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80–842 2013

MEDICARE HEALTH PLANS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON HEALTH 

OF THE

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

SEPTEMBER 21, 2012

Serial No. 112–HL16 

Printed for the use of the Committee on Ways and Means 

( 


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COMMITTEE ON WAYS AND MEANS 

DAVE CAMP, Michigan, Chairman 

WALLY HERGER, California 

SAM JOHNSON, Texas 

KEVIN BRADY, Texas 

PAUL RYAN, Wisconsin 

DEVIN NUNES, California 

PATRICK J. TIBERI, Ohio 

DAVID G. REICHERT, Washington 

CHARLES W. BOUSTANY, JR., Louisiana 

PETER J. ROSKAM, Illinois 

JIM GERLACH, Pennsylvania 

TOM PRICE, Georgia 

VERN BUCHANAN, Florida 

ADRIAN SMITH, Nebraska 

AARON SCHOCK, Illinois 

LYNN JENKINS, Kansas 

ERIK PAULSEN, Minnesota 

KENNY MARCHANT, Texas 

RICK BERG, North Dakota 

DIANE BLACK, Tennessee 

TOM REED, New York 

SANDER M. LEVIN, Michigan 

CHARLES B. RANGEL, New York 

FORTNEY PETE STARK, California 

JIM MCDERMOTT, Washington 

JOHN LEWIS, Georgia 

RICHARD E. NEAL, Massachusetts 

XAVIER BECERRA, California 

LLOYD DOGGETT, Texas 

MIKE THOMPSON, California 

JOHN B. LARSON, Connecticut 

EARL BLUMENAUER, Oregon 

RON KIND, Wisconsin 

BILL PASCRELL, JR., New Jersey 

SHELLEY BERKLEY, Nevada 

JOSEPH CROWLEY, New York 

JENNIFER M. SAFAVIAN, Staff Director and General Counsel 

JANICE MAYS, Minority Chief Cousel 

SUBCOMMITTEE ON HEALTH 

WALLY HERGER, California, Chairman 

SAM JOHNSON, Texas 

PAUL RYAN, Wisconsin 

DEVIN NUNES, California 

DAVID G. REICHERT, Washington 

PETER J. ROSKAM, Illinois 

JIM GERLACH, Pennsylvania 

TOM PRICE, Georgia 

VERN BUCHANAN, Florida 

FORTNEY PETE STARK, California 

MIKE THOMPSON, California 

RON KIND, Wisconsin 

EARL BLUMENAUER, Oregon 

BILL PASCRELL, JR., New Jersey 


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C O N T E N T S 

Page 

Advisory of September 21, 2012 announcing the hearing .................................... 2 

WITNESSES 

James Cosgrove, Director, Health Care, U.S. Government Accountability Office, Testimony ..................................................................................................... 18 

James Capretta, Fellow, Ethics and Public Policy Center, Testimony ............... 32 

Karen Ignagni, President and Chief Executive Officer, America’s Health Insurance Plans, Testimony .................................................................................... 39 

Tim Schwab, M.D., Chief Medical Officer, SCAN Health Plan, Testimony ........ 57 

John Tallent, Chief Executive Officer, Medical Associates Clinic & Health 

Plans, Testimony .................................................................................................. 66 

Marsha Gold, Senior Fellow, Mathematica Policy Research, Testimony ............ 75 

SUBMISSIONS FOR THE RECORD 

Association for Community Affiliated Plans ......................................................... 109 


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MEDICARE HEALTH PLANS 

FRIDAY, SEPTEMBER 21, 2012 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON WAYS AND MEANS, 

SUBCOMMITTEE ON HEALTH, 

Washington, DC. 

The Subcommittee met, pursuant to call, at 9:32 a.m., in Room 

1100, Longworth House Office Building, the Honorable Wally Herger [Chairman of the Subcommittee] presiding. 

[The advisory of the hearing follows:] 


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HEARING ADVISORY 

Chairman Herger Announces Hearing on 

Medicare Health Plans 

Friday, September 14, 2012 

House Ways and Means Health Subcommittee Chairman Wally Herger (R–CA) 

today announced that the Subcommittee on Health will hold a hearing to examine 

the current status of the Medicare Advantage (MA) program and other health plans. 

The hearing will take place on Friday, September 21, 2012 in 1100 Longworth House Office Building, beginning at 9:30 A.M. 

In view of the limited time available to hear from witnesses, oral testimony at 

this hearing will be from invited witnesses only. However, any individual or organization not scheduled for an oral appearance may submit a written statement for 

consideration by the Committee and for inclusion in the printed record of the hearing. A list of witnesses will follow. 

BACKGROUND: 

Private health plans have served Medicare beneficiaries from the early years of 

the program. With 2003 legislation that increased plan payments, beneficiaries were 

provided with more plan options and enhanced benefits, resulting in millions of seniors choosing to join private Medicare plans. Recent data from the Centers for Medicare and Medicaid Services (CMS) indicates that there are currently over 13.5 million beneficiaries enrolled in private health plans, representing more than one in 

four Medicare beneficiaries. 

According to the Congressional Budget Office (CBO), the Democrats’ health law 

will cut $308 billion from the MA program over the next ten years. As a result of 

these cuts, the Medicare Trustees predict enrollment in MA will be cut in half by 

2017 as compared to prior law. CBO estimates that those beneficiaries who remain 

in MA will lose $816 worth of extra benefits they would have otherwise received in 

2019 alone. 

The statutory authority for one type of Medicare Advantage plan, MA Special 

Needs Plans (SNPs), expires at the end of 2013. SNPs were created in the Medicare 

Modernization Act of 2003 (P.L. 108–173) with the goal of better coordinating care 

for and tailoring benefits to higher-cost and vulnerable beneficiaries, including dualeligibles, those with chronic diseases, and the institutionalized. Approximately 1.5 

million beneficiaries are enrolled in SNP plans. 

Another type of Medicare health plan, Medicare Cost Plans, are paid based on the 

costs of delivering Medicare-covered services, rather than on a capitated and riskbased basis like MA plans. Congress has repeatedly delayed enforcing a provision 

that requires cost plans to withdraw from areas that have competition from two or 

more MA plans. This moratorium expires on January 1, 2013, which would affect 

the 2014 plan year. There are approximately 400,000 beneficiaries enrolled in cost 

plans. 

In announcing the hearing, Chairman Herger stated, ‘‘More than one in four 

Medicare beneficiaries have chosen to receive their Medicare benefits 

through a private Medicare plan. Since 2003, enrollment in the Medicare 

Advantage program has tripled, which is a clear indication that many 

beneficiaries enjoy the additional benefits that are often provided by these 

private health plans. Unfortunately, the Democrats’ health law slashed payments to the Medicare Advantage program by more than $300 billion over 

the next 10 years to fund ObamaCare. These cuts will significantly alter the 

program and jeopardize seniors’ access to the health plans they rely on. 

Understanding the successful structure of the current MA program, and 

the challenges the program will face because of the Democrats’ health law, 


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is key to ensuring Medicare meets the needs of seniors now and into the 

future.’’ 

FOCUS OF THE HEARING: 

The hearing will examine the current status of the MA program, including SNPs 

and Medicare Cost Plans. 

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS: 

Please Note: Any person(s) and/or organization(s) wishing to submit for the hearing record must follow the appropriate link on the hearing page of the Committee 

website and complete the informational forms. From the Committee homepage, 

http://waysandmeans.house.gov, select ‘‘Hearings.’’ Select the hearing for which you 

would like to submit, and click on the link entitled, ‘‘Click here to provide a submission for the record.’’ Once you have followed the online instructions, submit all requested information. ATTACH your submission as a Word document, in compliance 

with the formatting requirements listed below, by the close of business on Friday, October 5, 2012. Finally, please note that due to the change in House mail 

policy, the U.S. Capitol Police will refuse sealed-package deliveries to all House Office Buildings. For questions, or if you encounter technical problems, please call 

(202) 225–1721 or (202) 225–3625. 

FORMATTING REQUIREMENTS: 

The Committee relies on electronic submissions for printing the official hearing 

record. As always, submissions will be included in the record according to the discretion of the Committee. The Committee will not alter the content of your submission, 

but we reserve the right to format it according to our guidelines. Any submission 

provided to the Committee by a witness, any supplementary materials submitted for 

the printed record, and any written comments in response to a request for written 

comments must conform to the guidelines listed below. Any submission or supplementary item not in compliance with these guidelines will not be printed, but will 

be maintained in the Committee files for review and use by the Committee. 

1. All submissions and supplementary materials must be provided in Word format and MUST 

NOT exceed a total of 10 pages, including attachments. Witnesses and submitters are advised 

that the Committee relies on electronic submissions for printing the official hearing record. 

2. Copies of whole documents submitted as exhibit material will not be accepted for printing. 

Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material 

not meeting these specifications will be maintained in the Committee files for review and use 

by the Committee. 

3. All submissions must include a list of all clients, persons and/or organizations on whose 

behalf the witness appears. A supplemental sheet must accompany each submission listing the 

name, company, address, telephone, and fax numbers of each witness. 

The Committee seeks to make its facilities accessible to persons with disabilities. 

If you are in need of special accommodations, please call 202–225–1721 or 202–226– 

3411 TTD/TTY in advance of the event (four business days notice is requested). 

Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above. 

Note: All Committee advisories and news releases are available on the World 

Wide Web at http://www.waysandmeans.house.gov

f 

/. 

Chairman HERGER. The subcommittee will come to order. 

Today, we will hear testimony regarding the current role of Medicare health plans and, look to the future of how these plans can 

continue to effectively serve Medicare beneficiaries. As you know, 

we will be having votes earlier than expected. In the interest of 

time, and to ensure we hear the witnesses’ testimony, I ask unaniVerDate Mar 15 2010 05:08 Jun 06, 2013 Jkt 080842 PO 00000 Frm 00007 Fmt 6633 Sfmt 6602 E:\HR\OC\80842.XXX 80842

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mous consent that my opening statement be made part of the 

record. Without objection, so ordered. 

The Honorable Wally Herger Opening Statement 


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Health Subcommittee Hearing on 

Medicare Advantage 

September 21, 2012 

Chairman Herger Opening Statement 

Today we will hear testimony regarding the 

current role of Medicare health plans, and look 

to the future of how these plans can continue to 

effectively serve Medicare beneficiaries. 

Medicare has allowed private health care plans 

to deliver care to beneficiaries since the 1970s. 

Significant and numerous changes have been 

made to these plans over the years, some good 

and some bad, causing enrollment to fluctuate 

dramatically. 

Through all of the changes over the last thirty 

years, one thing has been abundantly clear: a 

significant number of beneficiaries prefer to 
5 


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receive their Medicare benefits from a private 

health plan. 

Today, one-in-four Medicare beneficiaries have 

chosen a Medicare Advantage plan over the 

traditional program. Yet, many of these 

beneficiaries will lose access to the plans they 

have and like because of ObamaCare's $300 

billion in cuts to Medicare Advantage over the 

next decade. 

In fact, in their original report on the law, the 

independent Medicare Actuaries reported that 

Medicare Advantage enrollment will be cut in 

half because of these cuts. And the non-partisan 

Congressional Budget Office reported that 

beneficiaries who remain in Medicare 

Advantage will lose $816 per year worth of 

additional benefits or increased cost-sharing in 

2019. Clearly the cuts in ObamaCare will 

significantly and negatively impact seniors. 

2 
6 


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In light of Wednesday's claims by the Obama 

Administration that Medicare Advantage is 

stronger than ever, it's important to keep in 

mind that less than four percent of these cuts 

have been enacted so far. Even more alarming, 

in what appears to be an attempt by the Obama 

Administration to mask the impact of the cuts 

before the election, CMS abused its 

demonstration authority to unilaterally increase 

payments to Medicare Advantage over the next 

three years. This $8.3 billion demonstration 

program restored 70 percent of the funding that 

would have been cut from Medicare Advantage 

under the Democrats' health care law this year, 

according to the Government Accountability 

Office. 

Clearly, beneficiaries and health plans have not 

seen the full impact of these cuts. Yet, millions 
7 


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of seniors will be forced out of the plans they 

have and like once they are fully implemented. 

We will also hear from two unique types of 

Medicare health plans: Special Needs Plans and 

Cost Plans. 

Special Needs Plans are targeted to some of the 

sickest and most-difficult-to-reach Medicare 

beneficiaries: those dually-eligible for 

Medicare and Medicaid; those with chronic 

conditions; and those who are certified as being 

eligible for institutional care. 

GAO recently examined Special Needs Plans 

for dual eligibles and found that these plans 

offered better care coordination and greater 

involvement of community resources than either 

standard Medicare Advantage plans or 

traditional Medicare. But GAO also found wide 

variety in what these plans submitted to CMS 

4 
8 


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and called for greater oversight by the agency to 

ensure these benefits are delivered. 

These are important details to consider - how do 

we ensure that these vulnerable beneficiaries are 

receiving the high-quality care to which they are 

entitled, in the most effective manner. The 

authority for Special Needs Plans to continue 

serving vulnerable populations expires at the 

end of next year. As this Committee considers 

whether or not to extend authorization of this 

program, and how, testimony from today's 

witnesses will be valuable. 

We will also hear testimony relating to 

Medicare Cost Plans, a type of Medicare plan 

that has served beneficiaries since the 1970s. 

As part of the Medicare Modernization Act in 

2003, Cost Plans were required to withdraw 

from a service area if there were at least two 
9 


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Medicare Advantage plans in the same area. 

This "two plan" test has been extended several 

times, most recently as part of the Democrats' 

health law. Unless Congress acts, the two-plan 

test will go into effect next year, with affected 

Cost Plans being forced to withdraw in 2014. 

We must carefully examine the impact that 

changes to Medicare health plans will have on 

beneficiaries in these plans and the value these 

plans bring to beneficiaries, Medicare, and 

ultimately to taxpayers. 

I want to thank all of our witnesses for their 

expert testimony today. 

Today we heard a detailed discussion of the 

future of health plans in Medicare. Clearly, 

significant changes are coming to the Medicare 

Advantage program, and seniors are right to be 

6 
10 

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The Honorable Pete Stark Opening Statement 


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\\'e'rt' hen> today to 1001< at the Medicart' Advantage program, While it is 

impot1ant to get an update on the (OSt rontract and spedal needs plans in light 

of their Ipgislative need$, Il<.now my roIleagues on the other side of the aisl .. 

want to use today's forum to further demagogue the Afford~ble Care Act. 

Repealing ObamaCart' appears to be their singular answer to any health 

quetion. Unfortunately for them - but fortunately for Medicart' beneficiariesthe facts art' with us on Medicart' Advantage. 

Just this w~'Ck. eMS announn'd Mtodi(are Advantage offerings for 2013. 

Virtually all (99.6 percent) beneficiaries have private plan options. Premiums for 

~ledical't' Advantage plans art' down post-ACA enadment. Enrollment in 

private plans has incn'ased substantially and is expeocted to in~ase another II 

percent ncl(t year_ It is a positivel'l"pOrt. 

That shouldn't surprise us. In addition to improving Medicare's benefits, health 

.... form 15 implementing long-overdue delivery system rt'forms; reducing waste, 

fraud and abuse; and grt'aily reducing overpayments to Medicare Advantage 

plans. n.- changes have substantially extended Medical't' SQivency, and are 

reducing beneficiary CO:St-sharing and premiums, too. 
12 


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Priv~te plans playa robust role In Medicare today, with "pp!'(lxim .. tely 25 

pt'K'mt of Medicare beneficiaries choosing to enroll in a Medicare Adv .. nt~ge 

plan. 

In my di$trict, more than 40 perrent of beneficiaries opt for MA plans. t 

strongly support continuing private plans as an option in Medicare. I just doo·t 

want to pay more for the privilege. 

N~tionally, nearly 75 perren! ofbeneficiarieschOOS<' to remain in traditional 

Medicare. That is also a ,hoice we need to respect and an option we need to 

P!'(ltl'Cl. 

Unfortunately, my colleagues on the other side of the aisle don't agret'. They 

!Upport the Ry .. n vouchcT plan which ha s nothing to do with exp~n ing 

H,hoi~H for beneficiaries and everything to do with limiting government 

expenses by rost-shifting to seniors Dnd their families. 

The hillIm .. rk of Medicare - lis gu .. rantee of defined benefits earned through 

yean of work and contributions to the program - is under all-out assault in the 

Ryan voucher. The Republican pion changes M~'<Iica!\' f!'(lm a defined benefit 

plan to D defined contribution plan,. using a voucher as Its vehidc. 

2 
13 

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The Honorable Jim McDermott Opening Statement 


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Pogo ' or ~ 

Draft Statement of Congressman Jim McDermott, WA 7'h 

Congressional District 

Ways and Means, Health Subcommittee 

Hearing on Medicare Advantage 

September 21, 2012, 9:30am 

You know, I have always heard that Republicans are the 

party of big business. So many of our best and brightest in this 

country go into corporate America to provide the United States 

and the entire world with the best goods and services, at the 

most competit ive price. That is the nature of our dynamic freemarket economy, which is the envy of the world. So I find it 

beyond strange that Mitt Romney, the standard bearer for the 

Republican Party and someone who touts his business 

experience as his primary qualification for the White House, is 

now out there talking about "restoring the cuts" to Medicare, 

including $154 billion dollars to the Medicare Advantage 

program. 

Did Mitt Romney forget what he did all those years as a 

turnaround specialist? I'm a medical doctor, but I understand 

that he bought companies, and found ways to make them more 

efficient and more profitable. 
15 


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I wonder how Mitt Romney would have reacted if one of 

his associates said to him: UHey-I've figured out that one of 

the companies in our portfolio has been overpaying for things, 

and we can cut that waste from its balance sheet. It will save 

the business 154 billion dollars over ten years, without 

compromising quality or customer service." Wow! Do you 

think he would be interested in that? Do you think his privateequity investors would want to capture that savings? The 

answer, I think, is obvious. 

Out instead the Republi(:an nominee is out theft~ ~ilying­

"Repeal Obamacare!" URestore the cuts to Medicare." That's 

like saying-ULet's go flush $154 billion dollars down the drainJ" 

This is not what gets you promoted at Bain Capital. Why would 

Mitt Romney squeeze all the savings possible out of Staples, or 

Domino's Pizza, or Sports Authority-but not want to capture 

that savings for the American taxpayer? It just doesn't make 

sense. And by the way, these savings help to stave off 

bankruptcy for Medicare for a decade. Anyone with a business 

mind ought to be interested in that proposition. 
16 


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.~ 0r ~ 

But of course, the ultimate irony: the Paul Ryan 

Republican-endorsed Budget includes those same cutsl I can 

draw only one conclusion from that: the Republicans do indeed 

support conserving $154 billion dollars for the taxpayer-as 

long as the Democrats can't get any credit for it! 

Everyone knows that Medicare has been overpaying these 

plans. And the evidence now confirms that this was the case; 

as CMS announced earlier this week, the Medicare Advantage 

program remains very healthy in the age of Obamacare. 

Premiums are stable, and enrollment is up. More than 30 

percent of Medicare beneficiaries in my district are in Medicare 

Advantage, so I am certainly concerned about whether these 

folks have appropriate choices and coverage. 

A word about the Quality Bonus payments: Some of you 

may know that r am not a fan of our system of private 

insurance and for-profit health insurance in particular. I have 

advocated for a publicly financed single-payer health care 

system during my entire career here in Congress. But until we 

summon the will to change the role of private insurance in our 

system, I do think it makes sense to pay for quality, and I 

applaud the Administration for doing what it thinks is necessary 

to make the program work. This shouldn't be a partisan issue. 
17 

f 

Chairman HERGER. I would also ask that if we do get interrupted by votes, I ask the members to return so we can finish questions. Also, before I recognize Ranking Member Stark for the purposes of an opening statement, I ask unanimous consent that all 

members’ written statements be included in the record. Without objection, so ordered. I now recognize Ranking Member Stark for 5 

minutes for the purpose of his opening statement. 

Mr. STARK. Mr. Chairman, I ask that my opening statement be 

made part of the record, and yield back. 

Chairman HERGER. Without objection, so ordered. 


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Chairman HERGER. Today, we are joined by six witnesses: 

James Cosgrove, director of the Health Care Group at the Government Accountability Office; Jim Capretta, fellow at the Ethics and 

Public Policy Center; Karen Ignagni, president and chief executive 

officer of America’s Health Insurance Plans; Dr. Tim Schwab, medical director of SCAN Health Plan; John Tallent, chief executive officer of Medical Associates of Iowa; and Marcia Gold, senior fellow 

at Mathematica Policy Research. 

Mr. Cosgrove, you are now recognized for 5 minutes. 

STATEMENT OF JAMES COSGROVE, DIRECTOR, HEALTH CARE, 

U.S. GOVERNMENT ACCOUNTABILITY OFFICE 

Mr. COSGROVE. Good morning, Chairman Herger, Ranking 

Member Stark, Members of the Subcommittee. I am pleased to be 

here today as you discuss Medicare Advantage and Medicare cost 

plans, which offer Medicare beneficiaries an alternative to the feefor-service program. For many years, private health plans have 

played an important role in caring for beneficiaries. Currently, 

about 13.6 million Medicare beneficiaries, more than one out of 

every four, receive their health care from such plans. Today, I 

would like to discuss our recent work in three areas related to 

Medicare health plans. And let me start by summarizing our work 

on quality payments for MA plans and CMS’s demonstration. 

PPACA sought to foster high quality health care by paying bonuses to MA plans that achieve the very highest quality ratings, 

four or more stars on CMS’s five-star quality scale. However, instead of implementing these provisions CMS implemented the 

quality bonus payment demonstration. This 3-year demonstration 

makes plans of average quality eligible for bonuses, increased 

bonus amounts, and accelerates the phase-in of bonuses. The cost 

of the demonstration is expected to exceed $8.3 billion, an amount 

that is at least seven times larger than that of any other Medicare 

demonstration conducted since 1995. The bonuses are expected to 

offset about 70 percent of PPACA payment reductions for MA plans 

this year, and about a third of the reductions next year. Due to the 

design of the demonstration, most of the bonuses are paid to plans 

of average quality. CMS’s intention is to test whether the demonstration’s approach would encourage plans to more rapidly adopt 

larger quality improvements. However, we believe that serious 

shortcomings in the demonstration’s design cast doubt on its ability 

to produce meaningful results. 

In March of this year, we recommended that HHS cancel the 

demonstration and allow PPACA’s quality bonus payment system 

to take effect. HHS did not agree with our recommendation. Our 

findings also gave rise to concerns about the Agency’s authority to 

conduct the demonstration under the Social Security Amendments 

of 1967. The statute does provide broad authority. However, in a 

July 2012 letter to the Secretary of HHS, we found that the Agency 

had not established that the demonstration meets the criteria set 

forth in the statute. 

Next, I would like to discuss our most recent report, which examined MA plans designed for beneficiaries dually eligible for Medicare and Medicaid. These plans, known as D–SNPs, were originally 

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gate the two very different health care programs and obtain care 

appropriate to their needs. It does appear that D–SNPs provide a 

benefit package that may be more tailored to the needs of duals, 

and that duals enrolled in D–SNPs have somewhat different characteristics relative to duals enrolled in other MA plans. However, 

CMS has not required D–SNPs to report information that could 

better hold plans accountable and help CMS determine whether D– 

SNPs are realizing their full potential. We found little available information on the amount and appropriateness of the care that 

these plans actually provide. Furthermore, we found that the plans 

did not use standardized performance measures when reporting information on outcomes to CMS, making it difficult to compare D– 

SNPs and hold them accountable for results. 

We concluded that there was insufficient information on how 

well these plans are meeting the unique needs of dual-eligible 

beneficiaries. We made several recommendations to CMS intended 

to increase D–SNP accountability and ensure that CMS has the information it needs to systematically evaluate D–SNP performance. 

HHS concurred with these recommendations. 

Finally, I would like to share some of our findings related to 

Medicare cost plans. These plans differ from MA plans in that they 

are paid based on their reasonable cost for delivering Medicare-covered services. Cost plans have been a part of the Medicare program 

since the 1970s. When we examined these plans in 2009, we found 

that they tended to have higher quality scores than MA plans operating in the same areas. Enrollment in cost plans has been fairly 

low, and is concentrated in a relatively small number of States. As 

of March, Medicare had 20 contracts with cost plans, and enrollment was just under 400,000. However, this represents a 36 percent enrollment increase since 2009. 

While cost plan enrollment is small when compared to MA enrollment, industry representatives told us that cost plans provide 

a managed care option in areas traditionally that have had few or 

no MA plans. Over the last 3 years, the number of MA options 

available to beneficiaries enrolled in cost plans has declined. Nonetheless, we found that as of March, 99 percent of beneficiaries enrolled in cost plans had at least one MA option available, and that 

80 percent had at least five MA options available. And this concludes my prepared remarks. I would be happy to respond to any 

questions. 

Chairman HERGER. Thank you. 

[The prepared statement of Mr. Cosgrove follows:] 


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"'TESTIMONY IS EMBARGOED UNTIL 9:30 AM ON FRIDAY, 

SEPTEMBER 2 1, 2012"" 

GAO 

TO 

__ .......... _ 11)',"'''_ 

'"o...' -..... OftcocM 

..-......... 1 ... 

•••• _ .... _onJ .... , 

GAO-12-1~5T 

Testimony 

Before the Subcommittee on Health, Committee on Ways and Means, House 

of Representatives 

MEDICARE PRIVATE 

HEALTH PLANS 

Selected Current Issues 

Statement of James Cosgrove Director, Health Care 
21 


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Highlighl$ m'gAO--He''\Z'WY=', a: testimony pefOte fl11':! Subcommrtb:!e on H~8\flh, 

CommIttee on ways and Means, Hause ¢f 

Repr-!%entat;v~ 

Why GAO Did This Study 

'As of August 2011,' appri#lmarely' , 

13.6 mitllon Medicare beneficiaries 

were enrolled in. MA plans (}t Medicare 

cost pl~ns-two private health plan 

alternatives to the original Medicare 

feeNfor..,service program. This testimohy 

discusses wQrk GAO has done that 

may Mtp inform the Congress: as it 

examihes the status of the MA 

program and the- private health plans 

that serve Medicare beneficiaries, It is 

based M key background and findings 

from three previously issued GAO 

reports on (1) the MA -quality bonus 

payment demoh'stration, 

(2) D-SNPs, ond ($) Medlc.re coa. plans, Thisinfurmatlon on cost:plans 

was updated, base<! on irnotmatiM 

supphed by CM$j to reflect the status of cost plans in March2012. 

\Vltat/iAO l1~fomm~nds" 

In a March 2012 report on the MA 

quality bonus Myment demonstration, 

GAO ,"""mmended that HHS cancet the MA qU~lfty bonus tiernonstration, 

HHS did npt cQncvr with ~hi5 

recommendation. In a Sep'ember 2012 report on 0--8NPs. GAO recommended 

that D-SNPs improve theIr reportinf) of 

services provided to beneficiaries and 

thatthis information 00 made public 

HHS agreed with these 

recommendations, 

View BAQ"'U-1045T. For-more Inwrftl<t1klO, oon\act 4.ames Cosgro\.<e at (202) 512"7114 Of 

cpsgrovej@$ao gJ:W, 

MEDICARE PRIVATE HEALTH PLANS 

Selected Current Issues 

What GAO Found 

In March 2012, GAO issued a report on the Centers for Medicare & Medicaid 

Services' (CMS) Medicare Advantage (MA) quality bonus payment 

demonstration-a demonstration CMS initiated rather than implementing the 

quality bonus program established under the Patient Protection and Affordable 

Care Act (PPACA). Compared to the PPACA quality bonus program, CMS's 

demonstration increases the number of plans eligible for a bonus, enlarges the 

size of payments for some plans, and accelerates payment phase"in. CMS stated 

that the demonstration's research goal is to test whether scaling bonus payments 

to quality scores MA plans receive increases the speed and degree of annual 

quallty Improvements tor plans compared With what would have occurred under 

PPACA. GAO reported that eMS's Office of the Actuary estimated that the 

demonstration would cost $8.35 billion over 10 years-an amount greater than 

the combined budgetary impact of all Medicare demonstrations conducted since 

1995. In addition, GAO also found several shortcomings of the demonstration 

design that preclude a credible evaluation of its effectiveness in achieving eMS's 

stated research goal. In July 2012, GAO sent a letter to the Secretary of Health 

and Human Services (HHS), the head of the agency of which CMS is a part, 

stating that CMS had not established that its demonstration met the criteria in the 

Social Security Act of 1967, as amended, under which the demonstration is being 

performed. 

In September 2012, GAO Issued a report on Medicare dual-eligible special needs 

plans (D-SNP), a type of MA plan exclusively for beneficiaries that are eligible for 

Medicare and Medicaid. DualNellgible beneficiaries are costly to Medicare and 

Medicaid in part because they are more likely than other benefiCIaries to be 

disabled, report poor health status, and have limitations in activities of daily living. 

GAO found that two-thirds of 2012 D-SNP contracts with state Medicaid agencies 

that it reviewed did not expressly provide for the integration of Medicare and 

Medicaid benefits. Additionally, GAO found that compared to other MA plans, 

D~SNPs provided fewer, but more comprehensive supplemental benefits, such 

as vision, and were less likely to use rebates-additional Medicare payments 

received by many MA plans-for reducing beneficiary cost~sharing. GAO could 

not report on the extent to which benefits specific to D"SNPs were actually 

provided to beneficiaries because eMS did not collect the information. GAO also 

found that plans did not use standardized performance measures, limiting the 

amount of comparable information available to CMS. 

In December 2009, GAO issued a report on Medicare cost plans, which, unlike 

MA plans, are paid based on their reasonable costs incurred delivering Medicare~ 

covered services and allow beneficiaries to disenroll at any time. GAO found that 

the approximately 288,000 Medicare beneficiaries enrolled in cost plans as of 

June 2009 had multiple MA options available to them. GAO updated this work 

using March 2012 data and found that enrollment in cost plans had increased to 

approximately 392,000 and that 99 percent of Medicare beneficiaries enrolled in 

cost plans had at least one MA option available to them, although generally fewer 

options than in 2009 

____________ United States Govemment Accountability Office 
22 


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Chairman Herger, Ranking Member Stark, and Members of the 

Subcommittee: 

I appreciate the opportunity to participate in today's hearing on the status 

of the Medicare Advantage (MA) program and Medicare cost plans-two 

private health plan alternatives to the original Medicare fee-for-service 

(FFS) program, 1 As of August 2012, approximately 13,6 million Medicare 

beneficiaries--{)r about 1 of every 4-were enrolled in these Medicare 

private health plan options, Expenditures for Medicare private health 

plans reached approximately $123,7 billion in 2011, 

In an effort to centain costs and encourage Medicare private health plans 

to utilize resources effectively, the Patient Protection and Affordable Care 

Act (PPACA) made changes to how MA plans are paid and introduced 

bonus payments linked to the quality of care that they provide, In 

November 2010, the Centers for Medicare & Medicaid Services (CMS), 

the agency that administers Medicare, announced that instead of 

implementing the PPACA quality bonus payment provisions, it would 

cenduct a demonstration of an alternative bonus payment system from 

2012 through 2014 in which all plans would participate unless they 

affirmatively opt out. 

PPACA also included provisions that extended the availability of certain 

types of Medicare private health plan options for beneficiaries, 

SpeCifically, PPACA extended the authorization of special needs plans 

(SNP)-a type of MA plan intended for beneficiaries with speCial needs, 

such as those dually eligible for Medicare and Medicaid-through 

December 31,2013, PPACA also extended until January 1,2013, the 

deadline after which Medicare cost plans in service areas with sufficient 

MA competition may no longer be renewed, Medicare cost plans differ 

from MA plans in that they are paid on the basis of their reasonable costs 

incurred delivering Medicare-covered services. In comparison, MA plans 

are paid a fixed monthly payment per beneficiary and bear financial risk if 

their costs exceed Medicare payments, 

1Soth MA plans and Medicare cost plans-the term we use to refer to Social Security Act 

§1876 Medicare cost contracts-are generally required to provide the same benefits as 

Medicare FFS. In addition, MA plans may offer benefits not provided under Medicare FFS, 

such as reduced cost sharing or vision and dental coverage Medicare cost plans may 

also offer optional additional benefits to beneficiaries, but beneficiaries who opt for these 

additional benefits would be responSible for their entire cost 

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MA Quality Bonus 

Payment 

Demonstration 

We have conducted several analyses that may help inform the Congress 

as it examines the status of the MA program and the private health plans 

that serve Medicare beneficiaries. My remarks today will focus on three of 

these analyses. Specifically, I will discuss key background information 

and findings from our recent work on (1) the MA quality bonus payment 

demonstration. (2) SNPs for dual-eligible beneficiaries, and (3) Medicare 

cost plans. My remarks are based largely on our previously issued work. 2 

We updated our prior work on Medicare cost plans by including more 

recent data supplied by CMS on the number of Medicare cost contracts, 

enrollment in cost plans, and the number of MA options available to 

beneficiaries enrolled in cost plans. We conducted this performance audit 

in accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives. In addition to these three 

reports, my statement includes information from a legal analysis we 

recently issued on the MA Quality Bonus Payment Demonstration.' 

CMS's quality bonus payment demonstration includes several key 

changes from the quality bonus system established by PPACA. 

Specifically, PPACA required CMS to provide quality bonus payments to 

MA plans that achieve 4, 4.5, or 5 stars on a 5-star quality rating system 

developed by CMS.4 In contrast, the demonstration significantly increases 

the number of plans eligible for a bonus, enlarges the size of payments 

for some plans, and accelerates payment phase-in. !n announcing the 

2See GAO, Medicare Managed Care: ObseNations about Medicare Cost prans, 

G,.,\O··10·1!:.V:. (Washington, D.C.: Dec 28,2009); Medicare Advantage: Qualify Bonus 

Payment Demonstration Undermined by High Estimated Costs and Design Shortcomings. 

GAO-12--c:09R (Washington. D.C.: Mar. 21, 2012): and Medicare Special Needs Plans: 

eMS Should Improve fnformation Available about Dua/~Eligible Plans' Performance, 

GAO-12-864 (Washington. 0 C Sept. 14, 2012). See individual reports for details on the 

objectives, scopes, and methodologies. 

3See GAO, Medicare-Advantage Quality Bonus Payment Demonstration, 8-323170, 

July 11, 2012 

4Patlent Protection and Affordable Care Act, Pub. L No 111-148, §§ 3201-02, 124 Stat. 

119,442,454 (Mar. 23, 2010), as amended by the Health Care and Education 

Reconciliation Act of 2010, Pub. L. No 111-152, § 1102, 124 Stat 1029.1040 (Mar. 30, 

2010) (hereafter, "PPACA"). 

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demonstration, eMS stated that the demonstration's research goal is to 

test whether scaling bonus payments to the number of stars MA plans 

receive under the quality rating system leads to larger and faster annual 

quality improvement for plans at various star rating levels compared with 

what would have occurred under PPACA. 

In March 2012, we reported that CMS's Office of the Actuary (OACT) 

estimated that the demonstration would cost $8.35 billion over10 yearsan amount that is at least seven times larger than that of any other 

Medicare demonstration conducted since 1995 and greater than the 

combined budgetary effect of all those demonstrations. 5 The cost is 

largely for quality bonus payments more generous than those prescribed 

in PPACA. Plans are required to use these payments to provide their 

enrollees enhanced benefits, lower premiums, or reduced cost-sharing. 6 

We also found that the additional Medicare spending will mainly benefit 

average-performing plans-those receiving 3 and 3.5-star ratings-and 

that about 90 percent of MA enrollees in 2012 and 2013 would be in plans 

eligible for a bonus payment. As we noted in our report, while a reduction 

in MA payments was projected to occur as a result of PPACA's payment 

reforms, OACT estimated that the demonstration would offset more than 

70 percent of these payment reductions projected for 2012 alone and 

more than one-third of the reductions for 2012 through 2014. 

Our March 2012 report also identified several shortcomings of the 

demonstration's design that preclude a credible evaluation of its 

effectiveness in achieving CMS's stated research goal. Notably, the 

bonus payments are based largely on plan performance that predates the 

demonstration. In particular, all ofthe performance data used to 

determine the 2012 bonus payments and nearly all of the data used to 

determine the 2013 bonus payments were collected before the 

demonstration's final specifications were published. In addition, under the 

demonstration's deSign, the bonus percentages are not continuously 

scaled. For example, in 2014, plans with 4, 4.5, and 5 stars will all receive 

the same bonus percentage. Finally, since all plans may participate in the 

demonstration, there is no adequate comparison group for determining 

whether the demonstration's bonus structure provided better incentives 

6Bonuses under the demonstration increase the size of plan rebates. which are additional 

payments received by many plans. 

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for improving quality than PPACA's bonus structure. We therefore 

concluded that it is unlikely that the demonstration will produce 

meaningful results. 

Given the findings from our program review of the demonstration's 

features, we recommended in our March 2012 report that the Secretary of 

Health and Human Services (HHS), who heads the agency of which CMS 

is a part, cancel the demonstration and allow the MA quality bonus 

payment system authorized by PPACA to take effect. We further 

recommended that if that bonus payment system does not adequately 

promote quality improvement, HHS should determine ways to modify it, 

which could include conducting an appropriately designed demonstration. 

HHS did not agree. It stated that, in contrast to PPACA, the 

demonstration establishes immediate incentives for quality improvement 

throughout the range of quality ratings. Regarding their proposed 

evaluation of the demonstration, HHS did not consider the timing of data 

collection to be a problem and said that the comparison group it would 

use would enable them to determine the demonstration's impact. We 

continue to believe that, given the problems we cited, the demonstration 

should be canceled. 

In addition to our March 2012 report, we sent a letter on July 11, 2012, to 

HHS regarding CMS's authority to conduct the demonstration. 7 In our 

letter, we stated that CMS had not established that the demonstration met 

the criteria set forth in the Social Security Amendments of 1967, as 

amended-the statute under which CMS is conducting the demonstration. 

Specifically, the statute authorizes the Secretary to conduct 

demonstration projects to determine whether changes in payment 

methods would increase the efficiency and economy of Medicare services 

through the creation of additional incentives, without adversely affecting 

quality.' However, features of the demonstration, particularly those 

Medicare Advantage Quality Bonus Payment Demonstration. 

8Section 402(a)(1 )(A) authonzes the Secretary to develop and engage in experiments and 

demonstration projects ·'to determine whether, and if so which, changes in methods of 

payment or reimbursement for health care and services under health programs 

established by the Social Security Act would have the effect of increasing the efficiency 

and economy of health services under such programs through the creation of additional 

incentives to these ends without adversely affecting the quality of such services" 

Relatedly, section 402(b) authorizes the Secretary to waive Medicare payment 

reqUIrements to carry out such demonstrations. 

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SNPs for Dual-Eligible 

Beneficiaries 

regarding the timing of data collection for plan star ratings, call into 

question whether the demonstration includes additional incentives to 

increase the efficiency and economy of Medicare services and raise 

concerns about the agency's ability to determine whether the payment 

changes under the demonstration result in increased efficiency and 

economy compared to the payment methods in place under PPACA. 

In 2003, Congress authorized the establishment of three types of MA 

coordinated care plans for individuals with special needs: dual-eligible 

special needs plans (D-SNP), which are exclusively for beneficiaries 

eligible for both Medicare and Medicaid; institutional special needs plans 

for individuals in nursing homes, and chronic condition special needs 

plans for individuals with severe or disabling chronic conditions. Of the 

three types of SNPs, D-SNPs are by far the most common, accounting for 

about 80 percent of SNP enrollment as of September 2012. 

The approximately 9 million dual-eligible beneficiaries are particularly 

costly to both Medicare and Medicaid in part because they are more likely 

than other Medicare beneficiaries to be disabled, report poor health 

status, and have limitations in activities of daily living. Furthermore, their 

care must be coordinated across Medicare and Medicaid, and each 

program has its own set of covered services and requirements. 

In September 2012, we reported that the 2012 D-SNP contracts with state 

Medicaid agencies that we reviewed varied considerably in their 

provisions for integration of benefits.9 Two-thirds of the 124 contracts 

between D-SNPs and state Medicaid agencies that were submitted to 

CMS for 2012 did not expressly provide for the integration of any benefits. 

To carry out the requirement in the Medicare Improvements for Patients 

and Providers Act of 2008 that each D-SNP contract provide or arrange 

for Medicaid benefits to be provided, 10 CMS guidance required that, at a 

minimum, contracts list the Medicaid benefits that dual-eligible 

9GA.O·12-861 

10pub. L. No. 110-275, §164, 122 Stat. 2494, 2571 

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beneficiaries could receive directly from the state Medicaid agency or the 

state's Medicaid managed care contractor(s).11 

Like other MA plans, D-SNPs must cover all the benefits of fee-forservice, with the exception of hospice, and may offer supplemental 

benefits, such as vision and dental care. In addition, they must develop a 

model of care that describes their approach to caring for their enrollees. 

The model of care describes how the plan will address 11 elements, 

including tracking measureable goals, performing health risk 

assessments, providing care management for the most vulnerable 

beneficiaries, and measuring plan performance and outcomes; and 

D-SNPs must offer the benefits that allow them to actualize these 

elements. 

In our September 2012 report, we examined the supplemental benefits 

offered by D-SNPs and found that D-SNPs provided fewer supplemental 

benefits than other MA plans. However, the individual services covered 

under vision and dental benefits were generally more comprehensive 

than in other MA plans. Despite offering these supplemental benefits 

somewhat less often than other MA plans, D-SNPs allocated a larger 

percentage of their rebates-additional Medicare payments received by 

many plans-to these benefits than other MA plans. They were able to do 

so largely because they allocated a smaller percentage of rebates to 

reducing cost-sharing. 

We could not report on the extent to which benefits specific to D-SNPs 

and described in the model of care were actually provided to beneficiaries 

because CMS did not collect the information. For the 15 models of care 

we reviewed, most did not report-and were not required by CMS to 

report-the number of beneficiaries who received a risk assessment, for 

example, or the number or proportion of beneficiaries who would be 

targeted as "most vulnerable." However, of the models of care we 

reviewed, past completion rates for risk assessment varied widely among 

the 4 plans that provided this information. None of the models of care we 

reviewed reported the number of beneficiaries that were expected to 

receive add-on services, such as social support services, that were 

intended for the most-vulnerable beneficiaries. 

110nly new and expanding D-SNPs are required to contract with state Medicaid agencies 

in 2012. Beginning in 2013. all D-SNPs must contract with state Medicaid agencies. eMS 

stated in its 2013 training matenals that contracts must specify how Medicare and 

Medicaid benefits are integrated and coordinated 

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Medicare Cost Plans 

We found that plans do not use standardized performance measures in 

their models of care, limiting the amount of comparable information 

available to CMS. Although the D-SNPs are required to report how they 

intend to evaluate their performance and measure outcomes, CMS does 

not stipulate the use of standard outcome or performance measures, 

making it difficult to use any data it might collect to compare D-SNPs' 

effectiveness or evaluate how well they have done in meeting their goals. 

Furthermore, without standard measures, it would not be possible for 

CMS to fully evaluate the relative performance of D-SNPs. 

We concluded that there was little evidence available on how well 

D-SNPs are meeting their goals of helping dual-eligible beneficiaries to 

navigate two different health care systems and receive services that meet 

their individual needs. Consequently, we recommended in our September 

2012 report that CMS require D-SNPs to state explicitly in their models of 

care the extent of services they expect to provide, require O-SNPs to 

collect and report to CMS standard performance and outcome measures, 

systematically analyze these data and make the results routinely 

available to the public, and conduct an evaluation of the extent to which 

D-SNPs have provided sufficient and appropriate care to their enrollees. 

HHS agreed with our recommendations and in its comments on a draft of 

our report, said that it plans to obtain more information from D-SNPs. 

CMS is embarking on a new demonstration in up to 26 states with as 

many as 2 million beneficiaries to financially realign Medicare and 

Medicaid services so as to serve dual-eligible beneficiaries more 

effectively. CMS has approved one state demonstrationMassachusetts-and continues to work with other states. If eMS 

systematically evaluates D-SNP performance, it can use information from 

the evaluation to inform the implementation and reporting requirements of 

this major new initiative. 

In contrast to MA plans, which have a financial incentive to control their 

costs, a small number of Medicare private health plans-called cost 

plans-are paid on the basis of their reasonable costs incurred delivering 

Medicare-covered services. Medicare cost plans also differ structurally 

from MA plans in several ways. For example, cost plans, unlike MA plans, 

allow beneficiaries to disenroll at any time. Despite their enrollment only 

totaling under 3 percent of Medicare private health plan enrollment, 

industry representatives stated that cost plans fill a unique niche by 

providing a Medicare private health plan option in rural and other areas 

that traditionally have had few or no MA plans. Under current law, new 

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cost contracts are not being entered into and contracts with existing cost 

plans cannot be extended or renewed after January 1, 2013 if sufficient 

MA competition exists in the service area,12 Additionally, in general, 

organizations that offer cost plans and MA plans in the same area must 

close their cost plan to new enrollment. 

In our December 2009 report on cost plans, we examined the MA options 

available to beneficiaries in these plans and found that all of the 

approximately 288,000 Medicare beneficiaries enrolled in cost plans as of 

June 2009 had multiple MA options available to them,13 We also found 

that, of the 22 cost plan contracts, 7 were closed to new enrollment in 

2009, We recently updated this work with March 2012 data and found that 

the number of cost plan contracts decreased from 22 in 2009 to 20 in 

2012, with 6 of the 20 contracts being closed to enrollment. '4 Despite this 

slight reduction in the number of contracts, enrollment in cost plans 

increased by 36 percent during this time,1S Of the approximately 392,000 

Medicare beneficiaries enrolled in cost plans in March 2012, we found 

that over 99 percent of cost plan enrollees continue to have at least one 

MA option in March 2012; however, they generally have fewer MA options 

than in June 2009 (see table 1 ),16 This decrease in MA options for 

beneficiaries enrolled in cost plans is consistent with the overall decrease 

in MA plans over this period, as well as with eMS's efforts to simplify MA 

12Soclal Security Act, §1876(h)(5). 

13GI-\0··10_185 

14Between 2009 and March 2012,1 new cost contract was closed to new enrollment. Of 

the 7 cost plans contracts that were closed to enrollment in 2009, 5 remain closed to 

enrollment, 1 contract is no longer in operation, and 1 has Since become open to new 

enrollment. All 7 of the cost plan contracts that were closed to enrollment in 2009-

including 1 contract that has since become open to enrollment-had lower enrollment in 

March 2012 than they did at the end of 2009. 

15This increase in enrollment was primarily due to increases in two plans In the Midwestone operated by Blue Cross Blue Shield of Minnesota, whtch exclusively serves enrollees 

in Minnesota and gained over 65,000 enrollees, and another operated by Medica 

Insurance Company, which primarily serves enrollees in Minnesota, North Dakota, South 

Dakota, and Wisconsin and gained 54,000 enrollees 

16We conducted our analysis of MA options at the contract level. Within each contract, an 

organization may offer one or more plans with different benefit packages. The percentage 

of beneficiaries enrolled in cost plans With access to a given number of MA options would 

be greater if we conducted the analysts at the plan level. 

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Contact and 

Acknowledgments 

(291084) 

plan offerings by eliminating potentially duplicative plans and those with 

low enrollment 

Table 1: Medicare Cost Plan Summary Statistics, June 2009 and March 2012 

June 2009 March 2012 

Number of contracts 22 20 

Enrollment 287,796 392.048 

Number of contracts closed to new enrollment 

Percentage of beneficiaries enrolled in cost plans 

with access to at least 

1 Medicare Advantage (MA) option 100% 99% 

5 MA options 99% 80% 

10 MA options 89% 25% 

15 MA options 57% 1% 

Source GAO analY>ls ofCMS data 

Note. We conducted our analysis of MA options at the contract level. Within each contract, an 

organization may offer one or more plans with different benefit packages The percentage of 

beneficiaries enrolled In cost plans with access to a given number of MA options would be greater If 

we conducted the analysis at the plan level 

As part of our 2009 report on cost plans we also described the concerns 

of officials from Medicare cost plans about converting to MA plans. We 

found that the most-common concerns cited by these officials from 

organizations that offered Medicare cost plans were potential future 

changes to MA payments that may then necessitate closing the plan, 

difficulty assuming financial risk given their small enrollment, and potential 

disruption to beneficiaries during the transition. 

For future contacts regarding this testimony, please call James Cosgrove 

at (202) 512-7114 or cosgrovej@gao.gov. Contact points for our Offices 

of Congressional Relations and Public Affairs may be found on the last 

page of this statement. Other individuals who made key contributions 

include Phyllis Thorburn, Assistant Director; Alison Binkowski; 

Krister Friday; Gregory Giusto; and Eric Wedum. 

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This IS a work of the U.S. government and is not subject to copyright protection in the 

United States. The published product may be reproduced and distributed in its entirety 

without further permission from GAO. However, because this work may contain 

copynghted images or other material, permission from the copyright holder may be 

necessary if you wish to reproduce this material separately. 
32 

f 

Chairman HERGER. Mr. Capretta, you are recognized for 5 minutes. 

STATEMENT OF JAMES CAPRETTA, FELLOW, ETHICS AND 

PUBLIC POLICY CENTER 

Mr. CAPRETTA. Thank you. Mr. Chairman, Ranking Member 

Stark, Members of the Subcommittee, I really appreciate the opportunity to be here at this important hearing. I want to make just 

a couple of points today. First, contrary to what is often stated, 

Medicare Advantage plans are not less efficient than the traditional Medicare fee-for-service program. Data from the Medicare 


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33 

Payment Advisory Commission confirms this fact. Comparing apples to apples, MA plans, and especially MA HMOs, can provide 

the Medicare benefit package to seniors at a cost well below that 

of fee-for-service. In 2012, based on bids for the plans, MedPAC reports that the average MA plan provides Medicare benefits at 98 

percent of fee-for-services costs, and the MA HMO plans did so at 

just 95 percent of fee-for-service costs. It is clear from this data 

that MA HMOs, which have by far the largest enrollment numbers—11.4 million as of February 2012—have built the capacity 

over many years to deliver care more efficiently than fee-for-service. This should not be surprising, however. Medicare fee-for-service is an extremely inefficient model. It breeds fragmentation and 

undermines coordination, leading to low quality care for too many 

seniors. The emphasis from the Center for Medicare and Medicaid 

Services on quality in the MA program is admirable, but it would 

be even more effective if fee-for-service were rated on the same 

metrics. There is ample evidence that the United States continues 

to experience much waste in the health care delivery system. Recent Institute of Medicine studies left little doubt about this fact. 

But what is often not stated is Medicare fee-for-service’s role in the 

problem. Medicare fee-for-service is the dominant payer in many 

markets, and its rate setting regulations become the default option 

for other payers too. 

The sheer size of Medicare fee-for-service ensures that the entire 

delivery system is organized around its incentives. For those looking for the reasons that we have too much fragmentation, lack of 

coordination, and low quality care in too many settings, they 

should look no further than the incentives that are embedded in 

Medicare fee-for-service. 

My second point is that the reductions in MA payments contained in the 2012 health care law will raise costs for seniors and 

force many of them out of their MA plans. The cuts are very deep. 

According to the Congressional Budget Office, the total 10-year cut 

in MA payments now estimated at $308; $156 billion in direct MA 

payment cuts; and $152 billion in indirect MA reductions from the 

interactions fee-for-service cuts contained in the law. That these 

cuts will directly impact the beneficiaries is indisputable. According 

to the most recent trustees’ report, enrollment in MA will peak in 

2013 at 13.7 million people, and then fall to 9.7 million in 2017. 

Further, by law, MA plans must provide some percentage of the 

difference between their bids and the benchmark to the beneficiaries in the form of expanded benefits. Thus, reducing MA payments will, by definition, reduce benefits provided through MA 

plans to current enrollees. In a study I co-authored with Robert 

Book for the Heritage Foundation, we estimated that this would be 

about $3,700 per MA enrollee by 2017. 

Why, if these cuts are so deep, has MA enrollment grown in 2012 

and 2013? The answer is relatively simple. For starters, the cuts 

are back-loaded. Through 2013, less than 10 percent of the scheduled Medicare reductions will have gone into effect, and costs have 

risen modestly in recent years because of the slow economy. More 

importantly, CMS has sent an unprecedented, and perhaps unlawful, $8.3 billion to MA plans, filling in over 70 percent of the cuts 

in 2012 alone, quite plainly because the agency wants to mitigate 


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34 

the impacts of the cuts required by the 2010 law. There is no real 

other explanation for what they are doing in this particular demonstration program. Certainly there is no public policy rationale 

that would justify it, as the testimony from various government 

agencies have indicated. 

Once the artificial and temporary bump up in payments is terminated, as it inevitably will be, MA plans will be forced to pare back 

benefits, and enrollment in the plans will drop. 

My third point is that MA plans are particularly important for 

lower income seniors, and cuts in MA payments will hit this population the hardest. Lower income seniors are disproportionately 

represented in MA plans because they find the reduced cost sharing in these plans attractive, especially at premiums that are usually well below the cost of Medigap coverage. 

In the 2010 study I co-authored, which I previously mentioned, 

we used earlier findings from an AHIP study to estimate that beneficiaries with incomes between $10,800 and $21,600 were 19 percent more likely than the average beneficiary to enroll in an MA 

plan. The MA program has important features for the future of the 

Medicare program. MA can provide innovations in ways that Medicare fee-for-service cannot. Moreover, the presence of the MA program ensures some level of choice for the beneficiaries, which is important for program accountability. If we want delivery system reform, and I think we do, the MA program is something to be built 

upon, not discarded. Thank you. 

Chairman HERGER. Thank you. 

[The prepared statement of Mr. Capretta follows:] 


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***TESTIMONY IS EMBARGOED UNTIL 9:30 AM ON 

FRIDAY, SEPTEMBER 21, 2012*** 

Testimony Presented to the House Ways and Means Committee: 

"The Status of the Medicare Advantage Program" 

.lames C. Capretta 

Fellow, Ethics and Public Policy Center 

and Visiting Fellow, American Enterprise Institute 

September 21,2012 

Mr. Chairman, Ranking Member Stark, and members of the subcommittee, thank 

you for the opportunity to participate in this very important hearing on "The Status of the 

Medicare Advantage Program." 

I want to make a few points with my testimony today. 

First, contrary to what is ot1:en stated. Medicare Advantage (MA) plans are not 

less emcient than the traditional Medicare fce-for-service (FFS) program. Data from the 

Medicare Payment Advisory Commission (MedPAC) confirms this fact. Comparing 

apples to apples, MA plans, and especially MA HMOs, can provide the Medicare benefit 

package to seniors at a cost well below that of FFS. In 20 l2, based on bids from the 

plans, MedP AC reports that the average MA plan provides Medicare benetits at 98 

percent of FFS cosls. And the MA HMO plans did so at just 95 percent of FFS costs. I 

i Healthcnre Spending and the Aledicare Program: A Data Book, Medicare Payment AdvisOl), 

Commission. June 2012, p. 146 (http://v,'ww.medpflC,gnvh:hclPters/Jun J 2D,;taBoi)J-:5):..'<:Q.pdC). 
36 


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Tt's clear from this data that MA HMOs, which have, by far, thc largest 

enrollment numbers - I 1.4 million as of February 2012, according to MedPAC - have 

built the capacity over many years to deliver care more eftlciently than FFS. This should 

not be surprising. Medicare FFS is an extremely ine11icient model. It breeds 

Ihgmentation and undermines coordination, leading to low-quality care lor many seniors. 

The emphasis from the Centers for Medicare and Medicaid Services (eMS) on quality in 

the MA program is admirable. It would be even more effective ifFFS were rated on the 

same metrics. 

There is ample evidence that the United States continues to experience much 

waste in the health care delivery system, and shockingly low quality too. Recent Institute 

of Medicine studies leave little doubt about that. 2 But what is often not stated is 

Medicare FFS's role in the problem. Medicare FFS is the dominant payer in many 

markets, and its rate setting regulations become the default option for other payers too. 

The sheer size of Medicare FFS ensures that the entire delivery system is organized 

around its incentives. For those looking for the reasons American health care continues 

to perform poorly in important ways, they need look no further than Medicare FFS and its 

influence on how care is delivered tor evclyone. 

My second point is that the reductions in MA payments contained in the 2010 

health eare law will raise eosts for seniors and force many of them out of their MA plans. 

The cuts are very deep. According to the Congressional Budget Office (CBO), the total 

:'. See. for instance. Best Care at Lower Cost: The Path to Conti17uous~V Learnillg lfealth Care in America~ 

Institute of Medicine, S~ptember 6. 2012 (ht;:r:/jinm.edu.'Rerort::.'201:/He:;t-CaJe~a.t-Ll)\\'er-C\)sL-The-Path­

[(;--c: nrltin uou~,J v -l.(,;:jminl!:-H t.=uJ th~C an> in- Amcrica.aspx). 

2 
37 


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ten-year cut in MA payments is now estimated at $308 billion: $156 billion in direct MA 

payment cuts and S 152 billion in indirect MA reductions from the interactions with the 

other FFS cuts contained in the law. 3 That these CUlS will directly impacl the 

beneficiaries is indisputable. According to the most recent Trustees' Report, enrollment 

in MA will peak in 2013 at 13.7 million and then fall to 9.7 million in 20174 further, by 

law, MA plans must provide some percentage of the difference between their bids and the 

benchmark to the beneficiaries in the rorm of expanded benefits. Thus, reducing MA 

payments will, by definition, reduce benefits provided through MA plans to curr"nt 

enrollees. I co-authored a study with Robert Book in which we estimated that the 

average cut per MA enrollee would reach $3,700 by 2017. 5 

Why, if these cuts are so deep, has MA enrollment grown in 2012 and 2013? The 

answer is simple. For starters, the cUls are back-loaded. Through 2013, less than 10 

percent ofthe scheduled Medicare reductions will have gone into effect, and costs have 

risen modestly in recent years because of the slow economy. More importantly, eMS has 

sent an unprecedented, and perhaps unlawful, $8.3 billion to MA plans, filling in over 70 

percent of the cuts in 2012 alone ~- quite plainly because the agency wants to mitigate 

the impact of the cuts required by the 2010 law. There is no other way to explain what 

they are doing. Certainly there is no public policy rationale t(lf the payments, as the 

; Senak Finance Committee Minority Staff Press Release, Sepkmbcr 19,2012 

(http://\i.,:\,,,\'..'.fbJ.DLc. <;cn;:-~tc.Q .. )vhc\\'~,rt)om/rgnk i n ~/r(: lc:1sc/':'~.J=C)J69a5 4a-9t~5lJ-4 2hO-a ! d4-:; 6 76c8::>-l-·t40e). 

4 lOll Annual Repol'l a/the Board (?f"Trusrees a/the Federal Ho\piht/ Insurance and the Supplementat:), 

Medical1nsurance Trust Funds, April 2012, Table IV .Cl. p. 1 gO (t.~tn.:::(>~:\\~~.:~m.~:.gS::\'/RS5~~EJ::::~.\§.~i.:~.H~5.: 

DtlU-JnJ-S YStf-f:1 <:,/ S tat! "tic;.,-Tr(:nd~,-~md-R eports/R!.:-pnrt:.:Tru <:,tF u! :ds/D~)wn IOJd~/r R20 \2 .pdt). 

5 "Reductions in Medicare Advantage Payments: The Impact on Seniors by Region," Robert A. Book, 

Ph.D. and .lames C. Capretta, The Foundation, Backgrounder #2464. September 14,20 I 0 

3 
38 


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Government Accountability Office (GAO) has indicated." Once the artificial and 

temporary bump-up in payments is terminated, as it inevitably will be, MA plans will be 

forced to pare back benetits, and enrollment in the plans will drop. 

My third point is that MA plans are particularly important for lower-income 

seniors, and cuts in MA pa)111cnts will hit this population hardest. Lower-income seniors 

arc disproportionately represented in MA plans because they find tbe reduced costsharing in these plans attractive, especially at premiums that are usually well below the 

cost of Medigap coverage. In the 2010 study I co-authored witb Robert Book, we used 

earlier findings [rom AHIP to estimate that beneficiaries with incomes between $10,800 

and $21,600 were 19 percent more likely than the average beneficiary to enroll in an MA 

The MA program has impOliant features for the future ofthe Medicare program. 

Mi\ plans can provide innovations in ways that Medicare FFS cannot because Mi\ is not 

bOWld by FFS's payment structures. Moreover, the presence of the MA program ensures 

some level of choice for the beneficiaries, which is important for program accountability. 

[n recent years, there's been a lot of discussion of "delivery system reform." MA 

HMOs have proven that they can, in many parts of the country, deliver Medicare benefits 

Ii Te .... timony -presented to the House Oversight Committee, James Cosgrove. Ph.D., U.S. Government 

Accountability Office, July 25, :20 11 (hgi?_;[/0_~:~J:~h;hLh~:~!}5~A?,0~':·\~J?_~_9DEL~D~~\m_to_?:d5/;_~U~::Q?[GA~)~ 

~\:~gr~?Y.~::fmmfln~~~H!::I~gXg.;~::-.I~~Ji.!]}~:1JY::.Mh"-~!j_S:.~I~::b_~~·_~~E}g~;_:l~)~::.L~)}:H~Lt~J:L.~_~r.slD· 

7 Book and Capretta, September 20 12 (hnlrL'1U'-~n~fH0::~,L~!r~g/~?r~~:0:~,_r;:_~~}}:1/lQJJI(lHU/bb;_{<~:-LrsU). See also 

"'Low-Income and Minority Beneficiaries in Medicare Advantage Plans, 2006," America's Health 

Insurance Plans (Allll'), Center lor Policy and Research, September 2008 

(http://'''''"\\\'v.ahipr<:::;('ar-.:h,l)n.::.'rdb/J'vlAL[wv'ln~om<:Rq)()n:200X.rJf). 

4 
39 

f 

Chairman HERGER. Ms. Ignagni is recognized for 5 minutes. 

STATEMENT OF KAREN IGNAGNI, PRESIDENT AND CHIEF 

EXECUTIVE OFFICER, AMERICA’S HEALTH INSURANCE PLANS 

Ms. IGNAGNI. Thank you Mr. Chairman, Ranking Member 

Stark. We appreciate the opportunity to testify today on behalf of 


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40 

a program that serves 27 percent of Medicare beneficiaries. Our 

testimony focuses on three things: First, the specific programs our 

members have implemented to improve the effectiveness of care; 

second, the value Medicare Advantage plans bring to beneficiaries; 

and third, the impact of future cuts to the program, and a new premium tax that begins in 2014. 

Health plans in Medicare Advantage, as well as those serving 

employers and individual purchasers of coverage, are partnering 

with doctors and hospitals to change the way care is paid, by paying for the effectiveness of care provided rather than the volume 

of services delivered. We are working to change what is purchased 

by rewarding successful outcomes and employing other strategies 

to ensure that patients receive the right care in the right setting. 

For example, health plans offer customized programs and support 

services that are integral to avoiding hospital readmissions and reducing emergency room visits, while also addressing health care 

disparities, providing nurse hotlines, and offering personal health 

records. These programs and tools have been validated in peer-reviewed journals. Health plans also help patients receive the appropriate level of services post-discharge. These include follow-up calls 

from nurses to ensure that patients understand their drug therapy, 

their rehabilitation needs, and when they need to follow up with 

their physician. 

This follow-up also includes home health visits and instructions 

on how to use any medical equipment necessary at home. Health 

plans also are coordinating care to help patients with multiple 

chronic conditions navigate an increasingly complicated delivery 

system, as well as partnering with clinicians by supporting their 

ability to do complicated case management and improve quality of 

care by providing data about variations in care, best practices, and 

efficiency and effectiveness of treatment. 

Health plans also provide value to beneficiaries by providing 

strong consumer protections which are identified in our testimony, 

by protecting beneficiaries against unpredictable out-of-pocket 

costs, and by establishing care plans for beneficiaries which encourage them to get the preventive care they need, and providing a 

more organized support system for those with chronic illness. 

CMS is partnering with our plans in a variety of initiatives to 

expand these tools into the traditional program, and we believe 

these partnerships hold great promise. 

Two days ago, the Centers for Medicare and Medicaid Services 

announced information about the high quality affordable health 

plan choices that will be available in 2013 in the Medicare Advantage program. This announcement is good news, and clearly demonstrates that Medicare Advantage plans have been successful in 

delivering value to beneficiaries. Looking forward, however, we are 

concerned about the impact of ACA’s future cuts to the Medicare 

Advantage program. 

Our written testimony presented data from the Congressional 

Budget Office. Mr. Capretta just referred to those data, I won’t repeat it. But given the scale and scope of these reductions over the 

next few years, and since the majority of the reductions haven’t 

taken effect, we are seriously concerned about their potential impact. 


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41 

In addition, another element to this and to scaling the impact of 

potential reductions is it is going to be compounded by a new premium tax scheduled to begin in 2014 which will amount to $220 

per beneficiary in 2014. For Medicare Part D plans, the tax will increase premiums by an estimated $9. Given the size of the Medicare Advantage funding cuts and the new premium tax, if acrossthe-board sequestration cuts are triggered under the Budget Control Act of 2011, it could have serious impact on Medicare beneficiaries, and, place a financial burden on clinicians participating in 

the program. 

As the payment cuts take effect, Medicare health plans will continue to do everything they can to preserve benefits and keep coverage as affordable as possible for the millions of seniors and people with disabilities they serve. However, given the size of these 

cuts, along with the impact of the premium tax, we are concerned 

in the coming years about the potential for Medicare Advantage 

beneficiaries to face higher costs and coverage disruptions. 

We look forward to working with the committee to address these 

concerns and preserve Medicare Advantage as a choice for current 

and future generations of beneficiaries. Thank you very much. 

Chairman HERGER. Thank you. 

[The prepared statement of Ms. Ignagni follows:] 


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" ' TESTIMONY IS EMBARCOED UNTJL 9:30 AM ON FRIDAY, 

SEPTEMBER 21. 20 12'" 

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Ilolo o r r ri.-.t. II .. Jt~ PI ... in S. i~1 M .... ;."n 111 ... 1101 . ..... 

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S.pl<alMr 21, 20l l 
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I. Introduction 

Chairman Herger, Ranking Member Stark, and members of the subcommittee, I am Karen 

Ignagni, President and CEO of America's Health Insurance Plans (AHlP). AHIP's members 

provide health and supplemental benefits to more than 200 million Americans through employersponsored coverage, the individual insurance market, and public programs such as Medicare and 

Medicaid. 

OUf members are strongly committed to continuing to offer high quality coverage options to 

meet the health care needs of Medicare beneficiaries, and we appreciate this opportunity to 

testify on the Medicare Advantage program. 

OUf plans have played an important role in serving Medicare beneficiaries. Currently, morc than 

13 millions seniors and people with disabilities have chosen to enroll in Medicare Advantage 

plans because they value the improved quality of care, additional benefits, and innovative 

services these plans provide. In addition, our community is working closely with policymakers 

to improve care for beneficiaries who are dually eligible for both Medicare and Medicaid, with 

the goal of ensuring that these individuals with special needs receive the preventive care they 

need, along with coordinated care for their multiple chronic conditions and the services and 

support that will allow them to stay in their homes if they wish and are able to do so. 

Our testimony focuses on four broad topics: 

The leadership private plans are demonstrating in advancing delivery system reforms to 

improve quality and contain costs for Medicare beneficiaries: 

The value offered by private health plans partiei pating in the Medicare Advantage program; 

The impact of the Affordable Care Act (ACA) on Medicare Advantage enrollees; and 

The need for congressional action to reauthorize Medicare Advantage Special Needs Plans 

(SNPs). 
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II. What Health Plans Are Contributing to Delivery System Reform 

As policymakers consider how to sustain Medicare for generations to come, there are three areas 

where there is widespread agreement: (l) that health care costs arc rising at unsustainable rates; 

(2) that doctors and hospitals should be paid llw the erfectiveness of the care they provide, rather 

than the volume of services they deliver; and (3) that more can and should be done to ensure that 

patients are receiving the right care in the right setting. 

Private sector health plans - serving Medicare beneficiaries, as well as those under age 65 and 

enrollees ill Medicaid .... are demonstrating strong leadership in addressing these goals through 

innovative payment and delivery system reforms. These efforts are a critically impOIiant 

component of ensuring that our nation's public safety net continues to protect patients and is 

sustainable in the long run. 

While th~rc is no magic bullet for reforming the payment system and bringing costs under 

control, health plans have developed a roadmap for the system-wide changes that are needed. 

Through a variety of partnerships with providers and other stakeholders, health plans are 

transforming the health care system and bringing the following tools and programs to Medicare 

Advantage enrollees: 

Helping patients navigate an increasingly complicated health care system through innovative 

care coordination programs; 

Changing how they pay ror care through the introduction of prospective, risk-based payment 

systems; 

Working to change what we purchase by rewarding successful outcomes and high quality 

care to ensure that patients receive the right care at the right time in the right setting; 

Working with primary care physicians to expand patient-centered medical homes that 

promote care coordination and accountability ror clinical outcomes; 

Linking payment changes to new benefit designs that provide information on high 

pertorming clinicians and hospitals and encourage patients to usc them; 

2 
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Connecting clinicians with health plans' disease and case management services, embedding 

nurse case managers in provider practices. and offering clinical decision-support with the 

latest science and tools to inform the treatment decisions of providers; 

Offering intensive case management to help patients who are at high risk of hospitalization 

and providing them expanded access to urgent care centers, after-hours care and nurse help 

lines; 

Arranging for regular phone calls and in-home visits for paticnts discharged from the hospital 

to ensurc that they keep their follow-up appointmcnts, take their medications, and reccive 

needed home care; 

Utilizing the latest technology to identify gaps in care, target potentially at-risk patients for 

support and intervention, and give physicians real-time data on how their patients are doing. 

As a rcsult ofthesc cfforts, health plans are now reporting tangible resuits in several key areas: 

improvements on quality metrics; reductions in unnecessary hospital admissions, readmissions, 

and emergency room visits; and reductions in health eare cost growth. Building upon existing 

private sector initiatives, health plans also have developed important partnerships with the 

Centers it)r Medicare & Medicaid Services (CMS) in primary care, and are actively working to 

coordinate on comprehensive payment alternatives and to partner on standardizing perfort11anee 

metrics used in the private and public sectors. 

Recognizing the importance of these public-private partnerships, our members appreciate that 

CMS has adopted an open process for collaborating and communicating with health plans to 

advance our shared goal of serving the best interests of Medicare beneficiaries. 

III. The Value Offered by Health Plans Participating in the Medicare 

Advantage Program 

Private health plans and insurers have a strong track record of offering high quality coverage 

options, with innovative programs and services to serve the Medicare population. In addition, 

plans are participating in innovative programs to meet the needs of dual eligibles and other 

beneficiaries with complex needs, using individualized care plans and care management, 

facilitating transitions between care settings, and employing other strategies to improve care and 

services for these vulnerable populations. 
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The Role of Medicare Advantage Plans as a Health Care Safety Net 

More than 13 million Medicare beneticiaries - accounting for roughly 27 percent of all 

beneficiaries nationwide currently are enrol1ed in Medkare Advantage plans and are receiving 

comprehensive, high quality, affordable coverage with benefits and innovative services that go 

well beyond the coverage offered by the Medicare fee-far-service (FFS) program. Survey 

findings' show that 88 percent of Medicare Advantage enrollees are satisfied with their coverage 

overall and 92 percent are satistied with their doctor. 

I. MA Enrollees Receive Coordinated Care. Seniors and people with disabilities are 

choosing Medicare Advantage plans because they have developed systems of coordinated 

care for ensuring that beneticiaries receive health care services on a timely basis, while also 

emphasizing prevention and providing access to disease management services for their 

chronic conditions. These coordinated care systems provide tor the seamless delivery of 

health care services across the continuum of care. Physician services, hospital care, 

prescription drugs, and other health care services are integrated and del1vered through an 

organized system whose overriding purpose is to prevent illness. improve health status, and 

employ best practices to swiftly treat medical conditions as they occur, rather than waiting 

until they have advanced to a more serious leve1. 

Medicare Advantage plans also help to reduce emergency room visits for routine care, and 

ensure prompt access to primary care physicians and specialists when care is needed. In 

addition, they promote communication among treating physicians about the various 

treatments and medications a patient needs. 

2. Medicare Advantage Enrollees Have Strong Consumer Protections. By law, coverage is 

guaranteed issue and Medicare Advantage plans oCfer coverage to all benellciaries regardless 

of age or health status, although Special Needs Plans enroll only beneficiaries who meet 

criteria for the SNP type (e.g., dual eligibles, eligible for an institutional level of care, 

speciiied chronic conditions). All beneficiaries who choose a plan pay the same premium as 

all other plan enrollees. eMS perfomls annual reviews of Medicare Advantage plan benefit 

packages to ensure they are appropriate to beneficiaries with all health conditions. In 

1 Survey by Ayres, McHenry & Associates and the Feldman Group on hehalfof AHTP, June 11-15,2008 

4 
47 


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addition, nearly 90 percent of all Medicare Advantage enrollees are enrolled in Medicare 

Advantage plans that ofTer Part D prescription dlUg benefits, which allows beneliciaries to 

receive medical and prescription drug coverage from the same health plan .... similar to how 

people receive coverage in the commercial market. Medicare Advantage plans typically redesign and reduce the cost sharing that applies under Medicare FFS. They may offer lower 

cost sharing as an additional benetit and typically eliminate deductibles and establish 

copaymcnts rather than coinsurance. 

Fll1iher, a Medicare Advantage enrollee who is not satisfied with a plan's decision about 

providing or paying for covered services may exercise appeal rights through an internal plan 

appeals process, as well as automatic external review if the plan's decision is not wholly in 

the beneliciary's favor. Beneficiaries who choose to join Medicare Advantage plans also 

benefit from plan compliance with detailed requirements associated with CMS oversight 

activities that include operational and financial audits, evaluation of quality improvement 

projects, validation and evaluation of data on a broad spectrum of operational activities (e.g., 

customer service, resolution of appeals, and provider network adequacy), review and 

approval of plan marketing materials, and strong standards for the conduct of marketing 

activities. 

3. MA Enrollees Are Protected Against Unpredictable Out-of-Pocket Costs. Medicare 

Advantage plans also protect beneficiaries from catastrophic health care costs. In 2012, all 

Medicare Advantage plans olTer an out-of-pocket maximum limit for beneficiary costs, and 

about 78 percent of Medicare Advantage enrollees are in plans that have annual out-ole 

pocket maximums ofS5,OOO or less, providing greater protection than the maximum $6,700 

cap that is required by law. These out-ol~pocket maximums - which are not olTered by the 

Medicare FFS program - help protect Medicare beneticiaries from catastrophic health care 

expenses that othenvise might pose a serious threat to their financial security. 

Medicare Advantage plans also help reduce out-of-pocket costs for enrollees by reducing 

premiums for Part B and Part D, and by limiting cost-sharing for Medicare-covered services, 

including primary care physician visits and inpatient hospital stays. 

4. MA Enrollees Receive Additional Services, Medicare Advantage plans otTer a range of 

additional services that build upon the coordination of care, consumer protections, and 

protection against high out-of-pocket costs that are available to their enrollees. These 
48 


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features of the program, combined with the innovative services offered by plans, are integral 

to improving the efficiency and effectiveness of health care for beneficiaries. The following 

are additional specific examples of the extra benefits and services that are not included in the 

Medicare FFS program, but are otfered by Medicare Advantage plans to improve enrollees' 

coverage and manage their overall health and well-being on an ongoing basis: 

Case management services 

Disease management programs 

Coordinated care programs 

Prescription drug management tools integrated with medical benefits 

Tools and data collection to address disparities in care for racial and ethnic minorities 

Nurse help hotlines 

Enhanced coverage of home infusion, personal care and durable medical equipment 

Personal health records to offer beneficiaries greater control over their health information 

and to coordinate information better 

Vision, hearing, and dental benefits coordinated with medical services 

5. Peer Reviewed Studies Show the Value of Medicare Advantage. As a direct result of 

these additional benefits and services, peer reviewed research has demonstrated that 

Medicare Advantage plans are more etfective than the Medicare FFS program at addressing 

crucial patient care issues facing the nation, including reducing preventable hospital 

readmissions, increasing primary care" isits, and managing chronic illnesses. The following 

are several examples: 

One recent study published in the American Journal olManaged Care (AJMC) found that 

the Medicare Advantage readmission rate was about 13 percent to 20 percent lower than that 

in the Medicare FFS program? [n addition, a study published in the January 2012 edition of 

Health Affairs found that beneficiaries with diabetes in a Medicare Advantage special needs 

plan (SNP) had "seven percent more primary care physician office visits; nine percent lower 

~ Lemieux, .len: :viA; Cary Sennett, MD; Ray Wang:, MS; Teresa Mulligan, MHSA; and Jon llumbaugh, MA 

"Hospital Readmission Rates in Medicare Advantage Plans." American Journal of ,\1anuged Care. February 2012. 

Vol. 18, no. 2, p. 96-104. Thi::, study \vas preceded by a series or working papers and reports published AHTP's 

Center for Policy and Research. One earlier ::.tudy based on an analysis ofho~pital discharge dataset, in states 

estimated that risk-adjusted 30-day readmissions per patient witl1 an admission ranged from 12-27 percent Im,ver in 

Medicare Advantage than in Mcdicare FFS among patients with at least onc admi%ion. See: 

hllrL"l\.~"l ..... \' .nhjp.,~:rg.'1·h.gmit,1j-Jif:".~!!,trn~ .... d.9D.j 

6 
49 


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hospital admission rates; 19 percent fewer hospital days; and 28 percent fewer hospital 

readmissions compared to patients in FFS Medicare.,,3 

Additional research co-authored by researchers affiliated with The Brookings lnstitution 

concluded that Medicare Advantage plans outperformed the Medicare FFS program in 9 out 

of II clinical quality measures.' This means that Medicare Advantage enronees received the 

level of effective care recommended by a doctor with greater frequency than patients in 

Medicare FFS, for 9 of the 11 procedures studied. These lindings conlinn that Medicare 

Advantage plans deliver eftcctive and consistent care for a number of important procedures 

at higher rates compared to the Medicare FFS program. This added value is a factor in 

improving the health and wen-being of Medicare Advantage enronees - especiany those with 

high-risk conditions, such as diabetes, heart disease, breast cancer, and depression. 

Another recent study, conducted by researchers at the HHS Agency for Healthcare Rescarch 

and Quality (AHRQ) and the Research Triangle Institute (RTI) and published by the 

Medicare and Medicaid Research Review (a eMS journal), demonstrates the positive 

impacts of Medicare Advantage compared to the Medicare FFS program in terms of 

improving quality primary care by reducing preventable hospital admissions.' The three 

states examined in this study (New York, California, and Florida) were chosen due to 

historically high rates of Medicare managed care enrollment. Researchers used 2004 hospital 

discharge data from the Healthcare Cost and Utilization Project (HCUP). This year was 

chosen because 1·IMOs were 1110st prevalent in the market at that time, providing an 

opportune time to test the impact of Medicare Advantage on preventabk hospitalizations. 

The study found that preventable admissions, relative to the control group, were lower for 

Medicare Advantage enrollees than Medicare FFS enrollees in all three states. The study 

concluded that "MA plans have added value to the quality of primary care fur the elderly by 

reducing preventable hospitalizations." 

'Cohen, Robb, Jeff Lemicux. JeffSdlOenborn, and Teresa Mulligan. "Medicare Advantage Chronic Special Needs 

Plan Boosted Primary Care, Reduced Hospital Use Among Diabetes Patients." Health .1ffairs. January 2012. Vol. 

31. no. 1,1".110-119. 

~Brennan, NiaJ1 MPP & Shepard, Mark BA. Comparing Quality (~fCare ill the Aledicare Program, The American 

~ournal of Managed Care. November 201 D.Vol. 16 No. J J, p. 841-848.(www.tljmc.coJn) 

) Medicare Managed Care Plan Performance: A Comparison across Hospitalization Type. Jayasrec Basll & Lee 

Ri"ers Mobley. Medicare & Medicaid Research Review, 20J 2: Volume 2, r\umbcr 1 

7 
50 


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The value of Medicare Advantage is filrther demonstrated by another study", also conducted 

by an AHRQ researcher, showing that enrollment in Medicare Advantage plans was 

associated with signi Ikan! reductions in racial and ethnic differenees in preventable 

hospitalization rates and improved quality primary care. Since access to quality primary care 

can help avoid preventable hospitalizations, this finding suggests that Medicare Advantage 

plans may improve the quality of primary care and reduce current disparities in this area of 

health care. 

Leaders in the policy and scientific communities have clearly indicated that meeting these 

challenges is the key to improving the efficiency and effectiveness of the health care system. 

Private health plans already have a strong track record in these areas and are continuing to 

advance these reforms in the Medicare Advantage program and throughout the broader health 

care system. 

IV. Assessing the Impact of Future ACA Cuts on Medicare 

Advantage Enrollees 

Plan sponsors are doing everything they can to offer coverage options that meet the needs of 

Medicare beneficiaries. The good news in rccent days about the continued availability of high 

quality, affordable health plan choices in the Medicare Advantage program demonstrates that our 

members have been successful in delivering value to the beneficiaries they serve through 

systems of coordinated care and innovative services that improve the et11ciency and elTectiveness 

or health care. Looking forward, however, we continue to be concerned about the impact "fthe 

ACA's future cuts on Medicare Advantage enrollees, as well as the premium tax that begins in 

2014. 

{, Juyaree BasLl. "Medicare managed care and primary care quality: Examining racial/ethnic effects acros~ states." 

Health Care Management Science. September 2011 

8 
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Cuts in Medicare Advantage Funding 

According to the 2010 estimates from the Congressional Budget Omce (CBO)7, the ACA will 

reduce lunding for the benelits of Medicare Advantage enrollees by more than $200 billion over 

ten years (20 I 0-20 19). CBO estimated (hat the law will directly reduce funding for the Medicare 

Advantage program by an estimated $136 billion in this time frame. CBO ti.lrther estimated that, 

because of the linkage between Medicare Advantage payment benchmarks and Medicare FFS 

spending, the AC A's other Medicare FFS reimbursement changes will indirectly reduce funding 

for Medicare Advantage by an additional $70 billion over ten years. More recently, in July of 

this year, CBO issued revised estimatesR indicating that the ACA would direct(F reduce Medicare 

Advantage funding by $156 billion in the current ten-year budget window (2013-2022). This 

estimate did not include information on (he ACA's indirect cuts (0 the Medicare Advantage 

program. 

Estimated ACA MA Funding Reduction, 2013-2022 ($ billion) 

160 154' 

140 131. 120 111 I I 100 92 I 80 74 

60 5& I I I 40 I I 40 I 22 20 I I I I I I 8 

• $S 

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 

III Previous Years' Reductlons $i! Annual Reduction 

Source: eBO letter to the Honorable John Boehner (July 24, 2012) 

'NOTE - Rounding Effect: CBO reports totai lO-vr funding cut" $156 billion 

7 CBO. Selected eBO Publications Related to Health Care Legislation (2009-2010), December 2010. pages 29-34 

1> CBO. Letter to House Speaker John Bochner, July 24, 2012 

9 
52 


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Given the scope and scale of these funding cuts, we have serious concerns ahout their likely 

impact. Because the vast majority of the ACA's cuts to the Medicare Advantage program have 

not yet taken effect, benet1ciaries have not yet felt their full impact. This impact will be 

heightened by a new premium tax scheduled to begin in 2014. 

Premium Tax on MA and Part D Programs 

Medicare Advantage enrollees also will be impacted by the new health insurance premium tax 

established by tbe AC A. An actuarial study· by thc Oliver Wyman finn, commissioned by 

AHIP, found that the new premium tax is likely to increase costs - through higher premiums or 

higher cost-sharing - for benet1ciaries enrolled in Medicare Advantage plans and Medicare Part 

D prescription drug plans. 

According to the Oliver WY1nan study, Medicare Advantage plans will pay $220 per mcmber in 

2014 and $450 per member in 2023 as a result of this tax, for a total tax burden of53,590 per 

member over ten years. For Medicare Part D plans, the tax will increase premiums by an 

estimated $9 in 2014 and $20 in 2023, for a total increase of $161 over 10 years. 

Cost [ncrease for Medicare Advantage Enrollees Due to ACA Premium Tax 

$3,590 

$3,500 

$3,000 $2.,110 

$l,SOU $1.%0 

$1.30C; 

I Sl,530 I 

$1,50t) 

$2))00 

$520 

$500 $220 

$0 .. - •..... 2014 HilS 2016 2017 201B 2019 2020 2021 2022 lOB 

® P!ev!Qus Years' hueases m Ap.p.t:a\ per Capita I,e! ease 

Source; Oliver Wyman study, October 2011 

'J Carlson, Chris. "Estimated Premium Impacts of Annual Fees Assessed on l-il'aith Insurance Plans." Oliver \Vyman. 

310ctohcr2011. 

10 
53 


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Cost Increase fOI' :\ledicare Part D Enrollees Dnt' to ACA Premium Tax 

$161 

$160 

$1.:10 

$120 

$100 

$80 $6& 

S60 551 

$40 

52:) 

$0 I 2014 2015 1015 2017 2018 2019 l020 2021 2022 2023 

Source: Oliver \I>/yman study, October 2011 

In addition to the ACA's Medicare Advantage funding cuts and the new premium tax, another 

serious concern is that across-the-board sequestration cuts, triggered under the Budget Control 

Act 01'20 II, would further limit the resources available to support the benclits of Medicare 

Advantage enrollees. These additional cuts - if they are implemented - could fUlihcr disrupt 

coverage for Medicare Advantage beneficiaries and place a financial burden on providers 

participating in the program. 

Enrollment Impact 

The ACA's likely impact on the Medicare Advantage program is highlighted by CBO 

projections showing that the ACA will adversely impact enrollment in the Medicare Advantage 

program. In its March 2012 baseline, CBO projected that the ACA's funding cuts will cause 

Medicare Advantage enrollment to decline to 10.7 million in 2019. This decline represents a 23 

percent reduction from the pre-ACA enrollment level of 13.9 million that was anticipated felT 

2019 according to eBO estimates issued in 2010. 

II 
54 


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16 

14 

12 

10 

2019 MA Enrollment Estimates, Pre and Post ACA 

(millions) 

13.9 

Impact on V olnerable Beneficiaries 

§®: PreACA 

(@PostAc/:'" 

In evaluating the impact of the ACA's funding cuts, it is important to recognize the crucial role 

the Medicare Advantage program plays as a health care safety net for many low-income 

beneficiaries and other vulnerable populations. 

For years, AHIP has been tracking government data that show how valuable Medicare 

Advantage plans are for vulnerable beneficiaries, particularly those who are not el1gible for 

Medicaid and do not have employer-sponsored retiree benefits. For many of these individuals, 

Medicare Advantage may be their only option for comprehensive, affordable coverage. 

Key lindings of our most recent analysis '0, based on 20 I 0 data and published in May 2012, show 

that: 

l() AHIP Center for Policy and Research, Low-Income & Minority Beneficiaries in Medicare Advantage Plans, May 

2011 

12 
55 


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Thirty-nine percent of all Medicare benetlciaries had incomes below $20,000. By 

comparison, 43 percent of Medicare Advantage enrollees had incomes below $20,000. 

Sixty-tour percent of African-American Medicare Advantage enrollees and 82 percent of 

Hispanic Medicare Advantage enrollees had incomes below $20,000. 

These findings demonstrate that Medicare Advantage plans are important to many benelleiaries 

who cannot atford the high out-of-pocket costs they would incur under the Medicare FFS 

program. These vulnerable beneticiaries will pay a heavy price iflhe ACA's Medicare 

Advantage funding cuts are fully implemented. 

Recent data clearly demonstrate that Medicare Advantage plans will continue to do their best to 

mitigate the impact of these funding cuts in the future. However, past history" suggests it is 

likely that the continued erosion of Medicare Advantage tunding eventually would lead to 

increased costs for beneficiarics and reduced access to health plans that arc demonstrating better 

perlormance on quality than Medicare FFS. We look forward to working with the Committee to 

mitigating the impact of these future cuts on beneliciaries. 

V, ReauthOl'ization of Medicare Advantage Special Needs Plans 

Medicare Advantage Special Needs Plans (SNPs) have played an important role in meeting the 

health care needs of Medicare beneficiaries. SNPs serve as a crucial safety net for approximately 

1.5 million of' our nation's most vulnerable seniors, many of'whom have disabilities and chronic 

conditions. Enrollees in SNPs benefit from the coordinated care, disease management, and other 

initiatives our members have pioneered to ensure that they receive high quality health care across 

the entire continuum of services they need. 

SNPs were authorized by the Medicare Modemization Act of 2003 to provide new coverage 

options to beneficiaries with specific health care challenges. Three categories ofSNPs are 

authorized undercurrent law: (1) Dual Eligible SNPs serve beneficiaries who are dually eligible 

for both Medicare and Medicaid; (2) Chronic Care SNPs serve beneficiaries with severe or 

disabling chronic conditions; and (3) Institutional SNPs serve benellciaries who live in skilled 

II According to an analysis of eMS data from 1999 to 2003, after enactment of the Balanced Budget Act of 1997, 

nearly 2.4 million Medicare beneficiaries were affected by plan withdrawals and benefit reductions. 

13 
56 


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nursing facilities or other long-term care institutions or who qualify for an institutional level of 

care and live in the community. All three types orSNPs tailor their benefits and services to 

address the unique needs of the specific populations they serve, and a number of studies indicate 

that SNPs are providing a high level of value to both beneficiaries and taxpayers. 

Dual Eligible SNPs: Dual Eligible SNPs are at the forefront of providing cost errective, 

quality care to vulnerable populations. Several studies 12 have documented their success in 

achieving cost savings for state Medicaid programs by reducing inpatient hospital admissions 

and institutionalization for their dually eligible members while providing patient-centered, 

coordinated care. By targeting programs to meet the distinct needs of special populations of 

beneficiaries, Dual Eligible SNPs are demonstrating that they provide high quality care to 

bene1iciaries with unique needs. 

Chronic Care SNPs: Nearly 25 percent of Medicare beneficiaries have five or more chronic 

conditions and account for 68 percent or Medicare spending." Tailored programs that 

address these conditions better coordinate and manage care and may improve quality oflife 

and reduce long-term costs for the Medicare program by preventing unnecessary 

hospitalizations. Examples or activities typically undertaken by Chronic Care SNPs include 

engaging care coordinators with expertise in the specific condition addressed by the plan, 

developing provider network.'; that specialize in the condition targeted by the plan, and 

providing extended dlUg coverage through the Part D coverage gap for medications 

imp0l1ant to treating the condition that is the focus orthe SNP. 

Institutional SNPs: Beneficiaries who qualify for an institutional level of care can 

particularly benefit from the special attention that Institutional SNPs can provide. These 

plans typically link beneficiaries with care coordinators - generally nurse practitioners - who 

manage teams of health care providers to ensure that the needs of beneficiaries are being met. 

These teams also include social workers, behavioral health specialists, and pharmacists who 

educate beneficiaries about their conditions, monitor health status, and identify health care 

and other needs. Independent studies have demonstrated that the model or care used by 

lnstitutional SNPs improves health outcomes. A 2003 University or Minnesota study found 

that enrollees in an Institutional SNP experienced fewer hospitalizations, reduced emergency 

department visits, and decreased hospital length of stay in comparison to other nursing home 

patients. 14 

1:C Sce for example "MassHealth Senior Care Options Program Evaluation: Pre~SCO Enrollment Period CY 2004 

and post-Seo Enrollment Period CY 2005 Nursing I-lome Entry Rale and Frailty Lc\'el Comparison~," JE1\ 

Associates Incorporated and The Lewin CJroup, "fncrea"ing t:se of the Capitated Mode! for Dual Eligibles: Cost 

Savings Estimates and Public Policy Opportunities." (November 2008) 

jJ Anderson, (i. F., "Medicare and Chronic Conditions", New England Journal of Medicine,. Vol. 353(3):305-309, 

2005. 

1-1 Kant', RL et a!. "The Effect of Evercare on Ho"pital Use." Journal of American Geriatrics Societ.\'. 

2003;51 (10): 1247-1434 

14 
57 

f 

Chairman HERGER. Dr. Schwab is recognized for 5 minutes. 

STATEMENT OF TIM SCHWAB, M.D., CHIEF MEDICAL OFFICER, 

SCAN HEALTH PLAN 

Mr. SCHWAB. Thank you, Chairman Herger, Ranking Member 

Stark, and members of the Health Subcommittee. My name is Tim 

Schwab. I am chief medical officer of SCAN Health Plan in Long 

Beach, California. I am board certified in internal medicine, and 

have been working at SCAN for nearly 25 years. I appreciate the 

opportunity to appear before you today to discuss the innovative 


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58 

programs that SCAN has put in place to meet the needs of our 

most vulnerable and frail members. 

My testimony will focus on SCAN’s Special Needs Plans, or 

SNPs. SNPs serve Medicare beneficiaries with highly complex 

health needs. There are three types of SNPs. First, institutional 

SNPs, or I–SNPs, serve individuals who reside in institutional settings or who live in the community but require an institutional 

level of care. SCAN is the Nation’s largest community-based I– 

SNP. 

Second, chronic or C–SNPs, which serve individuals living with 

multiple chronic conditions. SCAN has a C–SNP that focuses on 

end-stage renal disease. 

And third, dual eligible SNPs, or D–SNPs, which serve dual eligible beneficiaries. SCAN runs California’s only fully integrated dual 

eligible SNP. 

All in all, SCAN serves 16,000 individuals in Special Needs 

Plans. In addition, SCAN Health Plan is the Nation’s third largest 

not-for-profit Medicare Advantage plan. We were founded in 1977 

by senior citizens in Long Beach who worried about the prospect 

of declining health and loss of autonomy. These citizen activists 

helped design a program of extra services and supports to keep 

them living in their own homes and not in a nursing home. Since 

then, SCAN has helped nearly 100,000 individuals avoid or postpone a nursing home stay. When Special Needs Plans came along 

in 2006, they reflected SCAN’s mission to help seniors maintain 

their health and independence through specialized care and attention. Ideally, the SNP model was the same as SCAN’s, placing the 

beneficiary at the center of care. It was a natural transition to 

move our beneficiaries to SNPs and continue with their personal 

care plans, care transitions assistance, disease management, and 

medication therapy management. 

Well done, this model can significantly improve health outcomes 

and bring down the cost of care. Let me give you an example. An 

April 2012 study by Avalere Health found that SCAN’s dual eligible members had a hospital readmission rate that was 25 percent 

lower than dual eligibles in Medicare fee-for-service with identical 

risk profiles. The study also found that SCAN performed 14 percent better than fee-for-service on Prevention Quality Indicator, or 

PQI’s, overall composite, keeping people out of the hospital to begin 

with. Keeping people out of the hospital saves money. Based on results of a matched cohort analysis, if California fee-for-service 

duals had the same hospitalizations and readmission rates as 

SCAN’s duals, this would result in at least $50 million in annual 

savings to Medicare fee-for-service in California. Studies are useful, 

but let me give you a real example. Mr. A, a native Spanish speaker, recently enrolled in a SCAN D–SNP. Like all SCAN enrollees, 

he filled out an initial health assessment. In it, he revealed that 

over the last few weeks he felt down, depressed, or hopeless more 

than half the days. A SCAN case manager was able to reach Mr. 

A and perform an assessment. 

The manager identified three concerns: Depression and suicidal 

ideation, poor relationship with his primary care physician, and inadequate access to needed psychiatric care. The assessments were 

shared with the PCP, and a behavioral health specialist recVerDate Mar 15 2010 05:08 Jun 06, 2013 Jkt 080842 PO 00000 Frm 00062 Fmt 6633 Sfmt 6602 E:\HR\OC\80842.XXX 80842

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59 

ommended partial hospitalization. The team partnered with the 

medical group to coordinate services and address language-related 

barriers. 

And they connected him with a Spanish-speaking psychiatrist 

and new PCP. Today, Mr. A has that new PCP, and is visiting his 

psychiatrist regularly, and is no longer having the suicidal ideations. The SNP model of providing patient-centered coordinated 

care to vulnerable populations has been a success. Unfortunately, 

the authorization is set to expire at the end of 2013. Congress 

should act as soon as possible to extend SNPs for a period of at 

least 5 years. Moving quickly is imperative. Plans must file their 

notices to offer these plans for 2014 by November of this year. A 

multi-year extension would provide stability to beneficiaries, 

States, and health plans to ensure beneficiaries do not experience 

a dangerous lapse in their care. In addition, my written testimony 

includes a number of other recommendations to strengthen SNPs 

to give beneficiaries better care. People who are frail, disabled, and 

chronically ill—— 

Chairman HERGER. Dr. Schwab, if you could conclude. 

Mr. SCHWAB [continuing]. Are poorly served by fragmented 

models. They deserve the specialized treatments. SNPs are working, and we ask that you let them continue to work. Thank you. 

Chairman HERGER. Thank you very much. 

[The prepared statement of Mr. Schwab follows:] 


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***TESTIMONY IS EMBARGOED UNTIL 9:30 AM ON 

FRIDAY, SEPTEMBER 21, 2012*** 

Testimony 

for 

House Ways & Means Committee 

Subcommittee on Health 

Medicare Advantage Special Needs Plans 

by 

Timothy Schwab, MD, FACP, MHA 

Chief Medical Officer 

SCAN Health Plan 

September 21, 2012 
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1. Introduction 

Chainnan Herger, Ranking Member Stark, and members of the subcommittee, I am Dr. Tim 

Schwab, Chief Medical Officer at SCAN Health Plan (SCAN). SCAN is the third largest not-for 

proJil Medicare Advantage Prescription Drug (MAP D) plan in the Unitcd States, serving 

approximately 130,000 members in California and Arizona. While most of SCAN's members 

are over the age of 65, we also provide care to some younger, disabled individuals who are 

dually-eligible t,x Medicare and Medicaid benefits ("dual eligibles"). 

We appreciate this opportonity to testify on the innovative programs that SCAN has put in place 

to meet the needs or our most YlI1nerablc and Frail members. Tn particular, my testimony will 

t()eus on SCAN's Special Needs Plans (SNPs). These Medicare Advantage (MAl plans serve 

members who reside in institutional settings, or who reside in the community but require an 

equivalent level of care; manage multiple chronic conditions; andior are dual eligibles, Since the 

program's inception. SNPs have pioneered sU(.;cessful strategies to manage the care of Medicare 

benellciaries with complex health needs. Our testimony includes the [allowing: 

An introduction to SCAN and thc people that we serve: 

A brief background on SNPs, and the added value that they provide to the Medicare 

program; 

The successful health outcomes and cost savings that SCAN~s SNPs have produced; and 

Recommendations fC)l" strengthening SNPs for Medicare beneficiaries going fonvard. 

n. SCAN Health Plan 

SCAN has a long history or serving older adults with complex health situations. SCAN was 

lounded in 1977 by a group of Long Beach, CaliJ()rnia senior citizen aelivists who were 

frustrated by a lack of access to health and social services that addressed their specific needs, 

They specifically wanted assurance that they could continue living in their O\Vll homes even if 

their declining health qualified them tor a nursing home. SCAN's mission today is the same as it 

was then: to develop innovative ways to help our members manage their health and live 

independently. For more than two decades, SCAN participated in Medicare's Social HMO 

Demonstration, incorporating long-term services and supports (LTSS) with a comprehensive 

program of assessment and care management. It was through our ~xperlence as a Social HMO 

that SCAN developed an expertise in crafting benetits and services of unique impOltance to 

persons with special care requirements. 

Because of the complex nature of our members' health conditions. SCAN has created a carc 

management model that emphasizes prevention and early intervention, with a keen foclis on 

medication management. Our model spans the continuum of a beneficiary's health status. OUf 

disease management programs focus on recognizing disease-specific symptoms and actions to 

take, when to call the doctor or seek urgent/emergent care. nutrition, self-management and 

healthy behaviors, advance care planning and medication management. Highly-trained care 

teams address the complex needs of the chronically ill population, and each program is 

2 
62 


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coordinated with all others to ensure safe and effective care transitions between all levels of care 

and providers. All those involved work together in otTering a person-centered, holistic approach 

for persons "itll multiple, complex, and ongoing care needs. The NelV England Journal of 

~l1edicine has cited SCAN's model as an exampk of a successful investment in primary care to 

provide beller care at reduced costs through reductions in the use of hospitals and emergency 

rooms. l 

III, Background and Value-Add ofSNPs to the Medicare Program 

The hipartisan Medicare Modernization Act of 2003 (MMA) estahlished a new type of' MA plan 

that focused on providing coordinated care to individuals with particularly complex health 

conditions. Congress intended these "Special Needs Plans" (SNPs) to exclusively serve one of 

three types of special needs individuals: (1) institutionalized beneficiaries, or individuals living 

in the community who require an equivalent Icvel of care (l-SNP); (2) dual eligibles (D-SNP); 

and/or (3) beneticiaries with severe chronic conditions (C-SNP)2 Because SNPs target their 

enrollments to particular patient populations, they can design programs that meet a group's 

unique health care needs and successfully reduce hospitalizations and instilutionalizations. 

All SNPs must offer Medicare Parts A, B, and D benefits, and must timction under most of the 

same rules govcming MA plans, including payment methodology. Additionally, SNPs are 

statutorily and administratively required to tailor benefits and services to their unique targeted 

populations. One difference is that Medicare enrollees may not have to wait until a new plan 

year to join SNPs. A person who reaches institutional or dual eligible stallis may enroll in a SNP 

at any point throughout the year. Beneficiaries with chronic conditions have a one-time special 

election period. based upon the time at which they are diagnosed with the chronic condition.' 

Since 2003, Congress has enacted additional requirements j(Jf SNPs aimed at improving SNP 

per[om1ance and quality. These include: 

National Committee on Quality Assurance (NCQA) approval by 2012 

Individual care plans developed with input from benetlciaries and, if desired, families 

Annual comprehensive assessment of enrollee's physical, functional, and psychosocial 

health 

Intcrdisciplinary care teams with composition based on special needs of targeted 

enrollees 

Third party "alidation of institutional level of care equivalence 

I Bodenheimer T., Berry-Millet R. (2009) Follow the Money - Controlling Expenditures by 

Improving Care for Patients Needing Costly Services. New England Journal of Medicine, 

361:l521-1523. 

Fact Sheet & Data Summary. Centers j()f Medicare and Medicaid 
63 


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Mandatory contracts with state Medicaid agencies for contract year 2013 and beyond 

\vhich require D-SNPs, at a minimum, to: 

o Coordinate Medicare and Medicaid henefits and services; 

o Provide or arrange for the provision of Medicaid services; 

o Ensure that beneficiaries are not being charged higher cost sharing than Medicaid 

fee-for-service; 

o Include prohibitions in provider contracts against halance hilling; and 

o Include in ibeir summary of benefits a list of all Medicaid benefits to which the 

beneficiary is entitled in his or her state of residence, and which of these services 

are covered by the plan. 

In addition, CMS rules require all SNPs to provide additional benetlts and services of unique 

importance to their targeted populations - in addition to all those provided by standard MA plans 

- without additional payment. They must also attest to hundreds of SNP-specific requirements 

for starting, health risk assessment, individual care plans. interdisciplinary care teams, provider 

networks, quality, etc. as a requirement for licensure. Further, to receive NCQA approval, SNPs 

must provide an extensive narrative description of their Model of Care (MOe), and supportive 

documentation, for the II MOe domains. 

As of September 2012, over 500 SNPs are serving 1,530,935 beneficiaries across the United 

States. Of the total SNP enroliment, 1,259,446 beneliciaries are enrolled in a D_SNP4 SCAN 

runs the nation's largest non-institutional I-SNP and one of the lew CMS-certified ful1yintegrated D-SNPs (FIDESNPs) that provides extensive integration of Medicare and Medicaid 

benefits and services under a single program. In addition, SCAN provides specialty care for 

persons \\'ith end-stage renal disease through a C-SNP. 

The advantages of SNPs to beneficiaries and public payors alike are clearly evident in the results 

of the SNP Alliance's 2010 Annual Member ProJile. The SNP Alliance represents 30 

organizations serving over 650,000 beneficiaries in morc than 250 SNPs. The most recent 

profile shows that SNP Alliance members serve significantly more complex, high-need 

beneficiaries than those in Medicare fee-for-service (FFS). For example, while the average risk 

score for FFS beneficiaries living in institutions \vas J .84, SNP Alliance members' median risk 

score lor I-SNPs was 2.14, with an upper range of 2.27. The average risk score for SNP Aliiance 

fully-integrated FIDESNPs was 1.49 compared to 1.27 for dual eligibles in FFS. SNP Alliance 

enrollees also had, on average, twice as many HCC conditions as beneliciaries in FFS. Despite 

these significantly higher risk levels, SNP Alliance members have been highly effective in 

reducing hospital utilization, readmissions, and emergency room visits . 

., Special Needs Plan Comprehensive Report. eMS Healib Plan Management System. 

September 2012. Amilahle at http://,,w'',nhrg,<)rg/media/1548i\/snp.)OI2 ... 09,l'dl. 

4 
64 


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IV. SCAN's S:-IP Experience Shows Improved Health Outcomes and Potential for 

Significant Cost Savings 

Because SCAN's members are. overall. older and Ii'ailer than the average Medicare beneticiary. 

the availability of targeted. coordinated care options is particularly important. SCAN offers JSNPs, D-SNPs, and C-SNPs to our members, with a total SNP enrollment of approximately 

16.000 individuals. The full host of case management services is available to enrollees in a 

SCAN SNP, including the creation of a personal care plan, care transitions assistance, disease 

management, and medication therapy management. Approximately 8.000 of our members are 

dual eligibles enrolled in one of SCAN's D-SNPs. In addition to the case management services 

available to other SNP members, D-SNP enrollees have access to a Personal Assistance Line 

(PAL) Unit. SCAN provides these members with a "PAL," a member services representative 

who speaks their language and provides additional assistance in navigating the complexities of 

the Medicare alld Medicaid programs. PALs act as liaisons betweell the member and SCAN 

staft~ medical groups, providers, and community-based organizutions, ensuring that the member 

has access to the services and supports that he or she needs. 

Recent analyses of this unique care management model demonstrate its effectiveness in 

improving patient health outcomes. A March 2012 study conducted by Avalere Health found: 

Comparing HEDIS 30-day All-Cause Readmissions Rates between dual eligibles 

enrolled ill a SCAN Health Plan D-SNP versus Medicare fee-f()r-service (FI-'S) dual 

eligibles, SCAN's dual eligibles had a hospital readmission rate that was 25 percent 

lower than a similar cohort of Cali lamia FFS dual eligibles. 

SCAN also scored belter than Medicare FFS 011 ARHQ's Prevention Quality Indicator 

(PQl) Overall Composite, demonstrating a 14 percent lower hospital inpatient 

admission rate tor conditions that compose the composite measure, including chronic 

obstructive pulmonary disease (COPD), congestive heart failure, and bacterial 

pneumonia. 

The study also found a potential for signiticant cost savings tied to the improvement in health 

status of SCAN's D-SNP enrollees. Based on the results of a matched cohort analysis, if 

California FFS duals had the same hospitalizations and readmissions rates as SCAN's duals, this 

would reslIlt in at least S50 million in annual savings to Medicare FFS in California5 Avalere 

based the calculation on expected reduced hospitalizations and re-hospitalizations tar the 5,500 

FFS dual members it examined in the eMS 5% sample. multiplied by 20 to approximate the 

impact to the tull Calit()mia FFS duals population. Avalere has said that savings could be 

greater across tbe entire Calilarnia duals population if additional FFS duals matched the SCAN 

members' conditions. 

5 Dual Eligible Population Analysis for SCAN Health Plan: Hospitalizations and Readmissions. 

Avalcrc Health LLC. March 2012. 
65 


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V. Recommendations for Strengthening SNPs to Ensure the Continuous Availability of 

High-Quality Care for Medicare Beneficiaries 

The SNP model of providing patient-centered, coordinated care to vulnerable populations has 

been a success. Unfortunately, current SNP authorization is set to expire at the end of 2013. 

Congress should act as soon as possible to cxtend SNPs for a period of at least live years. 

Moving quickly is imperative, given that health plans must file their notices of intent to otTer 

these plans for the 2014 year by November 2012 and meet a series of other requirements by next 

August that assume contract renewal for 2014. 

A multi-year extension would: 

Stabilize specialty care for the 1.5 million current special needs beneticiaries and provide 

them peace of mind regarding their existing care plans 

Continue the progress SNPs are making in reducing ER visits, hospitalizations, rehospitalizations and nursing home stays 

Allow states, if they choose. to construct their duals demonstration on a SN P framework 

Allow SNPs to be a Medicare-based altemative to the duals demonstration in other states 

to sec which model \vorks best for beneficiaries 

Allow time to gather experience and evaluate findings tram SNPs, ACOs, PACE and the 

Duals Demonstration so thal eMS may \.v'ork with Congress 10 enact a permanent 

program going forward 

In addition, Congress should consider: 

I. Allowing long-term services and supports (L TSS) to be alTered through all SNPs. Under 

current law, only D-SNPs are authorized to provide these supplemental henefits. 

Avalcrc's study of SCAN's D-SNP shows the importance of LTSS to the health of 

individuals with complex health conditions, as well as to controlling costs within the 

Medicare program. Extending the availability of these services to all SNPs would 

amplify these result~ and improve the care available to Medicare heneficiaries. 

2. Reducing financial barriers to specialization by directing the Secretary of Health & 

Human Services to improve the accuracy of the MA risk adjustment methodology to 

1110re fully account for cost differences associated with plans specializing in care of highrisk/high-need beneficiaries. 'lbis could be accomplished by: (I) adding new risk factors 

for frailty, dementia. and number of chronic conditions; (2) extending the nc\~' enrollee 

factor for C-SNPs to include D-SNPs; and (3) permitting all SNPs to ofkr cxpanded 

supplemental benet its, not just FlDESNPs. 

3. Ensuring that SNPs arc evaluated based on their performance in relation to their specialty 

care mandate. Congress should require CMS to establish population-based peril)rmanCe 

evaluation measures and methods, in collaboration with the National Quality Forum 

(NQr) and NCQA. This would ensure that SNPs are assessed based on measures that arc 

sensitive to the unique but diverse needs of SNP beneficiaries, rather than standard 

6 
66 

f 

Chairman HERGER. Mr. Tallent is recognized for 5 minutes. 

STATEMENT OF JOHN TALLENT, CHIEF EXECUTIVE OFFICER, 

MEDICAL ASSOCIATES CLINIC & HEALTH PLANS 

Mr. TALLENT. Chairman Herger, Ranking Member Stark, and 

distinguished Members of the Subcommittee, my name is John 

Tallent. I am the chief executive officer of Medical Associates 

Health Plans in Dubuque, Iowa. I am here today testifying on behalf of the Medicare Cost Contractors Alliance, a coalition of 15 

Medicare cost plans that currently serve over 400,000 Medicare 

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67 

lumbia. Since 1972, they have proven to be a stable, quality alternative to Medicare fee-for-service, particularly for beneficiaries living in rural areas and areas in which risk-based plans have encountered challenges. We firmly believe that Medicare cost plans 

should remain available as a coverage option, and are grateful for 

the bipartisan support that the program has enjoyed. We want to 

thank Representative Paulsen and Representative Kind for introducing legislation to preserve this important program. 

There are 19 Medicare cost plans across the U.S., located principally in rural areas, or areas with comparatively low Medicare 

Advantage rates. Ninety percent of cost plans are nonprofit organizations. A large portion of Medicare cost plans are either owned by 

or affiliated with well regarded medical groups. The average Medicare cost plan has been providing high quality, cost-effective services to Medicare beneficiaries for over 20 years. For nearly three 

decades, Medical Associates Health Plans has been serving Medicare beneficiaries under a cost-based contract in five counties in 

Iowa, four counties in Wisconsin, and one county in Illinois. Like 

most cost plans, our members are elderly. Their average age is almost 76. And one third of our members are 80 years of age or 

older. In fact, many of our members have been with us for 20 years 

or more. Our members like our plan, and we have a less than 1 

percent voluntary disenrollment rate. Medical Associates Health 

Plans is owned by Medical Associates Clinic, which is the oldest 

multi-specialty group practice clinic in Iowa. 

Medical Associates Health Plans is proud of the quality of services it offers to its cost plan members. In 2012, Medical Associates 

Health Plan was one of 12 CMS contracts out of 569 that received 

a 5-star rating. Our Wisconsin plan received a 4.5-star rating. If 

current law is not changed, over 230,000 beneficiaries will lose 

their cost plan coverage in 10 States on January 1, 2014. Medical 

Associates would be forced to withdraw from four of the five counties in its Iowa service area. This is despite the fact that Medical 

Associates is overwhelmingly the most popular Medicare health 

plan in our service area, and has the highest quality rating as well. 

In States like Texas and South Dakota, cost plans will have to 

withdraw from rural areas despite very low Medicare Advantage 

penetration. Cost plan members throughout Minnesota and portions of Colorado, Wisconsin, and Ohio will also lose their plans. 

Because of the cost plan withdrawals, these vulnerable beneficiaries will face higher costs. They could also face disruptions in 

long-standing provider relationships, since many of them have been 

Medicare cost members for many years. As you know, Medicare Advantage rates are scheduled to decline under current law. History 

shows that when payments to Medicare risk-based plans have decreased, plans have withdrawn from the program or reduced their 

service areas, resulting in many beneficiaries losing their Medicare 

health plan choices, particularly in rural areas. 

In order to prevent 230,000 Medicare beneficiaries from losing 

their Medicare cost plan choice in 2014, and to ensure that beneficiaries have an ongoing choice of quality Medicare managed care 

plans, it is imperative that Congress pass legislation this year. We 

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committee, and look forward to continuing to work with members 

of this committee. Thank you. 

Chairman HERGER. Thank you. 

[The prepared statement of Mr. Tallent follows:] 


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Contract Extension Act of2011. I also want to recognize the work or Senator Klohuchar 

(D-MN) and Senator Grassley (R-IA), who have introduced a companion bill in the 

United States Senate. 

My testimony today will focus on three main areas: first, I'll provide some background 

information on cost plans in general and discuss Medical Associates Health Plans as an 

example Mthe types organizations that have Medicare cost contracts; second, I'll explain 

the status of cost plans under current law and the need for changes to current law that will 

ensure that beneficiaries-many of whom have been members for more than a decadecan continue to receive care through their plans. Finally, I will present some policy 

options to achieve that objective. 

[I. BACKGROUND 

A. Medicare Cost Plans 

Like Medicare Advantage plans, Medicare cost plans cover Part A and Part B services, as 

well as any optional supplemental beneflts. [n addition, they can choose to olf'cr Part D 

coverage. The principal difference between Medicare cost plans and Medicare 

Advantage plans is that the Centers for Medicare and Medicaid Serviees (CMS) 

reimburses cost plans based on their reasonable costs, rather than through a risk-based 

capitated payment. 

There are 19 Section 1876 Medicare cos! plans across the U.S., located principally in rural areas 

or areas of comparatively low Medicare Advantage rates. Ninety percent of cost plans are 

nonprofit organizations. A large portion of Medicare cost plans are either owned or aftiliated 

with well-regarded medical groups. The average Medicare cost plan has been providing high 

quality, cost-effective services to Medicare beneficiaries for over 20 years. 

In fact, although Section 1876 cost plans only represent 19 of the 569 Medicare health 

plan contracts, in 2012, 25 percent of all flve star Medicare health plans are cost plans. 

All cost plans have a star rating of 3.5 or higher; however, only half of Medicare 

Advantage plans have a star rating 3.5 or higher. 
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B. Medical Associates Health Plans 

Medical Associates Health Plans is a provider-owned health plan located in Dubuque, Iowa. 

Established in 1982, the Plan operates within a 60-mile radius of Dubuque in Iowa, Wisconsin 

and Illinois. The organization operates two health plans-·····Medical Associates Health Plan, Inc. 

operating in Iowa and Illinois, and Medical Associates Health Plan operating in Wisconsin-·· 

collectively doing business as Medical Associates Health Plans. Their overall membership, 

including both commercial and Medicare members, is just over 30,000 members with an 

additional 12,000 members managed by the organization under a related company. 

Medical Associates Clinic, the owner of Medical Associates Health Plans, was established in 

1924, and is the oldest muitispeciaity group practice clinic in Iowa. With over 170 providers 

serving Dubuque and the Tri-State area, Medical Associates Clinic and Health Plans have a stalT 

of over 1,000 health care professionals and support personnel. The clinic has two campuses in 

Dubuque and nine satellite clinics throughout the Plans' service area. They have been designated 

a Better Performing Practice by the Medical Group Management Association for over ten 

consecutive years. Medical Associates Clinic was awarded the Physician Practice ConnectionsiIDPatient Centered Medical HomeTM by NCQA, and is ranked among the top recognized practices 

in the nation by scoring a Level 3, the highest recognition status obtainable. 

The clinic has made a significant investment in quality, technology and service. In the area of 

quality, this includes NCQA recognition ror Diabetes Education as well as Heart/Stroke care. 

The Clinic implemented use of an Electronic Medical Record in 1993, the first in the region to 

adopt this technology. 

Medical Associatcs Health Plan has had a Medicare cost-based contract since I 984--converting 

from a Health Care Prepayment Plan, another Conn of cost contract, to a Section 1876 Cost 

Contract in 1996. We operate our Medicare cost contracts in five counties in lowa ...... ·Dubuque, 

Jones, Jackson, Delaware and Clayton; four counties in \Visconsin-Grant, Iowa, Crawford & 

La Fayette; and one county in lliinois-Jo Daviess. 
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Our current Medicare cost plan enrollment is 12,290 and our Medicare members like our plan -

our voluntary disenrollment rate is 1 percent or less. OUf members are elderly. Their average age 

is almost 76 and one third of our members are 80 years of age or older. 

Medical Associates Health Plans is proud of the quality of services it offers to its cost plan 

mcmbcrs. In 2012, Medical Associates Health Plan was one oftwelvc CMS contracts out of 569 

(2.11 %) that received a nve star rating. Our Wisconsin plan received a 4.5 star rating. In 

addition, Medical Associates Health Plans have had an NCQA "Excellent" accreditation since 

2002. 

III. THE WITHDRAWAL REQUIREMENT 

The Balanced Budget Act of 1997 amended the Social Security Act to provide for a sunset of all 

Medicare cost plans in 1999. This provision was subsequently amended and in 2003 under the 

Medicare Modernization Act, the so-called "two plan test" was created. The test has been 

subsequently refined in an effort to ensure that beneficiaries will continue to have health plan 

choices. 

Under current law, atter January I, 2013, Medicare cost plans must withdraw Ii'Dln any portion 

of their service area if there are two local or (wo regional Medicare Advantage (MA) plans that 

overlap that portion oCthe cost plan's service area and that have met minimum enrollment 

requirements for the previous year. If the test is met, the affected cost plan will have to withdraw 

effcctive on January 1,2014. The enrollment thresholds are determined by segments ofthe 

Medicare Advantage plans' service areas. For Metropolitan Statistical Areas (MSAs) with a 

population of250,OOO or more, the test is met if the two Medicare Advantage plans have S,OOO 

enrollees in the MSA and its contiguous counties. For all other areas, the test is met if the two 

Medicare Advantage plans have 1,500 enrollees in areas outside of MSAs and their contiguous 

counties. 

4 
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If curren! law is no! changed, about 230,000 benellciaries will lose their cos! plan coverage in 10 

states on January I, 2014. Medical Associates Health Plan would be forced to withdraw ITom 

four of the live cOltnties in its Iowa service area, affecting almost 1,400 members. 

In states like Texas and South Dakota, cost plans will have to withdraw from rural areas despite 

vcry low Medicare Advantage penetration in thc affected connties because thc area ovcr which 

the '"all other area" test is measured is so large. In Minncsota, cost plans would be required to 

withdraw from their entire Minnesota service areas with the exception of the Duluth MSA and its 

contiguous counties. Additionally, cost plans will be required to withdraw from counties in 

Colorado, Wisconsin and Ohio. 

IV. MEDICARE COST PLANS SHOlJLD REMAIN A COVERAGE OPTION FOR BENEHCIARIES 

A. Effect of Withdrawals; Cost Plan Enrollees Will Face Higher-Out of Pocket 

Costs 

The withdrawals required under current law will become effective on January 1. 2014. Thus, 

beneficiaries would have to pay the deductibles and coinsurance amounts under Original 

Medicare, move to a Medigap plan or choose a Medicare Advantage plan during the 2013 open 

enrollment season. Medigap plans will be particularly expensive for older eost plan members 

because they are age rated. Moreover, a 2009 study by the General Accounting Office found that 

cost plan benefit packages tend to attract less healthy beneficiaries. 1 The GAO report found that 

benellciaries 80 to 84 years old who reported poor health had lower average out-oj:pocket costs 

than competing Medicare Advantage plans or Medicare fee-for-service. Thus, these vulnerable 

benellciaries will have higher out of pocket costs because of the cost plan withdrawals. They 

also could face disruptions in long-standing provider relationships, since many of them have 

been Medicare cost members fill' many years. 

I United States Gencral Accounting OHice, Report 10 Congressional Committees, MEDICARE 

MANAGED CARE: Observations about Medicare Cost Plans, GAO-IO-18S (December 2009). 
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The elderly and less healthy beneficiaries who tend to be enrolled in Medicare cost plans will not 

receive the care management and coordination offered by Medicare cost plans if they go to 

Medicare fee-for-service. Moreover, studies have shown that Medicare cost plans olfer higher 

quality of care than fee-for-service Medicare.' 

One purpose of moving Ii'om a defined sunset date to the two plan test was to ensure that 

beneficiaries affected by cost plan withdrawals would continue to have Medicare managed care 

choices. However, because the effective date of withdrawals (beginning 2014) takes place 

during a period of decreasing Medicare Advantage rates, this will not be ensured. The Medicare 

Advantage payment changes authorized by the Arfordable Care Act will be fully implemented 

over a six year period beginning in 2012. Full implementation" ill occur at the end orlOl7. In 

the past, \\ hen payments to Medicare risk-based plans have decreased or have been uncertain, 

plans have been forced to make the dillicult decision of withdrawing from the program or 

reducing their service areas, resulting in many beneficiaries losing their Medicare health plan 

choices. For example. in the period from 1999-2002 severe payment reductions went into effect 

and the regulatory environment presented additional challenges to plans, As a result, 374 

Medicare+Choice organizations either ended their contracts or reduced a portion of their service 

areas, resulting in 2,205,000 beneficiaries losing their plans. A GAO analysis of the withdrawals 

and service area reductions noted that by 2001 almost 75 percent of counties that had a 

Medicare+Choice plan in 1999 were affected by service area reductions or withdrawals. J 

The same GAO analysis explained that Medicare+Choice plans tended to withdraw trom more 

difficult to serve rural counties or large urban areas that they had entered more recently or where 

2 This conclusion is supported by two separate research lindings: (1) that Medicare Advantage 

plans scored higher than Medicare FFS on the vast m'\iority of HE DIS measures (S~e Niall 

Brennan and Mark Shepard, Comparing Quality of Care in the Medicare Program, VOL. 16, 

NO. 11, THE AMERICAN JOURNAL OF MANAGED CARE. 841 (Novcmber 2010)) and (2) 

that correspondingly. Medicare cost plans scored higher than Medicare Advantage plans on 

HEDIS measures (See MedPAC, Report to the Congres\', Medicare lOt I) alld United 

State,'. Report /0 Congre,(;siollal Committees, ,'vfA;VACI'.:D CARE: 

G/l0-10-185 (Dccember 2009)). 

3 United Slates General Accounting Oflice, Medicare+Choice: Plan Withdrawals Indicate Difficulty 

"CProviding Choice While Achieving Savings. GAO/HEHS-OO-183 (September 2000). 

6 
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they failed to attract sufticient enrollment. Many Medicare cost plans serve predominately rural 

areas. 

B. Policy Options To Preserve Beneficiary Access to Cost Plans 

In order to prevent 230,000 Medicare beneficiaries from losing their Medicare cost plan choice 

in 2014 and to ensure that beneliciarics have a choice of quality Medicare Managed care plans. it 

is imperative that Congress pass legislation. Such legislation could take the torm of a straight 

extension, under which the date the withdrawal obligation becomes effective is pushed back for 

three years. In the alternative, Congress could modify the current two plan test to require, as a 

condition of a cost plan nccding to exit a markct, that thc tlVO competing MA plans must both 

have minimum enrollment levels (as currently required) and also have a star rating equal to or 

greater than the star rating of the Medicare cost plan that would be required to withdraw. 

Such changes could be enacted in conjunction with policy changes that would more closely align 

the Medicare cost plan requirements with those under the Medicare Advantage program and 

promote value-based purchasing, for example, by: 

Augmenting cost plans' current quality assurance program requirements by adding the 

Medicare Advantage requirements to have a chronic care improvement program and to 

conduct quality improvement proj~cts~ 

Allowing cost plans to be accredited by private accreditation agencies lor certain quality 

requirements, as currently permitted lor Medicare Advantage plans; 

Allowing cost plans to offer mandatory supplemental health care benefits in the same 

manner as Medicare Advantage plans; 

Applying the Medicare Advantage preemption ofs1ate law provisions (except licensure 

and solvency requirements) to cost plans; 

Applying the restrictions on imposing premium taxes on cost plans in the same manner 

that they apply to Medicare Advantage plans; and 

Permitting eMS to promotc the offering of employer group health plans by approving 

waivers ofrequirements that would hinder the design of; otTering at; or enrollment in cost 

plans. 
75 

f 

Chairman HERGER. Ms. Gold, you are recognized for 5 minutes. 

STATEMENT OF MARSHA GOLD, SENIOR FELLOW, 

MATHEMATICA POLICY RESEARCH 

Ms. GOLD. Thank you. Chairman Herger, Ranking Member 

Stark, and Members of the Subcommittee, I am a senior fellow at 

Mathematica Policy Research, an independent, nonpartisan public 

policy organization. I want to make seven points today that I elaborate on in my written remarks. 

First, the MA program today is strong, with rising enrollment 

that is expected to continue into 2013. While the ACA sought to 


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76 

scale back payments to MA plans to achieve closer alignment between payments made for beneficiaries in MA versus the traditional program, it was acting in line with the origins of the program, and consistent with the recommendations of Congress’s nonpartisan adviser MedPAC. The ACA changes also served to extend 

the life of the Medicare Trust Fund and to slow increases in Part 

B premiums for all beneficiaries. Second, MA plans are still paid 

considerably more for a similar beneficiary in the traditional program. 

In considering future policy change, it is difficult to see rationale 

on a national basis for paying private plans more than Medicare 

currently spends on the traditional program, particularly when 

there is so much concern with the Federal deficit and debt. Third, 

although some suggest otherwise, I have studied these plans in 

depth for more than 20 years, and there was no strong and consistent evidence that private plans in general are better at cost 

control than traditional Medicare is, or that health plan competition will produce enough savings to address current fiscal concerns. 

Fourth, polls show traditional Medicare remains popular with 

beneficiaries. That means that paying more for private plans is effectively a tax on their choice. The Part B premiums will increase, 

with no gain in benefits to them. Clearly, payment reductions at 

some point can discourage plans from participating in MA, but we 

are not there now. Even if we were, the question is how much payment is warranted to preserve choice, especially if it costs rather 

than saves money. 

Overpayments also involve a substantial transfer of funds from 

government to private firms, a few of whom dominate the market. 

Fifth, as the Congressional Budget Office has concluded, Medicare 

premium support programs that reduce government contributions 

to Medicare will shift costs to beneficiaries and limit the health 

and financial protection the program provides vulnerable beneficiaries. MA has a role for private plans in Medicare, but it is not 

a voucher or premium support program. The defined benefit Medicare provides differs fundamentally from a fixed contribution plan. 

Although premium support proposals vary, most would fundamentally change the traditional way the Medicare program operates, and some would eliminate traditional Medicare altogether. 

Sixth, traditional Medicare, with its defined and nationally uniform benefits across the country, has served as a valuable protection to beneficiaries. It provides defined and nationally uniform 

benefits to all Medicare beneficiaries. Some proposals say that they 

maintain the traditional Medicare plan option, but they do not appear to finance it. This arguably presents a false assurance about 

the future availability of traditional Medicare as we know it now. 

The program would be different, and beneficiaries would pay more. 

Our health care system is very inefficient. Both traditional Medicare and private plans alike face challenges in containing costs. 

Fundamental reform of the system to reduce costs ultimately cannot be achieved without someone paying the price, whether that is 

the beneficiary, the plan, the provider, Medicare, or some combination. 

One person’s waste is another’s income. It also is not that easy 

to define medically necessary care, especially at an individual level. 


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77 

The 1990s managed care backlash showed that policymakers 

should not expect the private sector or beneficiaries to engage in 

battles from which they themselves want distance. Medicare beneficiaries already pay a considerable amount out-of-pocket for health 

care, as my written testimony indicates. 

Seven, other programs show that strong oversight and risk adjustment are important to prevent unfair marketing practices, enrollment abuse, and protecting vulnerable Medicare beneficiaries. 

When they are absent, scandals occur and people are hurt. Appropriate risk adjustment is critical, and all of these will be more important if dual eligibles enter the program. 

In closing, although decisions about the future of Medicare will 

inevitably reflect the values considered socially acceptable by a variety of stakeholders, the evidence suggests there are no easy answers to the fiscal dilemmas facing our Nation. Thank you. 

Chairman HERGER. Thank you. 

[The prepared statement of Ms. Gold follows:] 


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" 'TEST[MONY [S EMBARGOED UNT[L 9:3(1 AM ON FRIOAY. 

SEPTEMBER 2 L. 20[2'" 

MATHEMATICA 

Policy Research 

Ma rsha R. Gold s"nior ftl[o,,' 

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lim .. ny for lI .. rinK .. n 

M. di .... II .. Uh I'lano 

.... [Ih Sui>oon'mi .... 

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Seplcmb..- 21. 20 [2 
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available to Medicare beneficiaries, but controversies persist about ·what role such plans should 

play in Medicare. My testimony today focuses on the following assessments of the current MA 

program: 

Today, the MA program is strong, with rising enrollment and widespread plan 

availability expeeled to continue into 2013, despite coneet11s that cutbacks in 

payments would discourage plan participation or make plans less attractive to 

potential enrollees. 

MA plans arc still paid considerably more for a similar beneficiary in the traditional 

program. In considering future policy changes. it is difficult to see the rationale on a 

national basis for paying private plans more than Medicare currently spends on the 

traditional program, particularly when there is so much concern about the federal 

deficit and debt. 

Although some may suggest otherwise, I have studied these plans in-depth for more 

than 20 years, and there is no strong or consistent evidence that private plans are 

better at cost control than traditional Medicare is or that health plan competition will 

produce enough savings to address current fiscal challenges. 

Traditional Medicare remains popular with beneficiaries (KFF 2012b), which means 

that paying more for private plans is effectively a tax on their choice because their 

Part B premiums will increase with no gain in benefits to them. 

As the Congressional Budget Office (2011) has concluded, premium-support 

programs that reduce government contributions to Medicare will shift costs to 

beneficiaries and limit the health and financial protection the program provides to 

vulnerable beneficiaries. 

• Traditional Medicare, with its defined and nationally uniform benefits across the 

country, has served as a valuable protection to beneficiaries, particularly in times of 

tiseal stress. 

Evidence from MA and other programs shows that strong oversight and effective risk 

adjustment are necessary to prevent unfair marketing and enrollment practices. 

2 
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MA Plan Enrollment Continues to Grow 

For many decades. Medicare has offered beneficiaries access to popular private-marketplace 

alternatives through a variety of legislative mechanisms, including cost contracts (1970s), the 

Medicare risk-contracting (HMO) program (1982), Medicare+Choice with additional private 

plan options (1997), and MA (2003), which expanded options and integrated the new Part 0 

benetit for those choosing MA (Gold 200 1,2008). Enrollment in these plans has historically 

ebbed and flowed as payment levels have fluctuated. Over time, private Medicare plans have 

expanded offerings for beneficiaries and attracted a growing share of beneficiaries, even though 

ovcr 70 percent are covered under traditional Medicare. However, private plans \~:ere never 

meant to replace the traditional program~ rather, they were a voluntary option for beneficiaries 

(PL 105-33). 

The Patient Protection and Affordable Care Act (ACA) (PL 11 1-148, Part rn, Improving 

Payment Accuracy) sought to scale back payments to MA plans to achieve closer alignment 

between paymcms made for beneficiaries in MA versus in the traditional program. Because MA 

payments are drawn from both the Medicare Trust Fund and Part B, reducing MA payments abo 

helped to extend the life of the Medicare Trust Fund and to slo\'o/ increases in Part B premiums 

for all beneficiaries. 

Despite concerns that payment cutbacks may hurt the program, MA enrollment has 

continued to grow. CLm-ently, enrollment is at an all-time high of 27 percent of beneticiaries, and 

it continues to grow despite reductions in payments included in the ACA (Exhibit I). The Obama 

Administration projects, based on its annual bidding process, that such growth will continue in 

2013, with premiums rising only modestly in 2013 (around $1.47 per month), assuming enrollees 
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do not change to a more attractive plan to get a lower premium (HHS 2012). Since the ACA was 

enacted, average premiums paid by enrollees have declined. 

Exhibit 1: MA Enrollment in Millions, 1999·2012 

13.1 

11 1 11.9 

10.5 . 

6.9 6.S 6.2 6.S 

5.6 5.3 5.3 5.6 

1999 2000 2001 2002 2003 2004 2005 2006 2007 2003 20092010 2011 2012 

~:~~~;j:~~:;~ 18% 17%\ 15% '14"/" '13% 13"/" 13% 16'% 19% 22"h 23"/" 24"/" 25";'" 27% 

Source and Mathem"tlca's 

Notes The data sho"'m rnclude costanddernon51:ratlon plalls as·"'!ell as enrollees III special·needs plans and other M!1plans 

The enrollment nurnbers are from March olthe IE'Spectrfe year, with the p.xceplion of 2006 (fromApnl) 

New types of private plans, such as preferred provider organizations (PPOs) .. ·-which give 

beneficiaries broader access to providers and generally cost more-have accounted for a 

disproportionate share of recent grO\vth. though the majority of MA enrollees remain in health 

maintenance organizations (HMOs), the core of the original Medicare program (Exhibit 2). 

4 
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% of Medicare 

beneficiaries 

Exhibit 2: MA Enrollment (in Millions) by Plan Type, 2007-2012 

13.1 

24% 

PFFS=pnvatefeeforser"Ic-e 

Recent Cutbacks in MA Payments Relative to Traditional Medicare Are Equitable 

Medicare has historically aimed to set payments to private plans below or equal to what 

Medicare would pay in the traditional program for a similar beneficiary in the same county. 

Originally, payments in the Medicare risk-contracting program were set at 95 percent of 

traditional program payments; however. weaknesses in risk adjustment resulted in plans being 

paid considerably more (Brown et aJ. 1993). When the program evolved to the Medieare+Choice 

structure, the link between pri\'ate-plan and traditional-program payments was modified in a 

subset of counties to support growth in areas with few, if any, private plans ("floor counties") 

and to address geographical ditferences in payment ("'blend counties"). These changes did not 

have the intended effect of increasing program enrollment. in part because annual costs in the 

traditional program were growing more slowly during that period than in the past, contributing to 
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low rates of annual increases in premiums (Berenson 2008). As a result, many withdrew rrom the 

market (Gold 200 I; Gold et a1. 2004). In 2003, Congress sought to stabilize the MA program by 

setting minimum rates at 100 percent of fce for service (FFS) and, more critically, providing an 

option that allowed for substantially higher rates of annual increases (Gold 2008). 

These cumulative policy changes, over time, led to plans being paid considerably more 

than Medicare would pay for a similar beneficiary in the traditional program. In 2009, for 

example, the Medicare Payment Advisory Commission (MedPAC), the nonpartisan adviser to 

Congress on Medicare payment issues, estimated that the MA payment benchmarks (the most 

Medicare would pay a plan), on average, were 118 percent of what Medicare would spend for a 

similar beneficiary in the traditional program. Furthermore, MA payments (set at 75 percent of 

benchmarks, lip to the costs of the plan) were 114 percent of traditional Medicare spending. The 

data on which these estimates are based have not historically been available to the public, but 

recent analysis based on information made available as a result of a Freedom of Information Act 

request shmvs similar results and highlights the geographical variation in payments, relative to 

traditional Medicare (Biles et al. 20 II). 

Since 200S, MedPAC (2010) has recommended alignment of traditional Medicare and 

private-plan payments. Consistent with this recommendation, the ACA's legislative changes are 

gradually introducing more financial parity between traditional Medicare and MA. In 2012, 

average benchmarks declined to 112 percent of traditional program spending, and average 

payments to 107 percent (MedPAC 2012a). Average bids-that is, plan estimates of what it will 

cost the plan to provide the Medicare Part A and B benet.t (which historically have been above 

100 percent of costs in the traditional program)-······have meanwhile fallen to 98 percent of 

traditional program spending, but this appears to be almost entirely a result of HMOs' 

experience. However, HMOs have not proven viable in all markets, with their growth also 

6 
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constrained by many beneficiaries' reluctance to limit their choice of provider. Local PPOs, 

which offer more provider choice but also cost more and represent a rapidly growing part of the 

program, had bids that were, on average, 108 percent of traditional program spending (Exhibit 

3). 

Exhibit 3: MA Payments Relative to Traditional Program Spending. 2012 

AI!MAPlans 9$% 107% 

HMO 11:2% 95% 106:% 

Lf:lcaIPPO 1'14% 113% 

R egion ~i'd PPO 1t'l7% 100% 105% 

Private fee .. :fOFse!vlce 112% 106% 110% 

In(iud8dm ti18Totai 

114% 101% 110% 

114% 108% 113% 

PFF5 "'pn,'ale feefm 'Se!VICe 

H is difficult to see the rationale on a national basis for paying private plans more than 

Medicare currently spends 011 the traditional program, particularly when there is so much 

concern about the federal deficit and debt. In fact, the original concept supporting risk-based 

plans was to pay them less, generating savings for Medicare and additional benefits (through 

etTiciency) for beneficiaries. 

Beneficiaries continue to have good access to private plans (Gold et al. 2012). In 2012, the 

average beneficiary could choose among 20 MA plans locally, excluding plans with specialized 
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enrollment requirements such as special-needs plans (SNPs). Plans also have been able to keep 

premiums down in order to attract enrollees (Exhibit 4). Benetits remain attractive, though outof-pocket spending can be high given the limited incomes and assets of Medicare beneficiaries, 

particularly if they have extensive health needs that persist trom year to year. In 2012. almost 

half of all beneficiaries in MA plans were in plans with premiums above eMS's recommended 

53,400 limit, and 22 percent were in plans with out-of-pocket limits over $5,000 (Gold et al. 

2012). Common Medigap policies have higher premiums hut provide hetter financial protection 

comhined with traditional Medicare than do most MA plans. However, many beneficiaries do 

not understand the complex cost-sharing requirements and the trade-ofts involved, making 

decisions based mainly on plan premiums, particularly if their incomes are modest. 

Exhibit 4: Enrollment Weighted Average Monthly Premiums for MA Plans 

That Include Prescription Drug Coverage. 

Percent 

Change, 

2010·2012 

Note 

Total 

Total and by Plan Type. 2010·2012 

l __ CJ2010Premiulns 82011 Premiums fJl2012 Premiums 

HMOs 

-20% 

$66 

Regional PPOs 

·9% 

PFFS 

-24% 

F:m'lfy FOllildatlOn':; an"~i5IS (If eMS's Landscape Files for201Q·2012 and Marchemollmentfllesfor 

PFFS" pl~!ate fee for serVICE' 

8 
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Clearly, payment reductions can discourage plans fi'om participating in MA, based on the 

history of private plans in Medicare (Gold et al. 2004. 20 I I a). Whether this is an issue depends 

on one's perspective on the desirability of choice, even if it costs (rather than saves) money. The 

evidence, however, suggests that firm participation and choice are not yet issues. They could 

become bigger issues in the future, but the erosion in commercial-coverage markets will make it 

harder for firms in the Medicare market to walk away because of the absence of good 

altematives to make up that revenue (Gold et al. 20 II). The introduction of Pari D on a privateplan model also appears to have made MA more attractive because it familiarizes enrollees with 

choice and offers an integrated coverage option (traditional Medicare is precluded from offering 

such integrated coverage). 

The crucial policy question is how much additional Medicare spending is warranted to 

maintain the private option-if the traditional program can provide benefits for less than private 

plans can and in a manner satisfactory to the vast majority of Medicare beneficiaries who 

continue to choose the traditional program? Paying more Cor bendiciaries vvho choose a private 

plan, as a matter of policy, implies that one program is better than another-perhaps offering 

better quality or more effective cost control. Unfortunately, the evidence has never consistently 

or strongly shown this to be the case, certainly not to the extent that \vould be warranted to 

justify substantially higher payments to private plans (Gold 2003, 2(12). Such excess payments 

are particularly hard to justify in an environment where there is concern about growing Medicare 

spending and its etfect on the detlcit and national debt. Because MA enrollment is concentrated 

1n a few firms, higher payments also involve a substantial transfer of funds from government to 

private hrms, a few of whom dominate the market (Exhibit 5). 

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Further, traditional Medicare remains popular W1th beneficiaries, which means that paying 

more for private plans is effectively a tax on their choice because their Part B premiums will 

increase, with no gain in benefits to them. 

Exhibit 5: MA Enrollment. by Firm or Affiliate. 2012 

Pennanente 

8% 

Total MA Enrollment. 2012 = 13.1 million 

Souru: tv1 athernatlca!V,~I:;.er Fernllv Foundation amivSl:', of eMS emCJi!mellt fl!es, 2012 

Note 'Other" mcludes flnnswlth less than 3 percent of total enrollment 

Medicare Advantage Is Not Premium Support 

MA (along with its precursor prObTfams) created a role for private plans 1n Medicare, but it is 

not a voucher or premium-support plan (Gold 2012). The defined benefit Medicare provides 

ditfers fundamentally from a tixed-contribution plan. Under today's defined-benefit Medicare 

program. all beneficiaries, regardless of where they live or how they choose to receive their 

benefits. are guaranteed the same minimum benefits by Medicare today. 

Geographic differences in care-seeking and care-providing patterns and costs affect the 

amounts of services beneficiaries actually lNW, the amounts plans arc paid, and plans' tlcxibi!1ty 

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to make benefit packages more attractive, but they do not affect a beneficiary's guaranteed 

benefits or contribution to Part Band D premiums. 

Private plans can modify cost sharing if the changcs result in plans that are at least 

actuarially equivalent to traditional Medicare and do not discriminate against the sick. Oversight 

has been required to monitor benefit design and preclude practices, like high cost-sharing Cor 

selected services (such as chemotherapy) used by patticularly ill enrollees. Furthermore. 

beneficiaries enrolled in MA plans retain the right to leave the plan and opt for the traditional 

program during the annual open-enrollment period. Although premium-support proposals vary, 

most would fundamentally change the traditional way the Medicare program operates or would 

eliminate it altogether. Those keeping it would break the national program up into local 

programs (KFF 2012). 

Somc proposals say they maintain a traditional Medicare plan option but do not appear to 

commit to finance it, as S0111e might interpret recent proposals (Van de Water 2012). This 

arguably presents a false assurance about the future availability of traditional Medicare as \ve 

now know it. These proposals are not very detailed, but typically raise the possibility that 

beneficiaries seeking to remain in the traditional program would have to pay more for that 

opportunity. 

Traditional Medicare and private plans alike face challenges in a health care system that is 

very inefficient. Fundamental reform of the system to reduce costs ultimately cannot be achieved 

without someone paying the price-whdher that is the beneiiciary. the plan, the provider, 

Medicare itself (thal is, taxpayers), or some combination of these. Cost reduction means fewer 

services are used or lower payments are made for those services. Unfortunately, one person's 

wasteful spending is another person's reduced income. It also is not always easy to distinguish 

\vasteful services from medically necessary care, especially as this relates to the care of specific 

II 
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individuals. If the idea is to increase the out-of-pocket costs of benellciaries and assume the 

financial pressure will make them advocates for more efficient. lower-cost care (despite their not 

generally having the knowledge to do that well), it seems that it would be important to tell them 

that is the plan, The managed-care backlash showed that policymakers should not expect the 

private sector-or beneficiaries-to engage in battles from which they themselves want distance 

(Gold 1999) 

As these issues are debated, it is critical to place them within the current economic context 

facing beneficiaries today. Beneficiaries already pay a suhstantial share of their incomes for 

health care. For example, in 2006, median out-ot~pocket spending as a share of income was 16 

percent, with one in four Medicare beneficiaries spending 30 percent or more of their incomes on 

health expenses (KFF 20 II b). As a result, Medicare bencticiaries arc forced to make critical 

trade-offs in managing their household budgets (Cubanski et a!. 2(11). 

Lessons for Premium Support 

Medicare beneficiaries are a diverse group with complex health care needs, compared to the 

general population, and characteristics that make them vulnerable to abusive practices in a 

market environment, especially if appropriate regulatory protections are not in place (KFF 

2011a). One-quarter have a cognitive or mental impairment, and about the same share report 

being in "fair" or "poor" health. Per capita annual incomes are low, as are assets (Exhibit 6). 

Research suggests that choice historically has 110t been very salient to most Medicare 

beneficiaries (Gold et a!. 2004). Although the Part D benefit may make it more salient today, 

many choices can confuse beneticiaries (lvengar et al. 2000; McWilliams et al. 2011). Once a 

choice is made, it is also "sticky," with only annual opportunities to change plan choices 

(Polanski et al. 2010). 

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Exhibit 6: Characteristics ofthe Medicare Population 

Per capita annual income 

below $22,000 

Per capita sayings 

below $53,000 

3+ chronic conditions 

Cognitive/mental impairment 

Falrfpoor health 

Under age 65 & disabled 

2+ ADL limitations 

Percentage of total Medicare population 

& :::::=50% 50"/" 

45% 

29% 

17%, 

15% 

2011.!lllQtl1erdataarefrQm 

History shows that strong system oversight is critical to the success of any private-plan 

offering. In the absence of protections against unfair marketing and enrollment practices, 

Medicare beneficiaries, many of whom have low levels of education and health literacy as well 

as physical or mental disabilities or cognitive impairments, are vulnerable to abuse by 

unscrupulous insurers, as evidenced by experience in various sectors of the Medicare 

supplemental market (GAO 1986; Borer 2008; Dallek 1997). While most in the industry may be 

ethical, there are always some who will be attracted by short-term gain and the available dollars, 

regardless of the consequences. An appropriate regulatory inrrastructure can make it more likely 

that competition will be fair and focused on legitimate differences among plans as well as 

meaningful choice for beneficiaries. As the purchaser of health care, Medicare can help 

beneficiaries \\110 need assistance in making a choice by providing neutral information, ror 

13 
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example, or counseling to layout options and answer questions. Although regulatory 

requirements add to the administrative burden, and some regulatory features could be improved, 

problems tend to arise when oversight is either absent or unenforced. 

Fixed payments give firms an incentive to avoid high-cost enrollees who use a 

disproportionate share of services. Data from beneficiaries in the traditional Medicare program 

show that the costliest 5 percent of beneficiaries account for 38 percent of annual Medicare 

spending, and the costliest quartile (top 25 percent) account for 81 percent (MedPAC 

2012c).Research also underscores the importance of adequate risk adjustment in any 

arrangement that involves multiple competing plans. The highly skewed distribution of health 

care spending, combined v,lith the fact that high needs may factor into the choices beneficiaries 

make, means that risk-adjusted payments arc essential to an equitable private-plan oficring. 

Although risk adjustment has been improved under MA, opportunities for gaming the system 

still exist, and plans that do well in serving those with the highest needs are not necessarily 

equitably compensated for their efiorts (MedPAC 2012b). 

Further, current risk-adjustment methods remain highly medically oriented. Risk adjustment 

based on medical diagnoses is particularly problematic for enrolling dual eligibles (those who 

qualify for both Medicare and Medicaid benefits) in private plans. Adjustors that work across 

Medicare and Medicaid. account for frailty, and take into account social circumstances that 

influence service costs, such as language barriers, low health literacy, or limited social support 

are essential to an equitable system of payment for private plans serving dual eligibles. Oversight 

is critical for programs serving these individuals, particularly when both payers and plans have 

limited experience in serving them, especially in an integrated way (Gold et a1. 2012; Neuman et 

a1. 2012). 

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Although decisions about the future of Medicare will inevitably reflect the values 

considered socially acceptable by a variety of stakeholders, the evidence suggests that there are 

no easy ansvvcrs to the fiscal dilemmas facing our nation. There has been a long-standing hope 

that introducing private plans and competition into Medicare will help to control costs. The 

reality is that this goal has been elusive and that private plans generally cost Medicare more over 

their history compared to traditional Medicare. Proposals to lise premium supports seem to 

continue to pursue this approach, \vith beneticiaries asked to have "more skin in the game," in 

the hopes that they will choose more wisely and do what neither government nor the private 

sector has been able to do to date-control costs. Unfortunately, the available evidence provides 

little indication that this will occur. Premium support, particularly if it is not adequately financed, 

is likely to lead to higher costs for bendiciaries. 

15 
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REFERENCES 

Berenson, Raben A, "Medicare Disadvantaged and the Search for the Elusive 'Level Playing 

Field" Health AITairs Web First, 15 December 2004 

Biles, Brian, Grace Arnold, and Stuart Guterman, "Medicare Advantage in the Era of Ilealth 

Reform: Progress in Leveling the Playing Field" Commonwealth Fund Issue Brief#1491, 

March 2011, 

Borer, Elizabeth C. Modernizing Medicare: Protecting America's Most Vulnerable Patients tram 

Predatory Health Care Marketing through Accessible Legal Remedies, 92 Minn, L. Rev, 1165 

(2007-2008) 

Brown, Randall" Dolores Gurnick Clement, Jerrold W, Hill, Sheldon M, Retchin, and Jeanette 

W. Bergeron. "Do Health Maintenance Organizations Work for Medicare'?" Health Care 

Financing Review, vol. 15, no, 1, fall 1993, 

Congressional Budget Office "Long Term Analysis of a Budget Proposal by Chairman Ryan" 

Publication No, 25159, April 1 L 2011 

Cubanski, Juliatte and Adrianne Dulio "Living Close to the Edge: Financial Challenges and 

Trade-Off's for People on Medicare" Kaiser Family Foundation, June 2011. 

Dallek, Geraldine, \,1..:dicarl' !vhmagcd Care: SCCllrlllg Ht:.'nefi.ciary Pro!cdi\'llS, Familics USA, 

April 1')Q7, 

Gold, Marsha. "Medicare Advantage-Lessons for Medicare's Future." New England Journal 

afMedicine, March 2012, 

Gold, Marsha, Gretchen Jacobson, Anthony Damico, and Tricia Neuman, "Medicare Advantage 

2012 Data Spotlight: Enrollment Market Update," June 2012, 

Gold, Marsha R" Gretchen A, Jacobson, and Rachel L Garfield, "There Is Little Experience and 

Limited Data to Support Policy Making on Integrated Care for Dual Eligibles," Health Affairs 

vol. 31, no, 6, June 2012, 

Gold, Marsha, Gretchen Jacobson, Anthony Damico, and Tricia Neuman, "Medicare Advantage 

2012: Plan Availability and Premiums." Kaiser Family Foundation, November 2011 b, 

Gold, Marsha, Gretchen Jacobson, and Tricia Neuman, "Firm Perspectives on the Medicare 

Advantage Market." The Henry], Kaiser Foundation, September 2011 ,a 

Gold, Marsha, "Medicare's Private Plans: A Report Card on Medicare Advantage," Health 

Affairs Web Exclusive, November 24, 2008, 

Gold, Marsha, "Can Managed Care and Competition Control Medicare Costs?" Health Affairs 

Web Exclusive, April 2, 2003, 

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Gold, Marsha. "The Medicare+Choice Program: An Interim Report Card." Health Affairs. vol. 

20, no. 4, .luly-August 2001. 

Gold, Marsha. "ISO Quick Fix, Free Lunch and Share of Pic." JO/ll'I1al of Health Politics. Policy 

and l.al1'. vo!. 24, no. 5 (special issue, "The Managed Care Backlash"), 1999. 

Gold, Marsha, Lori Achman, .lessica Mittler, and Beth Stevens. "Monitoring Medicare+Choice: 

What Have We Learned? Findings and Operational Lessons for Medicare Advantage." 

Mathematica Policy Research, August 2004. 

Ivengar SS and MPR Lepper "When choice is demotivating: can one desire too much of a good 

thing" .I Pers Soc Psycho!. December 2000 79(6): pp 995-1006 

Kaiser Family Foundation "Public Opinion on Health Care Issues: Kaiser Health Tracking Poll" 

August 20l2a. 

Kaiser Family Foundation, "Comparison of l'vledicare Premium Support Proposals" Last 

Modified .luly 26, 2012b. 

Kaiser Family Foundation "How Much "Skin in the Game" is Enough: The Financial Burden of 

Health Spending for People on Medicare: An Updated Analysis ofOut-of~Pocket Spending as a 

Share of Income" .lune 201la 

Kaiser Family Foundation. "Medicare at a Glance," Fact Sheet, November 2011 b, 

McWilliams, J. Michael, Christopher C. Arendulis, Thomas G. McGuire and Bruce E. Landon 

"Complex Medicare Advantage Choices May Overwhelm Seniors-Especially Those with 

Impaired Decision Making" Health Affairs 30(9): 1986-1794, 20 II. 

Medicare Payment Advisory Commission "Chapter 12: The Medicare Advantage Program: 

Status Report,'· in Report to the Congress: Medicare Payment Po/ic)" March 2012a. 

Medicare Payment Advisory Commission. "'Chapter 4: Issues for Risk Adjustment in Medicare 

Advantage," in Report to the Congress: A1edicare and the Health Care System, June 2012b. 

Medicare Payment Advisory Commission" Chart 1-10" in "A DataBook: Health Care Spending 

in the Medicare Program" .lune 20l2c 

Medicare Payment Advisory Commission "Chapter 3: The Medicare Advantage Program," in 

Report to the Congress: Medicare Payment Po/ic)" March 2009. 

Neuman, Patrica, Barbara Lyons, Jennifer Rentas, and Diane Rowland. "Dx for a Careful 

Approach to Moving Dual Eligible Beneficiaries into Managed Care Plans," Health Affairs va!. 

31, no. 6. 

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95 

f 

Chairman HERGER. Mr. Cosgrove, I read in your report that the 

CMS MA quality bonus payment demonstration would cover up 

nearly one third of the ObamaCare cuts to MA plans over the life 

of the demonstration. Is this correct? 

Mr. COSGROVE. The demonstration would offset about one 

third of the cuts, yes. 

Chairman HERGER. Can you please break down your estimate 

of how much of the cuts will be offset each year? 

Mr. COSGROVE. This year, in 2012, just over 70 percent. Next 

year, in 2013, about a third. And then the final year about 16 percent, I believe. 


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96 

Chairman HERGER. It seems to me the administration is trying 

their hardest, and using any means necessary to hide these cuts 

until after this election. 

Ms. Ignagni, as you well know, ObamaCare’s cuts to Medicare 

Advantage are real, especially to the beneficiaries that are enrolled 

in these plans. In fact, not too long ago, cuts to the Medicare health 

plans which were far less than those in ObamaCare resulted in 

millions of seniors losing access to their health plans. In fact, in 

some counties in the Northern California district I represent, seniors lost all choice of private health plans after the 1997 cuts. 

Even the Medicare actuaries highlight this fact in this year’s report which stated that ‘‘As a direct consequence of the plan terminations, the percentage of Medicare beneficiaries who enrolled in 

private health plans declined each year from 2000 through 2004.’’ 

Won’t the cuts to Medicare Advantage in ObamaCare have a real 

and lasting impact on seniors’ access to the MA plan they have and 

like? 

Ms. IGNAGNI. Two comments, sir. One, with respect to the past, 

which I remember very vividly, I think the lesson there was that 

Congress responded by putting additional resources and targeted 

towards specific counties, Northern California as an example, in 

the upper northwest, in the middle part of the country, Michigan, 

Ohio, Illinois, Upstate New York, et cetera. And that had a very 

positive effect. It was a bipartisan action. 

With respect to what is going to happen as a result of the cuts 

that we see in the ACA, and also the premium tax, which hasn’t 

been much focused on but I think needs to be because it begins in 

2014 and compounds this, I can’t tell you exactly what would happen, but I think the CBO estimates provide a window into that. 

And we provided that in our testimony. 

Chairman HERGER. Thank you. Dr. Schwab, I understand that 

SCAN Health has had a fully integrated health plan for beneficiaries, many of them dual eligible for over the last 20 years. Can 

you describe how the plan integrates benefits between Medicare 

and Medicaid? What are the benefits to this type of integration? 

Mr. SCHWAB. Yes. SCAN has had a program that for some of 

our members, we had a contract with the State of California to provide all Medicaid or Medi-Cal services. So from a member standpoint, all benefits are arranged through the health plan, whether 

it is a Medicare benefit, a Medi-Cal benefit. And included in the 

Medi-Cal benefits are the home and community-based services and 

nursing home care as per the Medi-Cal program. The way we integrate that primarily is through our case management program, a 

one-on-one relationship with the member, working in conjunction 

with the primary care physician and the medical group we contract 

with. 

Chairman HERGER. Thank you. Mr. Stark is recognized for 5 

minutes. 

Mr. STARK. Thank you, Mr. Chairman. I thank the panel for 

their testimony. Ms. Gold, my Republican colleagues would like us 

to believe that the sky is falling in terms of enrollment, benefits, 

premiums. But these projections have turned out to be incorrect. 

And since the passage of the ACA, Medicare Advantage enrollment 


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has increased, and the premiums have decreased. Is that not correct? 

Ms. GOLD. That is correct. 

Mr. STARK. And I am sure that this happened last year, so that 

it isn’t just a one-time event, this is a trend. Could you just discuss 

for a moment the distinctions between Medicare Advantage and the 

Romney-Ryan voucher, or premium support program that the Republicans would have us—how do they differ? 

Ms. GOLD. Well, there are so many plans floating around that 

I will answer generally. But basically, under Medicare Advantage, 

beneficiaries always have the option to return to Medicare, traditional Medicare. They get the same benefits in Medicare Advantage 

whether—you know, whether they are in Medicare Advantage or 

traditional Medicare. And plans are required to pay those. They 

have a national Medicare program and strong oversight. Under a 

premium support program, most of them—and again, they all differ—but they don’t guarantee a certain amount of money. There is 

more wiggle room in the benefits. And a lot of them would seem 

to dismantle the traditional Medicare program into a bunch of littler programs or changes that make its bargaining power nationally much more limited with providers, and might hurt it from controlling health care costs. 

Mr. STARK. Also, there are some that would like you to believe 

that the only reason that plans are still in MA is because of the 

quality bonus program. And I think most of our estimates show 

that the Affordable Care Act has reduced Medicare Advantage 

overpayments by, I think, $156 billion, which is listed in the Ryan 

budget, over 10 years. And the quality bonus payment demonstration is a total of what, $8.5 billion over 10 years. So isn’t it also 

true that the underlying quality program will continue in perpetuity under the law? 

Ms. GOLD. Yes, it is in the law. 

Mr. STARK. So, it is possible that the demo is being targeted at 

the mid-level plans to help them improve before this bonus plan 

takes over. 

Ms. GOLD. Yes. 

Mr. STARK. Thank you very much. 

Chairman HERGER. Thank you. Mr. Buchanan is recognized for 

5 minutes. 

Mr. BUCHANAN. Thank you, Chairman, for holding this important hearing today. And I would like to thank all our witnesses for 

taking the time to do this. I represent in my district in Florida 

about 200,000 seniors who rely, obviously, heavily on Medicare. 

About 40,000 of those seniors are on Medicare Advantage. And I 

want to make sure they have quality health care. Millions of Americans are struggling, especially those living on fixed incomes. I read 

a new study in terms of the cuts they are talking about, the $716 

billion in cuts in the new health care law, that $2.2 billion will be 

in the two counties I represent in my congressional district. The 

question I have for the panel, really, how big of an impact in terms 

of our congressional area? 

Mr. Tallent, can you maybe express your concerns on this or your 

thoughts on it? 


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Mr. TALLENT. I apologize, but I don’t understand the particulars of Florida and your situation. Mr. BUCHANAN. Well, just look at the $716 billion in cuts. Of 

that, it will be applicable in a lot of different congressional districts 

around the country. But I have 200,000 seniors 65 and older; $2.2 

billion of those cuts are going to be in my immediate area, the area 

I represent. And I was just wondering do you have a thought on 

the impact of those cuts? 

Mr. TALLENT. Specifically, I am focusing this morning, I have 

been asked to focus on the effect of—— 

Mr. BUCHANAN. Medicare Advantage? 

Mr. TALLENT. Well, of the cost contracts and the situation that 

we are in. 

Mr. BUCHANAN. Dr. Schwab, do you have any comments on 

that in terms of the cuts? 

Mr. SCHWAB. Well, the cuts are going to force all plans to operate more efficiently and effectively. I think some of the things that 

the plans are looking at are how do you use technology to more efficiently care for people. Ultimately, cuts will potentially reduce the 

amount of benefits if the cuts are deep enough. But the other thing 

that helps is as we have moved more towards a risk adjustment 

system so that you pay appropriately for the appropriate needs of 

that individual, that can help offset some of the impact of the cuts. 

Mr. BUCHANAN. Ms. Ignagni, do you have any comments on 

that? 

Ms. IGNAGNI. There is no way to know with precision exactly 

what will happen in any particular area. But I do think that looking at what happened in the past post the Balanced Budget Act of 

1997, there is reason for caution and deliberation. In particular, I 

think that as we see the cuts have not—they are back loaded. So 

we haven’t seen the impact yet. But number one. Number two, the 

premium tax is going to be hitting in 2014 as these cuts ramp up. 

And I think that is a place to start for real deliberation in terms 

of the impact of all of these things. 

So without a doubt, I think that our plans, what I can tell you, 

our plans are going to do everything they can to maintain benefits 

and service seniors who are depending upon them. But the scale 

and scope of the cuts that have yet to come is something that we 

are concerned about. 

Mr. BUCHANAN. Thank you. And I yield back. 

Chairman HERGER. Thank you. Mr. Kind is recognized for 5 

minutes. 

Mr. KIND. Thank you, Mr. Chairman. I want to thank our panelists for the testimony today. And this is yet another hearing that 

we are having on what is happening within health care reform, 

which I think is totally necessary, totally appropriate that we have 

these conversations, we find out what is working and what isn’t 

working. And then hopefully have the ability as a Congress to continue to make adjustments as we learn more. I don’t think anyone 

going into health care reform, certainly those of us who supported 

the Affordable Care Act, thought it was going to be easy or that 

it was going to happen overnight. It is going to require a lot of hard 

work. It is quite frankly going to take the effort of a Nation, not 

just one party, to try to reform a health care system that is in desVerDate Mar 15 2010 05:08 Jun 06, 2013 Jkt 080842 PO 00000 Frm 00102 Fmt 6633 Sfmt 6602 E:\HR\OC\80842.XXX 80842

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perate need of reform. I have been one of the leading voices of trying to do what we can to reform the way health care is delivered 

in our country so it is more integrated, coordinated, patient-centered. But especially we have to change the way we pay for health 

care so it is value- or outcome-based, and no longer volume-based 

payments. 

And Ms. Ignagni, I know you and the plans that you represent 

and that have been at the forefront when it comes to a lot of these 

changes and a lot of these reforms. I think we need to be doing it 

on a parallel path between Medicare and the private plans that are 

out there. I don’t think doing it in isolation is going to work. Could 

you give us a quick update on what you are seeing happening, especially in the private sector right now, with these type of delivery 

and payment reforms that are happening? 

Ms. IGNAGNI. I really appreciate the opportunity to do that. A 

couple of points. One, there are very significant changes going on 

all across the country that are very exciting. And the story is about 

collaboration, health plans and clinicians collaborating in patientcentered medical homes to bring more value and case management 

to those with chronic illnesses. And baking those strategies into the 

Medicare Advantage, Medicaid plans, SNPs, and so on and so forth, 

I think that shows real promise. 

Two, bundling, which you have talked about a quite lot, really 

changing, moving to a prospective payment as opposed to retrospective and more of a piece rate. And we are beginning to see real 

traction as a result of that all over the country. And I think that 

holds real promise. The third point, I had mentioned in my oral remarks that we are partnering with CMS on a number of these initiatives. And I think that too holds promise in terms of getting 

more traction and getting more pickup across the country in a synergistic way. 

And I think you will be hearing more about that. But without a 

doubt, what is very significant now, as a result of these strategies, 

health plans are showing in peer-reviewed journal data that they 

are working with respect to readmissions, emergency room. 

So we are not finished by any means. I don’t want to leave you 

with that impression. But we have taken a major step. And it 

clearly has to be the future, more coordinated care, more prospective payment and partnerships between plans and clinicians and 

hospitals. 

Mr. KIND. Mr. Cosgrove, let’s back up here a little bit. You testified about how the bonus payment plans are going to be phasing 

out over the next few years as far as the bonus payments are concerned and that. But what I don’t understand is there are two different competing visions of where health care reform needs to go. 

Under the Romney-Ryan plan, the changes they are advocating 

under Medicare won’t happen until 10 years from now, the year 11, 

12. I am sorry, but that is just not good enough. We can’t sit 

around and wait 10 years to start making important changes within the health care system, especially in a program as important 

and as vital as Medicare. 

Now, there is some criticism up here from the dais today about 

how these bonus payment incentives for quality plans are going to 

be reduced, and the impact it is going to have on Medicare AdvanVerDate Mar 15 2010 05:08 Jun 06, 2013 Jkt 080842 PO 00000 Frm 00103 Fmt 6633 Sfmt 6602 E:\HR\OC\80842.XXX 80842

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tage plans. But weren’t the MA plans created to begin with back 

in 2003 and actually passed in 2004 as part of the Medicare Modernization Act and also the new prescription drug plan? Is that 

right? Is that where the MA plans came from? 

Mr. COSGROVE. Yes. But there was a predecessor program, 

commonly referred to as the risk program, that went back to the 

1980s. But the MA program built upon that, yes. 

Mr. KIND. And do you recall, sitting here today, whether or not 

that legislation that passed, that also called for higher reimbursement levels for MA plans, whether any of that was paid for in the 

2004 bill? 

Mr. COSGROVE. I do not. 

Mr. KIND. Well, the answer, and I think everyone up here on 

the dais understands, that it wasn’t. That was a major piece of legislation, the largest expansion of entitlement spending since Medicare was first created in 1965, and not a nickel of it was paid for. 

Many of us at the time who voted against it didn’t think it was fiscally responsible to be offering these higher reimbursement payments to the MA plans without any ability to pay for it to begin 

with. And now we are hearing some criticism when we are trying 

to reform that to find some cost savings. Cost savings, by the way, 

that was completely adopted in the Ryan budget that virtually 

every one of my colleagues on the other side supported and voted 

for. And now they are trying to have it both ways up here, which 

is inexplicable to me. 

And Ms. Gold, I think you testified about the differences that 

there is between their plan that would privatize, in essence, 

through a voucher or premium support, whatever you want to call 

it, with the existing Medicare program. Is there an important distinction to be made there? 

Ms. GOLD. Extremely important decision. Right now Medicare is 

a national—— 

Chairman HERGER. The gentleman’s time has expired. Maybe 

you could respond in writing, please. 

Ms. GOLD. Yes, it is in my testimony. Thank you. 

Mr. KIND. Thank you. 

Chairman HERGER. Mr. Roskam is recognized for 5 minutes. 

Mr. ROSKAM. Thank you, Mr. Chairman. Mr. Cosgrove, in your 

testimony before the Government Reform Committee in July, and 

again before us today, you note that CMS enacted a demonstration 

that was seven times larger than any since 1995. It was greater 

than the combined budgetary effects of the demonstration, has no 

control group or way to judge the outcomes of the demonstration 

program, and went so far as to suggest that the demonstration 

should be canceled. Is that right? 

Mr. COSGROVE. We did recommend that the Secretary cancel 

the demonstration, yes. 

Mr. ROSKAM. Ms. Ignagni, you know, President Obama during 

the large discussions around the passage of the new health care 

law made much of the argument that if you like your plan you are 

going to be able to keep it. Can you reflect on sort of how the reality is of what your members are dealing with and their ability 

to offer products that existed before the enactment of the health 

care law and what they are dealing with now? 


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Ms. IGNAGNI. Well, first of all, in the Medicare Advantage 

arena as well as the commercial arena, we are doing everything we 

can to bring costs down and to improve quality. That is what beneficiaries want, and that is what purchasers want. As we look at the 

cuts with respect to ACA in Medicare, we are very concerned about 

the future impacts. We are going to continue to do everything we 

can to bring costs down and improve quality. But if you look at the 

scale and the size of these, plus the premium tax, that compounds 

the impact. We are very concerned. The data that we provided in 

our testimony from CBO, that gives you a window, I think into the 

potential effect. And so the honest answer is we don’t know what 

the future will hold. And we are going to work very, very hard to 

do our part. But as we see the size of all of this that will come into 

effect, we are very concerned. 

Mr. ROSKAM. So I think you said concerned either two or three 

times. And so let me focus on Mr. Capretta. If you are advising Ms. 

Ignagni on the nature of her concern, if you are her consigliere and 

you are there looking out over a spreadsheet and making some predictions, what are the things that she needs to be concerned about 

if the stated goal of the President of the United States is to be able 

to offer a program—to continue to offer a program that somebody 

currently enjoyed? What would you advise about the nature of the 

concern going forward? 

Mr. CAPRETTA. Well, she needs no advice from me, first of all. 

But—— 

Mr. ROSKAM. Well played. Well done. 

Mr. CAPRETTA. It is quite clear from the trustees’ projections 

that the program is going to shrink. The question is degree and 

magnitude. If you make these reductions, the law requires that any 

payments above a bid but below the benchmark are returned, essentially, to the beneficiary in the form of higher benefits. So when 

you reduce the MA payments, by definition, they are going to be 

scaling back what they can offer to the beneficiaries to enroll in the 

program. 

Mr. ROSKAM. That is a truism, right? That is not a revelation. 

Mr. CAPRETTA. No. 

Mr. ROSKAM. That is not a subject of dispute. That is a truism. 

Mr. CAPRETTA. Absolutely. 

Mr. ROSKAM. All right. Go on. 

Mr. CAPRETTA. The trustees project that about one third of the 

program is going to disenroll one way or the other. Either the plan 

plans are going to close down some of the counties they are operating in, or some of the beneficiaries will disenroll voluntarily because the benefits will be less attractive. So in about 6 years’ time, 

5 years’ time, the trustees, based on the actuary’s projections, assume the program will be basically one third smaller than it is 

today. 

So for the Congressman from Florida, he has 200,000 beneficiaries, 40,000 of them in Medicare Advantage, you know, 10,000, 

12,000, 15,000 beneficiaries probably will lose the plan they have 

today and move back into the traditional program. I don’t view that 

as a very positive development. Fee-for-service has its advantages; 

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ordinated care. It is very fragmented care. It doesn’t necessarily deliver higher quality care. There is no metric to prove that. 

Mr. ROSKAM. So your testimony today is that the trustees, the 

people that are calling balls and strikes on this, are saying that in 

a period of 6 years, a third of the beneficiaries are going to be out 

of the system. And it is your conclusion that that one third leaves 

because of the downward pressure on reimbursements. Either they 

take themselves out, the beneficiaries do, or the carriers no longer 

are participating in the program. Is that right? 

Mr. CAPRETTA. That is correct. It is slightly less than one 

third, but it is just below that end, yes. And those are the reasons 

why. 

Mr. ROSKAM. I yield back. 

Chairman HERGER. The gentleman yields back. Mr. Reichert is 

recognized for 5 minutes. 

Mr. REICHERT. Thank you, Mr. Chairman. 

I am going to continue the line of questioning that Mr. Roskam 

was pursuing with Mr. Capretta. Just to clarify, when the bill was 

first drafted and passed, we were looking at a $523 billion cut to 

Medicare. About $200 billion of that was Medicare Advantage. 

Today, CBO has upped that figure to $700 billion and $308 billion 

in Medicare Advantage; is that correct? 

Mr. CAPRETTA. That is correct. 

Mr. REICHERT. I am really confused as to what we are supposed to believe, because the other question is, and Mr. Roskam 

touched on it, the President of the United States has said if you 

like your health care plan, you can keep it. But I was at an event 

where the President actually came back and said, when he was 

asked that question, well, there may have been some language inserted in that bill that runs contrary to that premise. That is a paraphrase of his comment. 

What are we supposed to believe is still my question. So to follow 

up, your testimony suggests that the cuts to Medicare Advantage 

may force seniors out of the plan that they like and that they currently have; is that true? 

Mr. CAPRETTA. Yes, that is true. 

Mr. REICHERT. And they are forced into less preferred options 

like fee-for-services or less generous Medicare Advantage plans; is 

that correct? 

Mr. CAPRETTA. That is true, yes. 

Mr. REICHERT. So let’s talk about those seniors who lose their 

plan. Isn’t it true that Medicare trustees expect million of seniors 

to lose access to Medicare Advantage altogether? 

Mr. CAPRETTA. I haven’t seen them specify exactly how it is 

likely to fall out, but one can surmise. There are about 4 million 

beneficiaries, fewer beneficiaries, enrolled in Medicare Advantage 

in 2017 than there will be in 2013. Of those 4 million, one might 

surmise that some of them are in counties where the plans have 

pulled out. Some are in counties where the plans are still there operating, but perhaps offering less generous benefits, so they don’t 

find it as attractive and they move back into fee-for-service. So the 

reasons for the disenrollment and the shrinkage is not all that 

clear yet. 

Mr. REICHERT. But there will be disenrollment? 


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Mr. CAPRETTA. Yes, there will be. 

Mr. REICHERT. And so they won’t be able to keep their health 

care if they like it, obviously? 

Mr. CAPRETTA. That’s correct. 

Mr. REICHERT. And seniors who stay in that program are going 

to lose benefits, as you just mentioned? 

Mr. CAPRETTA. Yes, they will. 

Mr. REICHERT. So really these seniors will be forced back in the 

traditional fee-for-service Medicare, which is not coordinated, does 

not have the additional benefits that seniors are used to, and lacks 

any type of out-of-pocket maximum; is that correct? 

Mr. CAPRETTA. That is correct. Many of them may end up try- ing to buy Medigap insurance, which the average premium is $150 

or $200 a month, something like that. 

Mr. REICHERT. So that was my next question. As you know, 

Chairman Herger and I have been doing a little bit of investigation 

into AARP and its relationship to, its involvement in helping to negotiate this Obama health care plan. I find it interesting that the 

promises made—you can keep your health care if you like it— 

AARP benefits from this. As seniors leave Medicare Advantage and 

they are forced into Medigap, what happens is, for AARP, they end 

up with a $1 billion windfall over 10 years. They increase their revenue by $1 billion in 10 years as a result of that change because 

AARP gets a flat rate fee for seniors who are on Medicare Advantage, and they get a percentage of every senior enrolled in 

Medigap. 

I also find it curious that in this bill what we are going to do 

is we are going to tax people who don’t buy insurance. We are 

going to tax medical devices. We are going to tax businesses who 

don’t provide enough insurance with a penalty. We are also going 

to add a $3,000 tax penalty if you provide too much insurance. And 

then we are going to tax 40 percent on Cadillac health. We are 

going to tax American citizens over and over and over and again. 

But AARP, with a $1 billion increase in revenue in 10 years, is a 

tax-free organization that will not be taxed one cent on that $1 billion. And I don’t expect you to respond to that. I appreciate the 

time, and I yield, Mr. Chairman. 

Chairman HERGER. Thank you. 

Mrs. Black is recognized for 5 minutes. 

Mrs. BLACK. Thank you, Mr. Chairman. 

I appreciate the panel being here today and helping us to look 

at what the future of these programs might be for especially the 

very frail population. And given my health care background and 

having worked in long term care, I am certainly acutely aware of 

what their needs are. One of the things that I know as I worked 

with patients over the years is that they still want choice. They 

still want to make some of those decisions and not feel like they 

will be told about everything that is going to be done for them. 

So I want to turn to you, Dr. Schwab, because I believe this is 

an area that we really need to take a look at. You have both the 

clinical background and also the background on the economics side 

of SCAN which has been the special needs programs for many 

years. And so in your testimony on page 6, you talk about the special needs model providing patient-centered, coordinated care to 


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vulnerable populations having been a success. You say: Unfortunately, as we all know, the current special needs program authorization is set to expire in 2013, which is great concern to me. 

If you could just briefly talk about what you see, if you were 

going to sell this program to the policymakers who are going to 

make that decision, tell me what you see as being the benefits, and 

then also, I want to know from you what do you see as a possibility 

of working within the environment, the cost, but yet the patientcentered care and the quality, what kind of things could you do to 

make the program better and make it more effective? 

Mr. SCHWAB. Well, to start with, what can you do to make it 

better, and there are three different types of SNPs and so the answers depends on which SNPs you are talking about. The dual 

SNPs, one of the things that could be improved is better coordinating and reducing overlap of regulatory issues between the State 

and the Federal Government. Not that one is wrong or one is right, 

it is just that there is confliction and there is duplicative work. 

What you can do for the overall programs I think is recognize 

that all SNPs are people that are very different. Whether it is the 

duals or whether it is the chronic or whether it is institutional, and 

measuring quality specifically for that population would be a big 

help. The five-star system is a great step forward in measuring 

quality in plans. But, unfortunately, it doesn’t always apply to 

some of the unique populations within there. What is good for a 

person on dialysis may not be same quality metric you want to 

measure for a person who is dual eligible and not on dialysis. 

The other thing is we have shown that providing home and community-based services is very valuable in keeping people in their 

home, which is where they want to stay, and out of a nursing 

home. Allowing plans, other plans other than just the D–SNPs to 

provide the supplemental benefits would go a long way to, especially in the I–SNPs, preventing people who are low income but not 

yet on Medicaid, to prevent their spend down and going into a 

nursing home and then ending up on the Medicaid program. 

Mrs. BLACK. Thank you. 

Mr. Cosgrove, I want to turn to you because I know the GAO examined the requirements from the Medicare improvements for Patients and Providers Act of 2008, which established the contracting 

requirements for the dual Special Needs Program. Can you discuss 

some of the challenges identified by the States in implementing 

these contracts? 

Mr. COSGROVE. Yes. We met with, I think, five States to talk 

about some of the challenges that they face. And part of it they just 

explained to us, one of the terms they used was bandwidth. It is 

just the number of organizations that they would have to contract 

with, and it is the State having the resources to be able to do it. 

They could see that it is more valuable for plans that are larger. 

Some of the SNPs are fairly small and—but still, it takes the contracting effort. 

And they also brought up some other issues as well in terms of 

the State’s fiscal year may not coincide with the contracting year 

for the SNP which causes difficulty for them entering into contracts 

as well. 


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Mrs. BLACK. Dr. Schwab, you have experience in this particular 

issue. Do you have any comments regarding this report? 

Chairman HERGER. The gentlelady’s time has expired. If you 

can answer that in writing. 

Mrs. BLACK. Thank you, Mr. Chairman, that went quickly. 

Chairman HERGER. Mr. McDermott is recognized for 5 minutes. 

Mr. MCDERMOTT. Thank you, Mr. Chairman. 

As I sit here and listen to this, I think about the fact that dust 

is the best political defense you have—make people confused. And 

I think there are a lot of people watching this who don’t understand that everyone who is speaking on the other side talking 

about these awful cuts, voted for them. Every single one of them 

voted twice for them. So they are trying to have it both ways because isn’t it true that the ACA actually eliminated costs and gave 

new benefits to people that are in place now? Is that true, Ms. 

Gold? 

Ms. GOLD. Yes. 

Mr. MCDERMOTT. So what is the difference between this voucher plan that the Ryan budget wants, and this medical plan? What 

does it mean to patients? Because I sit up here as a doctor and I 

think about patients rather than product and numbers and trends 

and graphs. I think what it does to patients. So tell me what is 

going to be the difference for a patient if they are forced into a 

voucher plan by Ryan or remain in the regular Medicare program? 

Ms. GOLD. Well, I think it is going to be a lot more confusing 

and probably a lot more expensive, depending upon how much 

money Congress puts in. 

Right now, beneficiaries know there is Medicare. Medicare is 

very popular. 70 percent of beneficiaries remain in the traditional 

program, and like it. 

If this goes forward, beneficiaries probably will not necessarily 

have the same benefits across the country. Some may have less. We 

will get into more fights about what areas have more money or less 

money. They will have to figure out whether they pay more money, 

how these benefits compare to one another, and it is likely to be 

relatively confusing. Also, I think underappreciated is that your 

plan may affect what doctor you can go to, and if every year these 

plans switch, and especially if there are different bids and different 

plans come in and out, it means that beneficiary’s care may not be 

stable over time and that they may find that even if they stay in 

the same plan, they don’t have the same doctor or they could lose 

their doctor. 

Mr. MCDERMOTT. When we talk about cuts, everybody here 

thinks they know what we are talking about, but I have no idea 

what the average American thinks when we say we are making 

cuts in Medicare. Does that mean that they won’t take my blood 

pressure anymore? Or does that mean they won’t take my blood 

sugar? Or does that mean I won’t get physical therapy with my 

aching bones? What are these cuts? 

Ms. GOLD. Do you mean under the current program? 

Mr. MCDERMOTT. Well, they are making all of these cuts to 

Medicare. 

Ms. GOLD. Every day Congress decides how much money it is 

going to spend. It pays providers. It decides how much to update 


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this provider’s rate and that provider’s rate. As I understand the 

cuts in the ACA, most of the general cuts involve those kind of decisions as to what an equitable payment for a hospital was, or another provider. So they are changes in provider payments. There 

was no change made except improvements in benefits for cost sharing for beneficiaries. 

So presumably, and there always is a problem. If you cut providers too far, you could have a problem getting access to them. 

But I think most of these cuts are probably invisible to beneficiaries right now. 

Mr. MCDERMOTT. When somebody said, I forgot which one of 

the witness, that this pressure on Medicare with the cuts is going 

to make them more efficient, does that mean you won’t get good 

medical care, if it is efficient? 

Ms. GOLD. You know, what is efficiency? 

Mr. MCDERMOTT. Let me ask Dr. Schwab or Dr. Tallent, what 

do you intend to cut because of these changes in Medicare that will 

make people get out of your program or leave? Or is it just that 

the rural areas are too far away so we are not going to give that 

coverage? We are going to drop that county? What does it mean? 

Mr. SCHWAB. Well, because I was the one that used the term 

‘‘efficiency,’’ I think the first focus is on how do you become more 

efficient and not reduce quality. The quality comes first in all 

plans. And efficiency means you are going to be cutting administrative overhead that you can find better ways to do things more efficiently and more effectively. That can only go so far, but that is 

clearly the first area that we are looking at of cutting, how do we 

work more efficiently without impacting beneficiary experience. 

Chairman HERGER. The gentleman’s time has expired. If there 

is any further response, if you could respond in writing, please. 

Thank you. 

Mr. Paulsen is recognized for 5 minutes. 

Mr. PAULSEN. Thank you, Mr. Chairman, and also for holding 

this very important hearing. Like many of my colleagues, I am concerned about the pending cuts to the Medicare Advantage program 

and the likelihood that millions of seniors will be pushed out of 

their health care plans in the coming years, even though they may 

like those health care plans. 

Mr. Tallent, in your testimony, you pointed out that about 

250,000 Medicare beneficiaries could lose access to their cost contract plan unless Congress takes some action or steps this year to 

extend the program or make modifications to the so-called two-plan 

test. A substantial number of those affected beneficiaries, about 

200,000 of them, are in my home State of Minnesota. And when 

cuts have been made in the past to the Medicare risk program, 

plans have been forced to either scale back offerings or even withdraw from certain areas of the country altogether. So Mr. Tallent, 

from your experience, do you agree that it is even more important 

now to extend cost contract, that program, the cost contract program given the cuts to the MA program that are slated to take effect now over the next few years? 

Mr. TALLENT. Well, yes. We think it is very important because 

we are entering another period, it would appear, of instability, of 

unknown rates, for the MA plans. And over history, which has been 


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mentioned a number of times by the panel, we have observed these 

plans, MA plans, making decisions to pull out of certain markets. 

And that is what we are experiencing. 

In my testimony, I discussed specifically in Iowa that we are concerned that we will be displaced next year and there could be a 

very high probability that in the near future, that the plans that 

are displacing us will also leave and the result will be many beneficiaries without appropriate high-quality options for plans. 

Mr. PAULSEN. Okay. I think you also mentioned that many cost 

plans enrollees at Medical Associates, health plans and at other 

cost contract plans are older than the average of Medicare beneficiaries in general, and they have been members for a decade or 

longer, for a long period of time. So to me, this seems like a potentially vulnerable group to disrupt care for. I imagine you would 

agree with that. What would it mean to these beneficiaries if they 

could no longer choose to enroll in the plan that they had come to 

rely upon? You talked about the high probability of disruption, and 

losing out to—if other competitors pull out down the road as well? 

Mr. TALLENT. Well, certainly for many of our members, I think 

it would be very disruptive. In my testimony, I mentioned that 30 

percent of our membership is over the age of 80. And also that 

many of these members have been with us for very lengthy periods 

of time, have been with the same doctor or sets of doctors, many 

of them have multiple issues, for lengthy periods of time. If we 

were to have to be displaced, this vulnerable population would definitely be affected. 

Mr. PAULSEN. Thank you, Mr. Chairman. I yield back the time, 

and I appreciate the testimony. 

Chairman HERGER. Thank you. I want to thank each of our witnesses for your expert testimony today. 

Today we heard a detailed discussion of the future of health 

plans and Medicare. Clearly, significant changes are coming to the 

Medicare Advantage program, and seniors are right to be concerned about what will happen to the health plan they have and 

like. 

As I conclude this hearing, likely my final one as a member of 

this committee, I would like to highlight that this committee has 

some of the most challenging issues before it. I want to thank my 

colleagues for their thoughtful and often spirited discussion of 

those issues. We have debated these issues honestly and thoroughly, and I have laid down the groundwork to address the issues 

important to the millions of current Medicare beneficiaries, and 

those joining the program in the future. 

I want to say, it has been an honor and a privilege to work with 

all of my colleagues, and a blessing to represent my northern California constituents. The work that we do is critical to maintaining 

a vibrant and thriving Nation, and I have been proud to be a part 

of it. 

As a reminder, any member wishing to submit a question for the 

record will have 14 days to do so. If any questions are submitted, 

I ask that the witnesses respond in a timely manner. 

Mr. MCDERMOTT. Mr. Chairman. 

Chairman HERGER. Yes. 

Mr. MCDERMOTT. May I have a point of personal privilege? 


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Chairman HERGER. You may. Mr. McDermott is recognized. 

Mr. MCDERMOTT. It is typical of you that you would put this 

announcement of your leaving at the end when there is nobody 

here except me. We are going to miss you. You have done a good 

job for your people in California and for the committee. I think that 

it should be acknowledged publicly. Good Members retire sometimes before they are thrown out, and it is good to see you going 

to retirement. I hope you enjoy it. You have done a great service 

to our country. Thank you. 

Chairman HERGER. I thank my good friend for those comments. 

With that, this subcommittee stands adjourned. 

[Whereupon, at 10:48 a.m., the subcommittee was adjourned.] 

[Submissions for the Record follow:] 

f 


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Association for Community Affiliated Plans 


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ACAP 

Association lor Community 

Affiliated Plans 

October 5, 2012 

The Honorable Wally Herger 

Chainnan 

101515111 Stred. N.W .. Suit-?! 850 I/V3S!::'-I';1t0n, DC 20005 

T<::i. ZO:! 204 7['D8 r-,~:< 2.o7..2'A.7517 i w"v"\"I.c<,rn:":"n;nijvp:~.im,.nl~t 

~}()b r~;i)mps(l!1. Ch"j';f!~::;n f..Aa;fP!~': A. Murr<lY. Ch:<i;j E-.xI!lc;uti"<i; ();k:(~~ 

House Ways and Means H~alth Subcommittee 

1102 Longworth House Office Building 

Washington, DC 20515 

submitted eiectrol1ical(v 

Dear Representative Herger and h1cmbcrs of the Subcommittee: 

The Association for Community Affiliakd Plans (ACAP) submits the attached paper on 

Special Needs Plans as part of the record for the Committee's hearing on Medicare 

Health Plans held on September 21. We strongly urge re-authorization of Duals Special 

Needs Plans (D-SNPs) to allow stability for beneficiaries, health plans and states while 

more permanent options for duals are developed based on learning from the Duals 

Financial Alignment Demonstrations \\'hich will begin during 2013. It is imperative that 

D-SNPs remain an option to provide integrated care to a highly vulnerable population. 

ACAP is a national association representing 58 not-for-profit Safety Net Health Plans 

that seD/e nearly to million individuals on Medicare, Medicaid, Children's Health 

Insurance Program (CHIP) and other public health programs in 28 states. Approximately 

half of ACAP plans operatc D-SNPs; evcn more will serve dually eligible beneficiaries in 

the upcoming demonstrations. 

We appreciate the opportunity to submit this statement. Questions may be addressed to 

Mary Kennedy, Vice President t(X Medicare and Managed Long Tenn Care at: 

mkennedy(i?\,:ommunitYrhlns.n~t or 202-701-4749. 

Sincerely. 

/~~~~ Chief Executive Ollieer 
110 


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ACAP 

Congress Should Reauthorize the Medicare Advantage Special Needs 

Plan Program Before the End of the Year 

R~qu-,~sJ: 

ACAP urges the House and Senate to reauthorize the Medicare Advantage (M A) Special 

Needs Plan (SNP) Program by the end or201.2 to provide certainty for health plans and 

continuity of care for dual eligibles and other "'ulnerable Medicare beneficiaries, and to 

improve the SNP program by enacting policies that assure actuarially sound payment, fair 

comparison to other MA pLans. and support the c1"iticalroie that Safety Net Health Plans 

play in the SNP program. 

Background 

People enrolled in both Medicare and Medicaid, or "'dual eligibles." tend to be among the 

poorest. most fraU, most mcdicall)' needy Americans. But because Medicare and Medicaid are 

separately administered, these beneficiaries are often poorly served. Strong incentives for <.:ostshi fting bet\vccn the two programs lead to unnecessarily high spending across hoth programs. 

The ~fedicare Moderni .. ation Act established SNPs, which provide an integrated cal'e setting 

for dual eligibles. Fully-integrated care management for dual eligibles is the best way to improve 

care coordination and reduce Wlllccessary barriers to care. SllpportS and services, 

rhe A.tfOrdahle Care Act renewed focus on dual eligibles 'with the establishment of the Federal 

Office of Medicare-Medicaid Integration. Several states arc implementing shared savings 

demonstrations in 2013. Others an: planning for 2014. But successful movement to a fullyintegrated risk-based model requires stability. long-term planning and thoughtful implementation. 

Given uncertainty around the timing, location and populations included in these 

demonstrations, SNl.Js remain essential to cool'dinatjng cure for many dual eligibles. We 

expect discussions on a more permanent settin~ for integrated care to begin in 201 .... 

~oU~y_RegQ~st~ 

As it looks fonvard to legislative action before the end of the year, ACAP calls on Congress to 

pass legislative language to: 

1. Reauthorile the MA Special Needs Plan Program for a period of no less than five 

years. CUlTent authorization ends in laTIuaJ)' 2014. and eMS requires that SNPs submit 

notices of intent to operate in 2014 before the end ofthis year. Until a new permanent 

integrated program emerges for dual e1igihles, Congress must provide greater certainty to 

health plans and Medicare beneficiaries by reauthorizing the SNP program for no less than 

five years. The uncertainty caused by si10rHerm reauthorization periods is a continuous 

threat !O the quality and continuity of care provided !O SNP enrollees. 

2. Provide accurate payment to SNP Plans by improving the ri~k adjustment process to 

reflect the actual health care needs of the enrolled population. With respect to risk 

adjustment for MA, Congress should ( 1) expand the types of health conditions considered 

when calculating risk adjustment, such as mental health and substance abuse; (2) require 

eMS to use the prior t\VO years of patient health data, as sllpP011ed by J\.1cdPAC; (3) 

2 
111 

Æ 


pwalker on DSK7TPTVN1PROD with HEARINGInsert offset folio 85 here 80842.085