medicare money that

would have been spent in fee-for-service, receive 5 percent less, and

still provide coverage for physical examinations, which basic Medicare doesn’t cover. We were able to provide a rather rich benefit

package of prescription medication, all the wellness, all the preventative care, plus hearing aids, which Medicare doesn’t cover,

and a number of other programs and ways in which our benefit

package was richer than Federal Medicare.

Mr. DEUTSCH. Right. And I guess, you know, one of the questions, though, is on an average, you know, basis—this is one of the

other issues. I mean, there is the issue that Philadelphia is getting

more than Bucks County, but the other issue, really, is what is

Medicare+Choice getting in relationship to fee-for-service. I mean,

there has been a real debate, and again, the chairman and I sit on

the committee that has jurisdiction over Medicare and Medicaid, so

we go through these debates, and there has been a real debate,

which all of you are aware of for fee-for-service physicians, in particular, who are not members of HMO’s, who feel that, you know,

there was too much—you know, the benefit, the incentive for people to join HMO’s was too good, and they had a real effort to sort

of, you know, try to cut that back, to increase fee-for-service. On

a percentage basis, you said that 5 percent, which was the original

concept of Medicare HMO’s. What is the differential now between

a Medicare beneficiary, in terms of payment that you get, versus

your HMO patient?

Ms. HARMON-WEISS. I think the graphic here is demonstrating

the gap that is developing. If I am incorrect, please let me know,

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but I think that graphic is demonstrating the gap that is developing between Medicare fee-for-service spending and HMO’s right

there. It is growing extraordinarily wide, as we have testified, 9.5

percent in 2001. And actually, I think we included that in our testimony, but came at it from our company’s perspective.

Mr. DEUTSCH. So what we are saying now is that we are spending 9 percent more on a fee-for-service patient on average?

Ms. HARMON-WEISS. That is what the data says.

Mr. DEUTSCH. Ms. Berek, do you want to try to respond to that?

Ms. BEREK. What the data there is showing is the rate of growth

in 1 year. If you average it out over the last few years, I don’t think

the difference is that great, because when the fee-for-service spending was going down in 1998 and 1999, our payment to managed

care plans was going up by the flow, which was 2 percent.

Mr. DEUTSCH. Can I ask you, just so I understand this chart,

which is kind of hard to understand—— Ms. BEREK. You got just about my limit on the chart, but we can

try it.

Mr. DEUTSCH. Well, I mean, is this just total amount or is this

per person? I mean, what does this chart show? I still have no idea

what this chart is trying to explain.

Ms. BEREK. This shows, if I am correct, the percentage annual

increase of the total amount.

Mr. DEUTSCH. So total amount. That has nothing to do per person?

Ms. BEREK. It has nothing to do with per person, right. And it

is the annual increase of growth, so you don’t see the base percentage growth. It is not showing you the base, it is showing you percentage growth on the base.

Mr. DEUTSCH. Right. So I mean—— Ms. BEREK. Excuse me. It is divided on a per person.

Mr. DEUTSCH. So it is per person. So is what we are saying now

that a fee-for-service person is now getting 9.6 percent more than

a Medicare reimbursement? I mean, what is the bottom line?

Ms. BEREK. The growth in spending for a fee-for-service beneficiary in the year 2001 was 9.6 percent. The growth in spending

on a managed care beneficiary, nationally, was 4.4 percent, and in

Bucks County was 3 percent. But if you are going back, in 1998,

we spent less money on Medicare beneficiaries in fee-for-service

than we did in 1997.

Mr. DEUTSCH. I guess, you know, one of the questions that I am

trying to understand is, you know, when Medicare initiated the

pilot projects to do HMO’s which my recollection, again, is before

we were in Congress, but really started in south Florida when

Claude Pepper was chairman of the Rules Committee in the Congress, and started, actually, in my community in south Florida.

And in fact, you know, it didn’t exist. I mean, it was a creation of

HCFA and Members of Congress did it as a pilot project, and the

concept really was that it was going to save Medicare money, and

that was the 95 percent reimbursement that you are saying. Are

we at the point now where it would still save money but we are

reimbursing at a higher rate for fee-for-service?

In other words, some of the things that you are talking about,

which I think are really significant, and I am glad that you brought

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them up. I mean, the utilization rate of mammogram. I mean, everyone in this audience, if no one gets anything else out of this

meeting today, you should be aware that through the good works

of our committee, Mr. Greenwood and myself, that since we were

both elected to Congress in 1992, we have consistently added preventative coverage for Medicare as a benefit. Medicare, originally,

didn’t have any preventative coverage at all, so it now provides

mammogram coverage, colonoscopy screening. As of July 1 of this

year, 35,000,000 Americans will be eligible under Medicare for

colonoscopy screening, which they weren’t previously until July 1.

So you know, it is Congress at work. But you are absolutely correct. The utilization rates for these screenings is incredibly low. I

mean, you know, just scary. I mean, unfortunately, low. And for everyone in this audience, they should be aware that their Medicare,

whether fee-for-service or HMO, they have benefits that they can

avail themselves of, which we know, statistically, a very high percentage of people just don’t do that. But the whole theory is that

if you avail yourself of these preventative things, you are going to

be healthier, and ultimately, you are going to save money.

So what I am trying to get a sense of, do we know is it working?

I mean, are we cutting—in other words, I guess the question I am

really trying to get to, are we cutting back so severely—in other

words, it is a balance. It really is a balance. I think there shouldn’t

be an incentive for people to join fee-for-service, there shouldn’t be

an incentive for people to join HMO’s. It should be a real choice

that individuals have, but it has to be sort of a level playing field

choice. And one of the issues about not having prescription drug

coverage, which I think physicians who were not part of traditional, you know, or an HMO, had legitimate concerns. Physicians

would come to me in my community and say, hey, I am losing patients to an HMO because they are getting prescription drug coverage. What can I do? Well, openly, the only thing you can do is

have prescription drug coverage under traditional Medicare so that

people can make intelligent choices.

But I guess, can anyone—can you try to answer that? Are we

paying more than we should? I mean, you are doing it from a research basis. Go ahead.

Ms. BEREK. I was trying to ask our policy statistical person behind me to say can we tell you whether we are saving or not. We

can tell you on a locality by locality basis what we are saving. I

don’t think we can give you the broader answer, and I don’t think

I can say to you, honestly, that HCFA understands right now

whether we have the right level of incentive. We see the growth in

managed care going down, which we do not think is good, and we

want to see the growth in managed care going up.

And so I can say to you that we are committed to working with

you and Chairman Greenwood to figure out what are the things we

need to do, both in terms of policy and finance, to change the direction so that we do what Medicare+Choice was philosophically intended to do, which was increase the participation in managed

care, increase the availability of choices for our beneficiaries, and

whether I can tell you in theory it is saving what it should or not

doesn’t matter. It is not working in terms of the need to increase

the choices for beneficiaries and increase what they need. So we

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are committed to working with you to both look at the numbers,

because I know when you pass a budget, it is numbers that count—

to look at the numbers and to look at the rules, and see what are

the things we have to change, what are the things we have to fix,

and help you make the decisions to make those changes. But I

can’t—I mean, I can have somebody sit down with you afterwards

on the detail, but I think we should focus——

Mr. GREENWOOD. The time of the——

Mr. DEUTSCH. The Chairman mentioned we are out of time. Let

me just ask one very quick question as a last question.

Mr. GREENWOOD. Well, I have got to—here is our problem. We

promised to be out of here at 11:30 so that they can set up for

lunch, and Mr. Hoeffel—we have given the gentleman 15 minutes.

We need to give the gentleman, Mr. Hoeffel, some time.

Mr. DEUTSCH. Okay. All right.

Mr. GREENWOOD. The gentleman from Montgomery County is

recognized for 10 minutes.

Mr. HOEFFEL. Thank you, Mr. Chairman, and I will take less

than that.

We have talked about three sets of numbers, basically. We have

talked about the medical cost inflation that the carriers face and

you want to be reimbursed at a rate that reflects the increased cost

of medical care so you guys can continue to make the profit you

need to make and provide the services you need to make. We have

talked about the county by county reimbursement rate you get

from Medicare per beneficiary, the amount that we pay you to provide a service and to pay the doctors and the hospitals. And we

have talked about the county by county premiums you charge to

the beneficiaries, to the customers.

And what really bugs me is the notion that we pay you more

where there is higher medical costs, such as Philadelphia, but the

system is so askew that your response in the marketplace is to

charge no premium to the people that happen to live there and

higher premium to the people out in the suburbs that have no—

at a lower cost. And I am not blaming the representatives of the

companies here. I mean, I think, fundamentally, this is Congress’

responsibility to figure out how to balance this out. But that is

what we have got to focus on.

And I wanted to say to the representative, Dr. Harrison, from the

Medical Payment Advisory Commission, that in your report you

said that—in your testimony, you said that the Commission is not

yet ready to use a metropolitan area for payment because it may

be too large an area to represent a homogenous healthcare market.

I don’t see why that is a problem. Why can’t we figure out the service area for Aetna, the service area for Blue Cross, and then make

sure that they are charging one premium for everybody that lives

in that service area? And one more comment before you respond.

You said that we need—the best way to define local markets awaits

further research, which I think is the same problem. Congress can’t

wait much longer. We need to have the necessary research, and I

don’t understand why it is so hard for us to determine what a fair

and uniform premium would be for these carriers to charge in a

service area where they provide the same coverage.

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Mr. HARRISON. Okay. Two issues. It used to be that you had to

charge the same premium in a service area, but what happened

was that the plans would then choose their service area and they

didn’t always go along county lines. And so they would sort of customize a service area to go with that premium and package. As Mr.

Haggett said, depending on how you arrange these areas, you could

have competitors only playing in parts of them and that wouldn’t

be competitively fair, because if they were only in the areas where

they would get high payments, then they would be able to charge

a lower premium than someone who is covering the entire market.

Mr. HOEFFEL. Well, maybe then we have to reimburse on a regional basis and then have premiums on a regional basis.

Mr. HARRISON. That is one possibility, yes.

Mr. HOEFFEL. Rather than reimburse on counties and have premiums based on counties. It just isn’t fair the way it works now.

Mr. HARRISON. I think you are right, but our commissioners were

concerned about some of the competitive issues when you got into

some of the larger metropolitan areas, you know. If you look at the

Baltimore-Washington Metropolitan area, it goes all the way to

West Virginia, and you know darn well that there are different

costs involved in treating people in West Virginia than in D.C.

Mr. HOEFFEL. Well, I thank you. I know we are out of time. I

want to yield back. Thanks to the panel for your testimony.

Mr. GREENWOOD. Well, I thank all of our witnesses for being

here today. I want to thank my colleagues for traveling here and

participating in this hearing. Thanks to the Bristol Senior Center

for hosting us. And thank you to all of the public for coming.

I think, as anyone who has sat here for the last couple of hours

plus can understand, this is at one time a very complex issue. You

can hear all this jargon and gobbledygook about AAPCC, and demographic factors, and geographic variations, and blended rates,

and utilization rates, and so forth, and I can see the eyes glazing

over as we get into all of this very complex discussion. But what

we have to remember at the same time is that—and we hearken

back to our first panel—this is about real people, real men and

women who have served their country, who have lived their lives,

and who have a right to expect at this point in their life that we,

their elected representatives, will figure out how to take care of

their healthcare needs, to provide them with the kind of healthcare

that they need, that they have to have, or they don’t have any

choices about the medications that they take, and they have a right

to the sense of security that they are going to have that taken care

of for them.

I am hell-bent to get this done this year. I have two priorities

in the Congress, and I think my colleagues shared this: (1) We

have to get a prescription drug benefit into Medicare, we have to

do it this year; and (2) We have to fix Medicare+Choice so that for

those seniors who choose that benefit and find it best to their advantage, they have a program that they can afford, that, hopefully,

they don’t have to pay a premium for it, and they can offer them

a prescription drug benefit, as well as the eye care, the dental care,

and the audio care, and all of the rest. That is our responsibility

to do it. I think I owe it to my mother and father to make that the

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case, I think I owe it to everyone that I represent, and that is what

we are going to try to do and try to do this year.

Thank you very much for being here.

[Whereupon, at 11:33 a.m., the subcommittee was adjourned.]

[Additional material submitted for the record follows:]

PREPARED STATEMENT OF HON. W.J. ‘‘BILLY’’ TAUZIN, CHAIRMAN, COMMITTEE ON

ENERGY AND COMMERCE

Chairman Greenwood, I would like to congratulate you for holding this field hearing today. This is an important issue that affects your constituents and millions of

Medicare beneficiaries across the country.

In 1997, Congress passed the Balanced Budget Act (BBA) of 1997, which included

the provisions that created the Medicare+Choice program. This legislation redesigned the system for setting Medicare payment rates for managed health care

plans that contract with Medicare. The goals in creating Medicare+Choice were to

expand health plans to markets where access to managed care plans was limited

or nonexistent, and to offer new types of health plans in all areas. Unfortunately,

some of these goals have not been realized.

Medicare managed care enrollment has remained nearly level since the implementation of the Medicare+Choice program, increasing from about 14% of the Medicare

population in 1997 to about 16% of the Medicare population by September, 2000.

At the same time, more than 100 plans have either terminated their contracts and

fully withdrawn from the program or partially withdrawn by reducing the geographic areas they served.

In areas, such as Bucks County, the reimbursement level paid by Medicare to

Medicare+Choice organizations has been limited to a rate of 2 percent annual

growth since 1998. This has led to the recent local developments where health care

plans have decreased benefits and instituted a monthly premium, for the first time.

Most studies and analyses of health care costs tell us that in order to provide quality health care, we must increase spending on this program at an annual rate greater than 2 percent.

Last year, Congress passed the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA) in response to the information that I have

just cited. Contained within BIPA is a provision that increases payments in counties

where Medicare+Choice organizations receive the minimum percentage increase

from 2 percent to 3 percent, for this year only. Clearly, this is a temporary fix and

Congress must act this year to address the reimbursement methodology so that payments to Medicare+Choice organizations adequately reflect the growth in health

care costs in these areas.

Chairman Greenwood and the Subcommittee staff have spent numerous hours reviewing data and information on the structure and management of the

Medicare+Choice program. I look forward to hearing his findings. I am also eager

to hear the testimony of the stakeholders who have been invited to this hearing.

It is of the utmost importance to listen to the people who rely on these programs.

It is also crucial to have a dialogue with those who are tasked with the management

and implementation of this program. They work with the program every day and

see its strengths and weaknesses first-hand.

Chairman Greenwood, I look forward to hearing what your analysis has highlighted as the important issues regarding Medicare+Choice payment methodology.

I believe that an important part of modernizing the Medicare program is laying the

foundation for more competition and future innovation in the Medicare program.

Medicare+Choice is a fundamental component in the effort for testing competitive

models that can provide Medicare beneficiaries with better health care. I look forward to working with you, and other Members of the Committee, in an effort to

fashion long term solutions to the problems that have inhibited the growth of the

Medicare+Choice program.

PREPARED STATEMENT OF HON. JIM SAXTON, A REPRESENTATIVE IN CONGRESS FROM

THE STATE OF NEW JERSEY

Mr Chairman, I am pleased to have the opportunity to provide testimony on the

issue of reimbursement for Medicare+Choice plans. With the thousands of seniors

in my district who are enrolled in Medicare+Choice plans and are deeply affected

by the annual increase in premiums that have taken place, I believe this issue

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needs to be carefully examined and I commend the Chairman for holding this hearing.

Beginning in the late fall of 1999, the Medicare beneficiaries in my district who

were enrolled in Medicare+Choice plans received notification that their premiums

would be increased substantially for 2000. In some instances, the premiums were

increased by 250 percent. At the same time, benefits vital to many seniors—such

as coverage of prescription drugs—were dropped. Clearly, this troubled many of the

seniors in my district.

Unfortunately, this was not a one-time event. Once again, last fall

Medicare+Choice enrollees in my district were informed by their health insurance

plans that their premiums would again increase for 2001.

Many of those affected by these premium increases contacted my office. Because

so many of them were on fixed budgets, they expressed how difficult it was for

Medicare+Choice beneficiaries to afford two consecutive premium increases, especially when they were at such an extreme level. In addition, they were concerned

because seniors in Philadelphia and New York City were receiving better benefits

without the substantial increase in premiums.

After hearing the latter point raised by many of my Medicare+Choice constituents, I began to look into this issue and discovered the major discrepancies that existed between the reimbursement rates for each county—not only when you compare

counties in different states, but also counties within the same state.

To say the least, the difference between the reimbursement rates for those plans

who serve the three counties in my district and the reimbursement rates in Philadelphia and New York is staggering. Medicare+Choice plans in Ocean County receive $550.07 per enrolled beneficiary; those in Burlington County receive $569.18;

and plans in Camden County receive $611.27 per enrollee. In Philadelphia County,

Medicare+Choice plans are reimbursed at $769.77, and those plans serving New

York City receive $838.75 per enrolled beneficiary.

In Ocean County, plans receive 29 percent less per beneficiary than

Medicare+Choice plans in Philadelphia and 34 percent less than plans in New York

City. When you take into consideration that this is a county with over 100,000

Medicare beneficiaries—17 percent of which are enrolled in Medicare+Choice

plans—plans who serve nearly 20,000 seniors are being paid 29 and 34 percent less

to provide health benefits than in neighboring cities.

In Burlington County, the pattern continues. The difference in the per-enrollee reimbursement is 26 percent as compared to Philadelphia and 32 percent in New

York.

Finally, in Camden County, plans are reimbursed at 21 percent less than those

in Philadelphia and 27 percent less than those in New York City. Important to note,

the reimbursement level in Camden County is the highest in New Jersey, and yet

it is way behind the levels of reimbursements in Philadelphia and New York.

In examining the justification for and the reasoning behind the Medicare+Choice

premium increase in the last two years, there are also many other components of

the Medicare+Choice program that should be taken into consideration, including increasing medical costs, undue regulatory burden within the Medicare+Choice program, and additional oversight on how the Medicare+Choice plans are using the reimbursements they receive.

However, when reviewing the reimbursements for the plans who serve the

Medicare+Choice enrollees in my district versus those in Pennsylvania and New

York, there is a drastic difference in these rates. Clearly, this disparity has and will

continue to adversely affect the seniors who live in counties where Medicare+Choice

plans receive a substantial—and seemingly unjustified—lower rate of reimbursement.

When the health care of thousands of seniors is put at risk, it is vital that all

aspects of this important program be examined. Seniors need to be protected from

having to face yet another premium increase or a notice from their Medicare+Choice

plan stating that they are no longer serving the area.

Clearly, the reimbursement methodology of the Medicare+Choice program needs

to be thoroughly reviewed, in hopes of finding a way to bridge the gap between

county reimbursement rates. I am pleased that Chairman Greenwood has begun to

move forward on this issue and I commend him for holding this hearing.