[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]
MEDICARE SUPPLEMENTAL INSURANCE
=======================================================================
HEARING
before the
SUBCOMMITTEE ON HEALTH
of the
COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
SECOND SESSION
__________
MARCH 14, 2002
__________
Serial No. 107-60
__________
Printed for the use of the Committee on Ways and Means
U.S. GOVERNMENT PRINTING OFFICE
79-301 WASHINGTON : 2002
____________________________________________________________________________
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COMMITTEE ON WAYS AND MEANS
BILL THOMAS, California, Chairman
PHILIP M. CRANE, Illinois CHARLES B. RANGEL, New York
E. CLAY SHAW, Jr., Florida FORTNEY PETE STARK, California
NANCY L. JOHNSON, Connecticut ROBERT T. MATSUI, California
AMO HOUGHTON, New York WILLIAM J. COYNE, Pennsylvania
WALLY HERGER, California SANDER M. LEVIN, Michigan
JIM McCRERY, Louisiana BENJAMIN L. CARDIN, Maryland
DAVE CAMP, Michigan JIM McDERMOTT, Washington
JIM RAMSTAD, Minnesota GERALD D. KLECZKA, Wisconsin
JIM NUSSLE, Iowa JOHN LEWIS, Georgia
SAM JOHNSON, Texas RICHARD E. NEAL, Massachusetts
JENNIFER DUNN, Washington MICHAEL R. McNULTY, New York
MAC COLLINS, Georgia WILLIAM J. JEFFERSON, Louisiana
ROB PORTMAN, Ohio JOHN S. TANNER, Tennessee
PHIL ENGLISH, Pennsylvania XAVIER BECERRA, California
WES WATKINS, Oklahoma KAREN L. THURMAN, Florida
J.D. HAYWORTH, Arizona LLOYD DOGGETT, Texas
JERRY WELLER, Illinois EARL POMEROY, North Dakota
KENNY C. HULSHOF, Missouri
SCOTT McINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
KEVIN BRADY, Texas
PAUL RYAN, Wisconsin
Allison Giles, Chief of Staff
Janice Mays, Minority Chief Counsel
______
Subcommittee on Health
NANCY L. JOHNSON, Connecticut, Chairman
JIM McCRERY, Louisiana FORTNEY PETE STARK, California
PHILIP M. CRANE, Illinois GERALD D. KLECZKA, Wisconsin
SAM JOHNSON, Texas JOHN LEWIS, Georgia
DAVE CAMP, Michigan JIM McDERMOTT, Washington
JIM RAMSTAD, Minnesota KAREN L. THURMAN, Florida
PHIL ENGLISH, Pennsylvania
JENNIFER DUNN, Washington
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public
hearing records of the Committee on Ways and Means are also published
in electronic form. The printed hearing record remains the official
version. Because electronic submissions are used to prepare both
printed and electronic versions of the hearing record, the process of
converting between various electronic formats may introduce
unintentional errors or omissions. Such occurrences are inherent in the
current publication process and should diminish as the process is
further refined.
C O N T E N T S
__________
Page
Advisories announcing the hearing................................ 2
WITNESSES
U.S. Department of Health and Human Services, Hon. Bobby Jindal,
Assistant Secretary for Planning and Evaluation................ 8
U.S. General Accounting Office, William J. Scanlon, Director,
Health Care Issues............................................. 13
______
Health Insurance Association of America, Donald A. Young, M.D.... 23
Medicare Rights Center, Jennifer Weiss........................... 32
SUBMISSION FOR THE RECORD
National Association of Health Underwriters, Arlington, VA,
statement and attachment....................................... 52
MEDICARE SUPPLEMENTAL INSURANCE
----------
THURSDAY, MARCH 14, 2002
House of Representatives,
Committee on Ways and Means,
Subcommittee on Health,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2:22 p.m., in
room 1100 Longworth House Office Building, Hon. Nancy L.
Johnson (Chairman of the Subcommittee) presiding.
[The advisory and revised advisory announcing the hearing
follow:]
ADVISORY
FROM THE
COMMITTEE
ON WAYS
AND
MEANS
SUBCOMMITTEE ON HEALTH
CONTACT: (202) 225-3943
FOR IMMEDIATE RELEASE
March 7, 2002
No. HL-14
Johnson Announces Hearing on Medicare Supplemental Insurance
Congresswoman Nancy L. Johnson (R-CT), Chairman, Subcommittee on
Health of the Committee on Ways and Means, today announced that the
Subcommittee will hold a hearing on rationalizing Medicare supplemental
insurance policies. The hearing will take place on Thursday, March 14,
2002, in the main Committee hearing room, 1100 Longworth House Office
Building, beginning at 10:00 a.m.
In view of the limited time available to hear witnesses, oral
testimony at this hearing will be from invited witnesses only.
Witnesses will include representatives from the Administration.
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.
BACKGROUND:
Because Medicare's fee-for-service program has an antiquated and
irrational cost-sharing structure, and fails to cover many essential
items like prescription drugs, Medicare beneficiaries buy supplemental
coverage to help pay for health care costs not covered by Medicare.
Almost one-quarter (24 percent) of Medicare beneficiaries purchase this
coverage as individuals through the private insurance ``Medigap''
market. In 1990, Congress created 10 standardized Medigap policies. All
10 plans are required to cover beneficiaries' coinsurance--some of the
costs of Medicare services for which beneficiaries are responsible,
such as 20 percent of the costs of a physician visit. Nine out of 10 of
those policies, which comprise more than 90 percent of the Medigap
market, are required to cover the Part A inpatient hospital deductible
(currently $812), and the most popular Medigap policy covers both the
Part A hospital deductible and the $100 Part B deductible for physician
services.
Numerous studies have demonstrated that covering deductibles and
coinsurance has led to markedly higher Medicare spending because
beneficiaries become insensitive to costs. In addition, only the three
most expensive Medigap plans cover prescription drugs, and that
coverage is limited. Yet, 8 of the 10 plans are required to cover
foreign travel insurance, while most beneficiaries never leave their
home country. Because these standard policies are set by statute,
however, insurers have not been able to modify their offerings to
better serve seniors as the market has evolved.
In announcing the hearing, Chairman Johnson stated, ``Given our
desire to make improvements to Medicare this year, we must examine
Medigap and how it should fill in the gaps of a revised fee-for-service
program that includes a drug benefit. In addition, it's been 12 years
since we looked at how effective the Medigap benefit package is in
providing needed coverage to seniors. I am concerned that the current
structure of Medigap, by providing first-dollar coverage, has produced
excessive Medicare spending. I believe we can better design both
Medicare and Medigap so that seniors and people with disabilities get
the most for the health care dollars they spend.''
FOCUS OF THE HEARING:
Thursday's hearing will focus on improving Medigap policies in
Medicare. The Administration will present its proposals on Medigap
reform.
DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:
Please note: Due to the change in House mail policy, any person or
organization wishing to submit a written statement for the printed
record of the hearing should send it electronically to:
[email protected] along with a fax copy to (202) 225-2610,
by the close of business, Thursday, March 28, 2002. Those filing
written statements who wish to have their statements distributed to the
press and interested public at the hearing should deliver their 200
copies to the Subcommittee on Health in room 1136 Longworth House
Office Building, in an open and searchable package 48 hours before the
hearing. The U.S. Capitol Police will refuse unopened and unsearchable
deliveries to all House Office Buildings.
FORMATTING REQUIREMENTS:
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comments must conform to the guidelines listed below. Any statement or
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but will be maintained in the Committee files for review and use by the
Committee.
1. Due to the change in House mail policy, all statements and any
accompanying exhibits for printing must be submitted electronically to
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pages including attachments. Witnesses are advised that the Committee
will rely 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
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3. A witness appearing at a public hearing, or submitting a
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clients, persons, or organizations on whose behalf the witness appears.
Note: All Committee advisories and news releases are available on
the World Wide Web at http://waysandmeans.house.gov/.
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
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***NOTICE--CHANGE IN TIME***
ADVISORY
FROM THE
COMMITTEE
ON WAYS
AND
MEANS
SUBCOMMITTEE ON HEALTH
CONTACT: (202) 225-3943
FOR IMMEDIATE RELEASE
March 13, 2002
No. HL-14-Revised
Change in Time for Subcommittee Hearing on the Medicare Supplemental
Insurance
Congresswoman Nancy L. Johnson (R-CT), Chairman, Subcommittee on
Health of the Committee on Ways and Means, today announced that the
Subcommittee hearing on Medicare Supplemental Insurance, scheduled for
Thursday, March 14, 2002, at 10:00 a.m., in the main Committee hearing
room, 1100 Longworth House Office Building, will now be held at 2:15
p.m.
All other details for the hearing remain the same. (See
Subcommittee Advisory No. HL-14, dated March 7, 2002.)
Chairman Johnson. Good afternoon. I thank the panel for
being with us and for your flexibility in adjusting to the
rescheduling on rather late notice.
Two weeks ago, you may be aware that we held a hearing on
Medicare's complex, confusing, irrational, and unfair physician
payment formula. I said at that time that it clearly epitomizes
why we can no longer delay modernizing Medicare. Well, today we
look at Medigap and the deductible structure of Medicare. And
one cannot escape the conclusion that again we cannot delay
modernizing Medicare. No other program works like Medicare,
which tends to raise the deductible the sicker you get.
Because Congress has not changed the law to modernize the
program, 90 percent--9 out of 10 beneficiaries--feel compelled
to carry supplemental insurance to fill in the holes that
Medicare does not cover. Many receive retiree coverage through
their former employers. The poor receive assistance through
Medicaid. But more than one-quarter of beneficiaries purchase
Medigap insurance themselves.
In 1990, Congress created 10 standardized Medigap policies
to assist beneficiaries in choosing plans. And after 12 years,
it is surely time to revisit the inadequacies and structure of
these plans. All 10 Medigap plans are required to cover the
coinsurance that beneficiaries must pay under Medicare; for
example, the 20 percent of the cost of a physician visit. Nine
out of 10 of these plans are required to cover the part A in-
patient hospital deductible, which is currently $812.
The most popular Medigap policy covers both the part A
hospital deductible and the $100 part B deductible for
physicians' services. And 8 of the 10 policies are required to
cover foreign travel insurance--just in case these
beneficiaries travel to France, though many never leave their
home States. At the same time, only the three most expensive
Medigap policies cover prescription drugs, through prescription
drugs are seniors' most pressing need.
Numerous studies have demonstrated that Medigap's first-
dollar coverage of medical services has encouraged
inappropriate and often unnecessary care. Medicare spending
rises because items and services appear free. This pushes up
premiums for all Medicare recipients and the overall cost of
the program to taxpayers.
While Medigap benefits have declined, particularly those
covering prescription drugs, premiums have continued to rise.
From 1998 to 2000, average premiums rose 16 percent for plans
without drug coverage, and more than twice as fast--37
percent--for plans with drug coverage.
In addition, premiums vary dramatically for identical plans
in the same location. Weiss Ratings Incorporated analyzed
Medigap premiums in 2001. A 65-year-old man living in Fort
Myers, Florida, would pay about $3,600 for Plan ``J'' from
Physicians Mutual Insurance Co., but only $2,700 with United
Health Insurance through AARP. That is nearly a $1,000 less for
the same policy in the same location. The same gentleman living
in Las Vegas would spend about $1,500 for Plan ``C'' with
United American Insurance Company, but about half that amount--
$778--with the USAA Life Insurance Co. for the same policy.
Much has changed in health care and health insurance over
the past 12 years; but Medigap insurers have been unable to
modify their plans in response to these market changes, because
the 10 standard Medigap policies are set by statute.
I believe that we can better design both Medicare fee-for-
service benefits and Medigap policies, so that seniors and
persons with disabilities get the most for the health care
dollars they spend and have access to the quality of care they
deserve.
It is my great pleasure to welcome Bobby Jindal, Assistant
Secretary for Planning and Evaluation, U.S. Department of
Health and Human Services (HHS). I met Bobby when he was
executive director of the bipartisan Medicare Commission. I am
going to yield to my colleague to introduce him at a little
greater length. Mr. McCrery.
[The opening statement of Chairman Johnson follows:]
Opening Statement of the Hon. Nancy L. Johnson, a Representative in
Congress from the State of Connecticut, and Chairman, Subcommittee on
Health
Good morning. Two weeks ago, we held a hearing on Medicare's
complex, confusing, and totally irrational payment formula for
physician services. I made the statement that it clearly epitomized why
we can wait no longer to modernize Medicare.
After examining Medicare fee-for-service program's complex and
irrational cost-sharing structure, I come to the same conclusion. Why
would we charge seniors two different deductibles, and make the
deductible for in-patient hospitalization--when a patient is least
price sensitive--eight times higher than the outpatient deductible,
when health care is arguably more discretionary? And why would we
impose new cost-sharing on a patient who has been lying on her back in
a hospital bed for two months? While most private health plans provide
catastrophic protection for their enrollees, why does Medicare expose
the sickest patients to unlimited cost-sharing? Similarly, while
private plans integrated outpatient prescription drug coverage years
ago because it simply made sense, why does Medicare lack a prescription
drug benefit?
The answer, of course, is that Congress has not changed the law to
modernize the Medicare program. As a result, 90 percent--that's right,
9 out of 10 beneficiaries--feel compelled to carry supplemental
insurance to fill in the holes that Medicare does not cover. Many
receive retiree coverage through their former employer. The poor
receive assistance through Medicaid. But more than one-quarter of
beneficiaries purchase Medigap insurance themselves.
In 1990, Congress created 10 standardized Medigap policies to
assist beneficiaries in choosing plans. After 12 years, it's time to
re-visit the adequacy and structure of these plans. All 10 Medigap
plans are required to cover the coinsurance that beneficiaries must pay
under Medicare, for example, the 20 percent of the costs of a physician
visit. Nine out of 10 of these plans are required to cover the Part A
inpatient hospital deductible, which is currently $812. The most
popular Medigap policy covers both the Part A hospital deductible and
the $100 Part B deductible for physician services. And 8 of the 10
policies are required to cover foreign travel insurance, just in case
these beneficiaries travel to France, though many never leave their
home state! At the same time, only the three most expensive Medigap
policies cover prescription drugs, though prescription drugs are
seniors' most pressing need.
Numerous studies have demonstrated that Medigap's first dollar
coverage of medical services has resulted in excessive Medicare
spending because items and services appear free to beneficiaries. This
higher utilization drives up costs for everyone--premiums of Medicare
beneficiaries without Medigap coverage and costs to taxpayers. In
addition, the prescription drug coverage mandated in Medigap is wholly
inadequate.
Yet Medigap premiums continue to rise. From 1998 to 2000, average
premiums rose 16 percent for plans without drug coverage, and more than
twice as fast, 37 percent, for plans with drug coverage. In addition,
premiums vary dramatically for identical plans in the same location.
Weiss Ratings, Inc. analyzed Medigap premiums in 2001. A 65-year-old
man living in Ft. Myers, Florida would pay about $3,600 for Plan J from
Physicians Mutual Insurance Company, but only $2,700 with United
Healthcare Insurance Company through AARP. That's nearly $1,000 less
for the same policy in the same location! The same gentleman living in
Las Vegas would spend about $1,500 for Plan C with United American
Insurance Company, but about half that amount--$778 B with the USAA
Life Insurance Company for the same policy.
Much has changed in health care and health insurance over the past
12 years. But Medigap insurers have been unable to modify their
offerings in response to these market changes because the 10 standard
Medigap policies are set by statute. I believe that we can better
design both Medicare fee-for-service benefits and Medigap policies so
that seniors and persons with disabilities get the most for the health
care dollars they spend.
It is my pleasure to introduce Bobby Jindal, Assistant Secretary of
Health and Human Services for Planning and Evaluation. I met Bobby when
he was Executive Director of the Bipartisan Medicare Commission. He
will present the Administration's proposal to add two new Medigap
policies. The General Accounting Office will testify about the effects
of first dollar coverage and potential reforms to Medigap coverage.
Finally, we will hear from a representative of Medigap insurers and
consumers about their ideas on reforming Medigap policies.
Mr. McCrery. Thank you, Madam Chair. It is my pleasure to
introduce Bobby Jindal, who is from Louisiana and is well known
throughout our State as being one of the special people who are
very gifted, but who nonetheless choose to use those gifts in
the service of the public. And he is doing so once again, as
Assistant Secretary of Planning and Evaluation for HHS. So
welcome, Bobby. We look forward to hearing your testimony.
Chairman Johnson. And before the panel begins, I would like
to yield to my colleague and friend, Mr. Stark, for as long as
his voice can bear.
Mr. Stark. Thank you, Madam Chair, and the distance between
us today is just to keep you healthy.
Chairman Johnson. Without objection.
Mr. Stark. I hope that Mr. Jindal will be more candid in
his remarks than the written testimony, which really does not
describe the plan. It describes a kind of an outline of a plan.
And the problem is that we cannot deal in outlines.
I happen to be the author of the current Medigap insurance
regulations, and they were always intended to be changed from
time to time to meet current conditions. And I want to thank
the Chair for beginning this process.
I did find that, without an Administration plan as put out
in their testimony, that the Congressional Budget Office (CBO),
however, came up with a billion dollar savings over 10 years.
And they said that they assumed there would be a $1,000
catastrophic cap, and that the catastrophic level for drug
coverage would be $3,500, and that such a policy would cost
beneficiaries $470 a month, and that only about 160,000
beneficiaries would purchase the policy.
Now, there may be assumptions that the Administration has
used that are different from that, and it certainly would be
good for us to know that. Because if we are going to do this,
if the plans will save us some money by eliminating first
dollar, we cannot force the public to buy them. We had better
create something that will be attractive to them. And that
seems to be a different approach than trying to restrain
hospitals or doctors or pharmaceutical companies.
We have to, on the one hand, offer the public something
that will be useful to them; and we have to deal in the dollars
and pennies, because that is what our seniors deal in. So it
would be helpful, before we go much further after today's
hearing, if the Administration would care to share with us a
plan. I do not think it is enough to just say, ``Here is an
outline,'' and we should write it. I think it is fair, if they
have something in mind, that they detail it. Because we are
going to be dealing with nickels and dimes. I mean, changing
the premium a little will make a big difference; changing the
co-pays will make a big difference. And it will make a big
difference to seniors.
And it is not partisan. It is just how you want to design a
benefit, and how much money there is going to be at the end of
the day to pay the benefits or collect. And there is no sense--
this is not anything that the Taliban can use to harm us. None
of this information needs to be kept secret. It has nothing to
do with invading Iraq. It just has to do with making seniors
like me have better health insurance at something we can
afford.
So I hope we can get down to the details quickly. And I
would like to join in the process and support the Chair in
finding some additional benefit structures. And I would hope
that--and this will be the last words you will hear from me--
that I could get my Republican colleagues to consider the
possibility of a Federal plan.
We have been told--and I am not sure whether it was by CBO
or the U.S. General Accounting Office (GAO)--that we would save
20 percent over commercial programs if we offered it and let
the Centers for Medicare and Medicaid Services (CMS) run it. It
would seem to me fair, with the proliferation of plans, that we
could offer a Federal plan as one of the options. And if it is
anything as big as 20 percent, it might be something we should
at least examine.
And I thank you again for the hearing, and I look forward
to hearing the testimony.
Chairman Johnson. I thank you. I would like to recognize
the Honorable Mr. Jindal.
STATEMENT OF THE HON. BOBBY JINDAL, ASSISTANT SECRETARY FOR
PLANNING AND EVALUATION, U.S. DEPARTMENT OF HEALTH AND HUMAN
SERVICES
Mr. Jindal. Thank you, Chairman Johnson, Representative
Stark, Representative McCrery, Representative Crane,
distinguished Subcommittee Members.
I do look forward to talking to you about the details that
are in the fact sheet as well as in the testimony. But I also
want to first thank you for inviting me to discuss the
important issue of Medicare supplemental insurance, commonly
referred to as ``Medigap,'' and to share with you the
Administration's views about, and proposals to strengthen, this
critical complement to the Medicare fee-for-service program. We
do have details. We do have specific proposals. And I look
forward to talking about those, both in response to your
questions, and also as part of my testimony.
Clearly, as the Chairman and others have indicated, because
of the major gaps in the benefit package in the current fee-
for-service program, Medigap is an essential part of the
Medicare benefits coverage for millions of our Nation's elderly
and disabled. The Administration, however, also shares your
concern regarding the rapid increases in Medigap premiums in
recent years. Most seniors now pay more for Medigap than they
pay in Medicare premiums. We also agree that, working together,
we can better design both Medicare and Medigap so that seniors
and people with disabilities can get more affordable coverage
and get the most of their health care dollars that they spend.
As you know, the President has put forward a detailed
framework for strengthening Medicare that would address the
many threats to its ability to give seniors the health security
they need. Medicare's lack of prescription drug coverage is
only one example of the ways in which the programs lag behind.
The Administration also believes that Medicare should
provide better coverage for preventive care and serious
illness. Medicare's statutory benefits have enormous gaps, and
its cost-sharing requirements can add up quickly. For example,
beneficiaries who require $25,000 or more in care are typically
responsible for about $5,000 in deductibles and copayments. Yet
Medicare provides no stop-loss protection, and this is
something the Administration believes should change.
As part of legislation to improve Medicare's existing
coverage, it is also important to develop new Medigap options
that better meet beneficiary needs and provide more affordable
premiums. Clearly, the existing set of options, which require
beneficiaries to purchase first-dollar coverage for
hospitalizations and even basic services like doctor's visits
before they can obtain any drug coverage at all, has become
outdated.
Yet giving seniors the option of a better benefit package,
including prescription drugs, and more affordable Medigap plans
to go along with it, will take years to implement. So we have
also proposed that two new Medigap plans be added to improve
beneficiaries' options quickly. These options would include
valuable prescription drug coverage, protection against high
out-of-pocket costs, and coverage of most of Medicare's cost
sharing--all at a significantly lower price than the current
Medigap options that already include prescription drugs.
While we are obviously willing to work with this Committee,
with Congress, and with other interested parties, on the
details of these initiatives, we believe that providing better
short-term options for seniors to get more affordable drug
coverage is a critical priority. In addition, these options
would also generate modest savings for Medicare, as well as
savings for beneficiaries.
Before I provide these additional details about our
proposals, I would like to briefly review the key features and
the problems with Medigap coverage today. As the Chair has
already noted, one of the main reasons why seniors--nearly all
seniors; over 90 percent of them--have some form of
supplemental coverage is the fact that Medicare does not
provide adequate protection against the cost of serious
illness. As you know, the deductible for each hospital spell
now exceeds $800, and will grow rapidly. And in addition to the
hospital deductible and co-payment, eventually Medicare
coverage can eventually run out altogether. This stands in
stark contrast to private plans like the Blue Cross/Blue Shield
option that is offered to all Federal employees, which has a
single annual deductible and modest coinsurance for out-patient
care, and provides much better coverage for hospitalizations.
And of course, not all beneficiaries get their supplemental
insurance through Medigap. Those who are eligible often receive
this coverage through Medicaid or their former employer. Others
are able to lower their cost-sharing through joining a
Medicare+Choice plan. It is important to recognize that,
despite the changes in Medicare+Choice benefits, these plans
still often provide a better deal for seniors than fee-for-
service Medicare plus an increasingly costly Medigap policy.
Seniors face important problems in getting the coverage
they need. And the written testimony certainly has more details
about the antiquated benefit design and about the facts of
first-dollar coverage. You have heard estimates not only from
the actuary, but from GAO, from CBO, and others, that this
increases utilization by at least 23 percent. I think it is
particularly interesting to note that when you compare it to
the cost-sharing coverage enjoyed by those with employer
coverage, even there you have got a significant increase in
utilization and spending by those with first-dollar coverage.
According to the GAO and others, even modest changes in first-
dollar coverage would lead to significantly lower Medicare
costs, and in turn lower Medigap premiums.
And then finally, fourth, the issue of rising premiums: And
again, I think you will hear more later--and it is in the
written testimony--about the rapid increase both in Medigap
plans that offer prescription drugs, but also for Medigap plans
that do not offer prescription drugs.
Clearly, addressing these problems requires a comprehensive
approach. That is why the President has outlined a
comprehensive approach to strengthening Medicare which includes
changes in cost sharing. Again, I refer you to the testimony
for more details about the President's plan. I know that you
have heard about that before.
Let me just close by briefly mentioning that what the
President has proposed will immediately add two new Medigap
options. And again, the details are in your fact sheet. They
are also covered in the testimony. One plan would cover 75
percent of current cost-sharing, without a drug benefit,
similar to the ones that are offered today in Medigap. The
second plan would offer coverage for additional drug expenses,
like that in Plan ``J,'' but would also have a higher stop-loss
limit, and would cover 50 percent of Medicare's cost-sharing.
Both of these options would be much more affordable than
current Medigap policies. Our actuaries said their premiums
would be at least $500 lower. They would also reduce cost-
sharing for beneficiaries, and provide much better protection
against high cost.
Let me close by noting that up to one and a half million
beneficiaries would choose these policies, almost half of whom
would not have had drug coverage right now. So in addition to
lowering costs for the program and providing better coverage
and better options for seniors, we can also provide drug
coverage to 700,000 seniors who do not have this coverage
today. And this estimate may be a conservative one, based on
surveys done by other groups.
Let me close by saying we are open to working with this
Committee, other Members, and key stakeholders, going forward
on the details. What is important to note is the current
structure, with its emphasis on first-dollar coverage, does
make prescription drug coverage much less affordable and much
less accessible to seniors. We look forward to working with you
to increase the accessibility and affordability of drug
coverage, first, in the short term, through Medigap reforms,
but in the long term, through the President's framework for
improving the overall Medicare program. Thank you, Mr.
Chairman, for letting me come and address the Committee.
[The prepared statement of Mr. Jindal follows:]
Statement of the Hon. Bobby Jindal, Assistant Secretary for Planning
and Evaluation, U.S. Department of Health and Human Services
Chairman Johnson, Representative Stark, distinguished Subcommittee
members, thank you for inviting me to discuss the issue of Medicare
supplemental insurance, commonly referred to as Medigap, and to share
with you the Administration's views about--and proposals to
strengthen--this critical complement to the Medicare fee-for-service
program. Clearly, because of the major gaps in the benefit package in
the fee-for-service program, Medigap is an essential part of Medicare
coverage for millions of our nation's elderly and disabled. The
Administration shares your concern regarding the rapid increases in
Medigap premiums in recent years: most seniors now pay much more for
Medigap than they pay in Medicare premiums. We also agree that we can
better design both Medicare and Medigap so that seniors and people with
disabilities can get more affordable coverage, and get the most for the
health care dollars they spend.
As you know, the President has put forward a framework for
strengthening Medicare that would address the many threats to its
ability to give seniors the health security they need. Medicare's lack
of prescription drug coverage is only one example of the ways in which
the program has lagged behind. The Administration also believes that
Medicare should provide better coverage for preventive care and serious
illness. Medicare's statutory benefits have enormous gaps, and its
cost-sharing requirements can add up quickly. Beneficiaries who require
$25,000 or more in care are typically responsible for about $5,000 in
deductibles and co-payments. Yet Medicare provides no stop-loss
protection--something the Administration believes should change.
As past of legislation to improve Medicare's existing coverage, it
is also important to develop new Medigap options that better meet
beneficiary needs and provide more affordable premiums. Clearly the
existing set of options, which require beneficiaries to purchase
``first-dollar'' coverage for hospitalizations and even basic services
like doctor's visits before they can obtain any drug coverage, has
become outdated. Yet giving seniors the option of a better benefit
package, including prescription drugs, and more affordable Medigap
plans to go along with it will take several years to implement. So we
have also proposed that two new Medigap plans be added to improve
beneficiaries' options quickly. These options would include valuable
prescription drug coverage, protection against high out-of-pocket
costs, and coverage of most of Medicare's cost-sharing--all at a
significantly lower price than the current Medigap options that include
prescription drugs. While we are obviously willing to work with
Congress and other interested parties on the details of these
initiatives, we believe that providing better short-term options for
seniors to get more affordable drug coverage is a critical priority. In
addition, these options would generate modest savings for Medicare as
well as savings for beneficiaries.
BACKGROUND
Before I provide additional details about our proposals, I would
like to briefly review the key features of--and problems with--Medigap
coverage today. One of the main reasons why nearly all seniors in the
fee-for-service (government) plan have supplemental insurance is that
Medicare does not provide adequate protection against the costs of
serious illness. As you know, the deductible for each hospital spell
now exceeds $800 and will grow rapidly. Moreover, Medicare
beneficiaries who require long hospital stays are exposed to daily co-
payments that run into the hundreds of dollars--and Medicare coverage
can eventually run out altogether. This stands in stark contrast to
private plans like the Blue Cross/Blue Shield plan offered to Federal
employees, which has a single annual deductible and modest coinsurance
for outpatient care but provides much better coverage for
hospitalizations. Not surprisingly, the Coalition to Preserve Choice
for Seniors (which consists of several Medigap insurers) recently found
that coverage of hospital expenses not paid by Medicare is the Medigap
benefit that seniors value most.
Of course, not all beneficiaries get their supplemental insurance
through Medigap. Those who are eligible often obtain this coverage
through Medicaid or their former employer. Many have been able to lower
their co-payments and deductibles by joining a Medicare+Choice plan. It
is important to recognize that, despite the changes in Medicare+Choice
benefits that have resulted from years of consistently inadequate
payment updates, these plans still provide a better deal for seniors
than fee-for-service Medicare plus an increasingly costly Medigap
policy. That is why the Administration places a high priority on
ensuring that these private plan options remain available for
beneficiaries.
But the focus of our discussion today is on the roughly 10 million
beneficiaries who have to purchase their own Medigap policy. The
designs of these policies were standardized in 1990 and have scarcely
been updated since. As a result, these seniors face important problems
in getting the coverage they need:
Antiquated benefit design. The 1990 reforms created
10 standard Medigap plans, but three specific designs account
for about three-fourths of the enrollment in these standardized
plans. This concentration of enrollment suggests that the other
available plans are not providing the range of options that
beneficiaries need. What is more, Medigap drug coverage can be
purchased only in combination with first-dollar coverage for
other services. As a result, the added premiums for these
policies can be so high that they greatly limit the value of
the benefit--if these policies are available at all. Not
surprisingly, less than 10 percent of those who purchase a
standardized plan buy one that covers drugs. In effect, it is
easier for seniors to get coverage for a foreign travel
emergency than it is to get drug coverage from Medigap.
First-dollar coverage. All of the standard Medigap
plans pay the up-front costs of care for beneficiaries, often
including the first dollar spent. Research has demonstrated
that first-dollar coverage results in increased utilization and
higher costs without providing clear health benefits. The
independent Office of the Actuary at CMS estimates that service
use is 23 percent higher for beneficiaries with Medigap than
for those without supplemental insurance.* Medicare
pays most of these costs, but first-dollar coverage also leads
to higher Medicare and Medigap premiums. Indeed, the added cost
of a Medigap policy that covers the $100 Part B deductible
often exceeds $100--so seniors who purchase these policies are
merely ``dollar trading.'' According to GAO and others, even
modest changes in first-dollar coverage would lead to
significantly lower Medicare costs, and in turn, Medigap costs.
Additionally, almost all private insurance plans avoid first-
dollar coverage and instead use reasonable co-payments. Private
plan enrollees have some limited out-of-pocket costs to help
encourage appropriate use of services, and they benefit from
much lower insurance premiums. As a result, Medicare spending
for those with supplemental coverage through their employer is
about 10% less than for those with individual Medigap policies.
---------------------------------------------------------------------------
\*\ Other independent analysts have reached similar conclusions;
see Hogan (Testimony before the Subcommittee on Health of the House
Committee on Ways and Means, May 9, 2001) and Physician Payment Review
Commission (1997).
---------------------------------------------------------------------------
Rising premiums. The result of these problems can be
seen in high and rising premiums. In 1998, the average senior
was actually spending more on supplemental insurance premiums
than on prescription drugs. According to Weiss Ratings, the
cost of Medigap policies that provide drug coverage has grown
rapidly since then--by 17 to 34 percent in 2000 alone. Premiums
for Medigap policies that do not cover drugs did not rise quite
as fast in 2000 but over the past three years have increased 25
to 45 percent.
IMPROVING MEDICARE AND MEDIGAP FOR THE FUTURE
Clearly, addressing these problems requires a comprehensive
approach. That is why the President worked with Members of Congress
from both parties to develop a framework for strengthening and
improving Medicare. It includes giving all seniors the option of
subsidized prescription drug coverage. It includes giving seniors
better options to reduce their costs in a private plan. And it includes
giving seniors the option of keeping the coverage they have now or
choosing an improved benefit package with better coverage for
preventive care and serious illness as part of a modernized fee-for-
service plan. In specific:
Medicare's preventive benefits should have zero co-
payments and should be excluded from the deductible.
Medicare's traditional plan should have a single
indexed deductible for Parts A and B to provide better
protection from high expenses for all types of health care.
Medicare should provide better coverage for serious
illnesses, through lower co-payments for hospitalizations,
better coverage for very long acute hospital stays, simplified
cost sharing for skilled nursing facility stays, and true stop-
loss protection against very high expenses for Medicare-covered
services.
These changes should not reduce the overall value of
Medicare's existing benefits.
These improvements in Medicare's coverage will reduce the benefit
gaps that Medigap must fill and will lower Medigap premiums. But the
President's framework also includes updated and more affordable Medigap
options for beneficiaries who choose the improved Medicare benefit
package. These new options should begin by giving beneficiaries even
better protection against high-costs--supplementing the stop-loss limit
that would be added to Medicare. More generous policies could then
reduce Medicare's deductibles and co-payments--but they should not be
structured in such a way that seniors have to buy first dollar coverage
for hospitalizations and doctor's visits before they can obtain drug
coverage or supplement the Medicare drug benefit.
At the same time, the President strongly believes that
beneficiaries who wish to keep their current benefits with no changes
must be able to do so. Let me be clear: under the President's
framework, seniors who are happy with their current Medigap policy
would never have to change it.
Such restructuring will also take time. However, to provide more
affordable Medigap options before the improved benefit package becomes
available, and to improve the Medigap options available for seniors who
prefer their current Medicare benefits, the Administration proposes the
addition of two new Medigap plans to the existing ten standardized
plans. We believe both of these new plans should cover all of the
coinsurance for extended hospital says in the same way that the current
Medigap plans do, but should not cover the Part B deductible. To give
seniors a choice about how best to meet their needs:
One plan would cover 75 percent of current cost-
sharing and have a lower stop-loss limit while providing modest
drug coverage that most beneficiaries would value. The drug
benefit would have a $250 deductible and cover half of the next
$2,500 in drug spending (as in the current Medigap plans H and
I).
The other would provide coverage for additional drug
expenses--like the current plan J--but have a higher stop-loss
limit and cover 50 percent of Medicare's cost-sharing.
Both of these options would be considerably more affordable that
the current Medigap policies that cover drugs. They would substantially
reduce cost-sharing for beneficiaries and provide much better
protection against high costs. They would also provide needed options
for beneficiaries who want lower premiums but have not chosen to enroll
in one of the two high-deductible Medigap policies--giving
beneficiaries a choice between ``all or nothing.'' And they would
increase the number of seniors with drug coverage. If we provide a one-
time opt-in for current beneficiaries, we estimate that up to 1.5
million beneficiaries would choose these new policies once they are
available--and that nearly half of these enrollees would be
beneficiaries who do not have drug coverage now. This could even be a
conservative estimate; the Coalition to Preserve Choice for Seniors
found that one-third of Medigap policy holders would favor a proposal
that included a modest deductible and some payments for doctor visits
and hospital stays--even without the offer of drug coverage. Moreover,
we can achieve this significant increase in drug coverage among seniors
right away, not several years down the road, while saving money for
beneficiaries and the Medicare program.
Let me reiterate that we are quite open to working with this
Committee, other Members, and key stakeholders going forward. For
example, it could be that a nominal co-pay for doctor's visits would
work better than a fixed percentage or that the drug benefit designed
could be improved. But, as with our other Medicare proposals, we want
to act now. The idea of making updated Medigap plans available has long
had bipartisan support. For example, President Clinton proposed to
update Medigap with a new supplemental coverage option that included
reasonable limits on cost sharing. The new plans we are proposing would
also generate modest budgetary savings--at least $1.3 billion over 10
years--since they would not provide first-dollar coverage. But the
primary reason we support them is that they provide another means for
seniors to obtain more affordable drug coverage quickly. I look forward
to answering your questions.
Chairman Johnson. Thank you very much. Mr. Scanlon, a
pleasure to have you before the Subcommittee again.
STATEMENT OF WILLIAM J. SCANLON, DIRECTOR, HEALTH CARE ISSUES,
U.S. GENERAL ACCOUNTING OFFICE
Mr. Scanlon. Thank you very much, Madam Chairwoman and
Members of the Subcommittee. I am very pleased to be here today
as the Subcommittee considers the issue of Medicare
supplemental benefits. And I think there is a great deal of
agreement between the facts that we have examined about these
policies and what you have heard from Mr. Jindal and what was
mentioned in your opening statements.
There is no issue that Medicare beneficiaries are in need
of supplementary coverage, given the structure of the program.
We have heard a lot over the past several years about the lack
of prescription drug coverage. And that is certainly
understandable, given the importance that pharmaceuticals have,
the role that they play in terms of being effective treatments
for a variety of conditions, and because of the rapid rise in
drug costs.
I think it is also important that this Subcommittee last
year brought a great deal of attention to the fact that
Medicare is not a genuine insurance program; that you are not
protected against catastrophe; there is no stop-loss coverage;
that Medicare cost sharing can leave you vulnerable for
considerable expenditures. In fact, close to three and a half
million beneficiaries in 1997 were liable for more than $2,000,
and approximately 750,000 of them were liable for more than
$5,000 that year.
Given that, it is not surprising that people turn to
supplementary coverage. And given that not all beneficiaries
are eligible for either employer-based coverage,
Medicare+Choice, or Medicaid, Medigap is a very popular option.
As you indicated, about 25 percent of beneficiaries have such
policies.
But the policies we have today are problematic by
themselves. They are, as you have heard and have indicated,
expensive. The expense, while high at the national level,
varies greatly by geography; so that people in certain areas
spend much, much more than the national level for a policy, and
spend even more depending upon the insurer that they choose.
Policies are expensive in part because they are marketed
individually, as opposed to being sold to groups. And one of
the results of that is that about 20 percent of policy premiums
go to administrative costs. The policies are expensive also
because of the design of those policies, which is dictated by
Omnibus Budget Reconciliation Act 1990 (OBRA '90).
In creating the 10 standardized packages, we have
essentially eliminated most of Medicare cost sharing, as you
have indicated. And given that so many elderly use at least
some medical care during the course of the year, policies
essentially function like a pre-payment arrangement, rather
than as insurance. With insurance, you would expect that only a
fraction of policy holders are likely to incur a loss and
therefore receive a benefit, and premiums can be
correspondingly lower. However, when everybody is virtually
going to receive a benefit, then premiums have to be much
higher.
Medigap premiums are also higher because of that structure,
in terms of eliminating the cost sharing, because it leads
beneficiaries to use more services. One study that we quoted in
our testimony indicates that Medigap policy holders use 28
percent more services than beneficiaries without supplemental
coverage. Obviously, this does not only add to the cost of a
Medigap policy; it adds to the cost of the Medicare program.
The other major drawback with Medigap policies is the
inadequate prescription drug coverage. With available coverage,
beneficiaries must pay over half their drug expenses, and have
significant limits that do not provide catastrophic protection
for extreme drug costs.
There are likely benefits from creating these standardized
packages, or standardized plans, in the OBRA '90, given the
abuses that were reported in the Medigap market before then.
However, it does seem that it is now time to think about
revisiting the design of these packages, and that new options
would benefit both policy holders and the program.
The Administration's proposal seems to point in the right
direction. Having new options involving catastrophic
protection, having drug coverage, and reducing the amount of
first-dollar coverage, we think are positive. Having not had
the details before today, we could not look at them in detail,
and would need to do so in order to comment on the merits of
these proposals versus others. But I think it is important that
we start to move toward making Medigap policies more like
employer-based insurance. That is, to have some first-dollar
cost sharing that encourages the prudent use of services; to
structure cost sharing in a way that discretionary services
have cost sharing, and less discretionary services may not; for
instance, not to have cost sharing for hospitalizations which
are rarely discretionary. This type of policy is likely to
moderate costs and to change use somewhat, but not too
severely.
Studies have also shown that Medicare beneficiaries with
employer-based insurance use 17 percent more services than
beneficiaries without supplementary insurance. That compares to
the 28 percent that I noted earlier.
We would be happy to work with this Subcommittee as you
consider these options. And that completes my statement. I will
be happy to answer any questions that you have.
[The prepared statement of Mr. Scanlon follows:]
Statement of William J. Scanlon, Director, Health Care Issues, U.S.
General Accounting Office
Madam Chairwoman and Members of the Subcommittee:
I am pleased to be here today as you consider the role of
``Medigap'' policies in supplementing the Medicare benefit. Medicare
provides valuable and extensive coverage for the health care needs of
40 million elderly and disabled beneficiaries. Nevertheless, recent
discussions have underscored the significant gaps that leave some
beneficiaries vulnerable to sizeable financial burdens from out-of-
pocket costs. Most beneficiaries have additional supplemental coverage
that helps to fill Medicare's coverage gaps and pay some out-of-pocket
expenses. Privately purchased Medigap policies are an important source
of this supplemental coverage because they are widely available to
beneficiaries. The other sources--employer-sponsored policies,
Medicare+Choice plans, and Medicaid programs--are not available to all
beneficiaries. However, concerns exist that Medigap policies can be
expensive and may undermine the legitimate role of cost-sharing in a
health insurance plan--that is, to encourage the cost-effective use of
services. Moreover, due to statutory restrictions, these policies
provide only limited prescription drug coverage, leaving an important
gap in beneficiary protection against high health care expenses.
In this context, the president has proposed adding 2 new types of
Medigap plans to the existing 10 standard plan types.1 The
new plans would provide protection against catastrophic expenses for
Medicare-covered services and would include different levels of
prescription drug coverage. To help keep premiums affordable, the new
plans would also require beneficiary cost-sharing. At this point,
detailed specifications for these plans are not available.
---------------------------------------------------------------------------
\1\ Budget of the United States Government, Fiscal Year 2003
(Washington, D.C.: Government Printing Office, Feb. 4, 2002).
---------------------------------------------------------------------------
To assist the subcommittee as it considers ways to improve
protections for beneficiaries, my remarks today focus on the design of
Medicare's benefit package and the role that Medigap plays in providing
supplemental coverage. Specifically, I will discuss (1) beneficiaries'
potential financial liability under Medicare's current benefit
structure and cost-sharing requirements, (2) the cost of Medigap
policies and the extent to which they provide additional coverage, and
(3) concerns that Medigap's so-called ``first dollar'' coverage--its
coverage of Medicare's required deductibles and coinsurance--undermines
the cost control incentives of Medicare's cost-sharing requirements. My
comments are based on our prior and ongoing work on Medicare and
Medigap as well as other published research.2
---------------------------------------------------------------------------
\2\ U.S. General Accounting Office, Medigap Insurance: Plans Are
Widely Available but Have Limited Benefits and May Have High Costs,
GAO-01-941 (Washington, D.C.: July 31, 2001).
---------------------------------------------------------------------------
In summary, Medicare's benefit package and cost-sharing
requirements leave beneficiaries liable for high out-of-pocket costs.
As currently structured, Medicare provides no limit on out-of-pocket
spending and no coverage for most outpatient prescription drugs--a
component of medical care that is of growing importance in treatment
and rapidly increasing in cost. Recent estimates suggest that about 45
percent of Medicare beneficiaries' health care costs are not covered.
Medigap policies help to fill in some of Medicare's gaps but also
have shortcomings. They are often expensive. In 1999, premiums paid for
Medigap policies averaged $1,300, with more than 20 percent going to
administrative costs. Medigap plans typically cover Medicare's required
deductibles, coinsurance, and copayments but do not fully protect
beneficiaries from potentially significant out-of-pocket costs. Medigap
policies offering prescription drug coverage can be inadequate because
beneficiaries still pay most of the cost and the Medigap benefit is
capped. In addition, Medigap's first-dollar coverage eliminates the
effect Medicare's cost-sharing requirements could have to promote
prudent use of services. The danger is that some services may be
overused, ultimately increasing costs for beneficiaries and the
Medicare program.
Background
Individuals who are eligible for Medicare automatically receive
Hospital Insurance (HI), known as part A, which helps pay for inpatient
hospital, skilled nursing facility, hospice, and certain home health
care services. Beneficiaries pay no premium for this coverage but are
liable for required deductible, coinsurance, and copayment amounts.
(See table 1.) Medicare-eligible beneficiaries may elect to purchase
Supplementary Medical Insurance (SMI), known as part B, which helps pay
for selected physician, outpatient hospital, laboratory, and other
services. Beneficiaries must pay a premium for part B coverage,
currently $54 per month.3 Beneficiaries are also responsible
for part B deductibles and coinsurance.
---------------------------------------------------------------------------
\3\ The premium amount is adjusted each year so that expected
premium revenues equal 25 percent of expected part B spending.
TABLE 1: MEDICARE COVERAGE AND BENEFICIARY COST-SHARING, 2002
------------------------------------------------------------------------
Part A Coverage Copayments and deductibles
------------------------------------------------------------------------
Inpatient hospital For each benefit period:
$812 deductible for up to 60
days a
$203/day for days 61 through 90
$406/day for days 91 through
150 b
All costs beyond 150 days
------------------------------------------------------------------------
Skilled nursing facility For each benefit period:
Nothing for up to 20 days
$101.50/day or less for days 21
through 100
All costs beyond 100 days
------------------------------------------------------------------------
Home health Nothing
20 percent of approved amount
for durable medical equipment
------------------------------------------------------------------------
Hospice $5 or less for outpatient drugs
5 percent of approved amount
for inpatient respite care
------------------------------------------------------------------------
Blood Cost of first 3 pints
------------------------------------------------------------------------
Part B Coverage c Copayments and
deductibles
------------------------------------------------------------------------
Physician and Medical $100 deductible each year
20 percent of approved amount
50 percent of approved amount
for mental health
------------------------------------------------------------------------
Clinical laboratory Nothing
------------------------------------------------------------------------
Home health Nothing
20 percent of approved amount
for durable medical equipment
------------------------------------------------------------------------
Outpatient hospital Coinsurance or copayment varies
according to service (after
part B deductible)
------------------------------------------------------------------------
Blood Cost of first 3 pints
20 percent of approved amount
(after part B deductible) for
additional pints
------------------------------------------------------------------------
a No deductible is charged for second and subsequent hospital admissions
if they occur within 60 days of the beneficiary's most recent covered
inpatient stay.
b After the first 90 days of inpatient care, Medicare may help pay for
an additional 60 days of inpatient care (days 91 through 150). Each
beneficiary is entitled to a lifetime reserve of 60 days of inpatient
coverage. Each reserve day may be used only once in a beneficiary's
lifetime.
c No cost-sharing is required for certain preventive services--including
specific screening tests for colon, cervical, and prostate cancer and
flu and pneumonia vaccines.
Source: Centers for Medicare and Medicaid Services, Medicare & You 2002,
CMS-10050 (Baltimore: Sept. 2001).
----------
Most Medicare beneficiaries have some type of supplemental coverage
to help pay for Medicare cost-sharing requirements as well as for some
services not covered by Medicare. They obtain this coverage either
through employers, Medicare+Choice plans, state Medicaid programs, or
Medigap policies sold by private insurers.
About one-third of Medicare's 40 million beneficiaries have
employer-sponsored supplemental coverage. These plans, which typically
include cost-sharing requirements, pay for some costs not covered by
Medicare, such as shares of coinsurance and deductibles and the cost of
prescription drugs. However, many beneficiaries do not have access to
employer-sponsored coverage. A recent survey found that more than 70
percent of large employers with at least 500 employees did not offer
these health benefits to Medicare-eligible retirees.4 Small
employers are even less likely to offer retiree health benefits.
---------------------------------------------------------------------------
\4\ William M. Mercer, Incorporated, Mercer/Foster Higgins National
Survey of Employer-sponsored Health Plans 2000 (New York, N.Y.: 2001).
---------------------------------------------------------------------------
Approximately 14 percent of Medicare beneficiaries are enrolled in
Medicare+Choice plans, which include health maintenance organizations
(HMO) and other private insurers who are paid a set amount each month
to provide nearly all Medicare-covered services. Compared to Medicare's
traditional fee-for-service program, HMOs typically offer lower cost-
sharing requirements and additional benefits, including prescription
drugs, in exchange for a restricted choice of providers. However,
Medicare+Choice HMOs are not available in all parts of the country. In
2002, about 40 percent of all beneficiaries live in counties where
there are no Medicare+Choice HMOs.
In 1997, about 17 percent of Medicare beneficiaries received
assistance from Medicaid, the federal-state health financing program
for low-income aged and disabled individuals. Depending upon state-
defined eligibility policies, some of these low-income individuals are
entitled to full Medicaid benefits (so called ``dual eligibles''),
which include coverage for certain services not available through
Medicare, such as most outpatient prescription drugs. Under federal
law, all Medicare beneficiaries with incomes below the federal poverty
level are entitled to have their Medicare premiums and cost-sharing
paid for by Medicaid. Similarly, Medicare beneficiaries with incomes
slightly above the poverty level are eligible to have all or part of
their Medicare premiums paid for by Medicaid.5
---------------------------------------------------------------------------
\5\ Many low-income Medicare beneficiaries who are eligible for
Medicaid and other federal-state programs that provide assistance with
premiums and cost-sharing requirements may not enroll, in part due to
limited awareness of these programs and the administrative complexity
of demonstrating eligibility. See U.S. General Accounting Office, Low-
Income Medicare Beneficiaries: Further Outreach and Administrative
Simplification Could Increase Enrollment, GAO/HEHS-99-61 (Washington,
D.C.: Apr. 9, 1999).
---------------------------------------------------------------------------
Medigap is the only supplemental coverage option available to all
beneficiaries when they initially enroll in Medicare at age 65 or
older. Medigap policies are offered by private insurance companies in
accordance with state and federal insurance regulations. In 1999, more
than 10 million individuals--about one-fourth of all beneficiaries--
were covered by Medigap policies.6 The Omnibus Budget
Reconciliation Act of 1990 (OBRA) required that Medigap policies be
standardized and allowed a maximum of 10 different benefit packages
offering varying levels of supplemental coverage.7 Policies
sold in most states since July 31, 1992, are modeled on 1 of the 10
standardized packages, known as plans A through J. (See table 2.)
Policies sold prior to this time were not required to comply with the
standard benefit package requirements. The Balanced Budget Act of 1997
permitted insurers to offer high-deductible versions of the existing F
and J plans.8
---------------------------------------------------------------------------
\6\ The National Association of Insurance Commissioners reports
that Medigap enrollment has declined from about 14 million in 1994.
\7\ Pub. L. 101-508, Sec. 4351, 104 Stat. 1388-30, 1388-127 (1990).
\8\ Pub. L. No. 105-33, Sec. 4032, 111 Stat. 251, 359 (1997).
TABLE 2: BENEFITS COVERED BY STANDARDIZED MEDIGAP POLICIES
----------------------------------------------------------------------------------------------------------------
Plan Plan
Benefits Plan A Plan B Plan C Plan D Plan E Fa Plan G Plan H Plan I Ja
----------------------------------------------------------------------------------------------------------------
Coverage for: X X X X X X X X X X
Part A coinsurance
365 additional hospital
days during lifetime
Part B coinsurance
Blood
----------------------------------------------------------------------------------------------------------------
Skilled nursing facility X X X X X X X X
coinsurance
----------------------------------------------------------------------------------------------------------------
Part A deductible X X X X X X X X X
----------------------------------------------------------------------------------------------------------------
Part B deductible X X X
----------------------------------------------------------------------------------------------------------------
Part B balance billing b X X X X
----------------------------------------------------------------------------------------------------------------
Foreign travel emergency X X X X X X X X
----------------------------------------------------------------------------------------------------------------
Home health care X X X X
----------------------------------------------------------------------------------------------------------------
Outpatient prescription drugs X c X c X d
----------------------------------------------------------------------------------------------------------------
Preventive medical care X X
----------------------------------------------------------------------------------------------------------------
Note: This chart does not apply in Massachusetts, Minnesota, and Wisconsin, where alternative standards for
supplemental health policies exist.
a Plans F and J also have a high-deductible option ($1,620 in 2002) under which beneficiaries also pay
deductibles for prescriptions ($250 per year for plan J) and foreign travel emergency ($250 per year for plans
F and J).
b Some providers do not accept the Medicare rate as payment in full and ``balance bill'' beneficiaries for
additional amounts that can be no more than 15 percent higher than the Medicare payment rate. Plan G pays 80
percent of balance billing; plans F, I, and J cover 100 percent of these charges.
c Plans H and I pay 50 percent of drug charges up to $1,250 per year and have $250 annual deductibles.
d Plan J pays 50 percent of drug charges up to $3,000 per year and has a $250 annual deductible.
Source: Health care Financing Administration, 2001 Guide to Health Insurance for People with Medicare, HCFA-
02110 (Baltimore: 2001).
----------
Currently, Medicare beneficiaries aged 65 and older are guaranteed
access to Medigap policies within 6 months of enrolling in part B,
regardless of their health status.9 Subsequent laws have
added guarantees for certain other beneficiaries. Beneficiaries who
enroll in a Medicare+Choice plan when first becoming eligible for
Medicare at age 65 and then leave the plan within 1 year are also
guaranteed access to any Medigap policy. Those who terminate their
Medigap policies to join a Medicare+Choice plan can return to their
previous policies or, if the original policies are not available, be
guaranteed access to plans A, B, C, and F, none of which covers
prescription drugs. Also, individuals whose employers eliminate retiree
benefits or whose Medicare+Choice plans leave the program or stop
serving their areas are guaranteed access to these four standardized
Medigap policies.10 Beneficiaries who do not meet any of
these conditions may be denied coverage or be charged higher premiums.
---------------------------------------------------------------------------
\9\ 42 USC Sec. 1395ss(s)(2)(A).
\10\ These protections, which applied to beneficiaries aged 65 and
older, were added by the Balanced Budget Act, Pub. L. 105-33,
Sec. 403,111 Stat. 251, 330. In addition to these federal protections,
21 states provided for additional Medigap protections in 2000.
---------------------------------------------------------------------------
Medicare's Cost-Sharing Requirements and Gaps in Prescription Drug
Coverage Put Beneficiaries at Considerable Financial Risk
In Medicare, the lack of dollar limits on beneficiaries' cost-
sharing obligations--deductibles, coinsurance, and copayments--puts
beneficiaries with extensive health care needs at risk for very large
expenses for Medicare-covered services. Similarly, Medicare's lack of
coverage for certain services, especially most outpatient prescription
drugs, can expose beneficiaries to substantial financial risk. The
increasingly important role of pharmaceuticals in medical care and the
continuing rapid increases in drug prices accentuate this risk.
Unlike most employer-sponsored plans for active workers, Medicare
does not limit beneficiaries' cost-sharing liabilities, which can
represent a significant share of their personal resources. In 2000,
premiums, deductibles, coinsurance, and copayments that beneficiaries
were required to pay for services that Medicare covers equaled an
estimated 23 percent of total Medicare expenditures. For Medicare-
covered services alone, beneficiaries who obtained services in 1998 had
an average liability of $1,458, consisting of $932 in Medicare cost-
sharing in addition to the $526 in annual part B premiums for that
year.
However, the burden of Medicare cost-sharing can be much higher for
beneficiaries with extensive health care needs. In 1998, the most
current year of available data on the distribution of these costs,
about 3.4 million beneficiaries (11.5 percent of beneficiaries who
obtained services) were liable for at least $2,000 for Medicare cost-
sharing and part B premiums. Approximately 736,000 of these
beneficiaries (2.5 percent) were liable for at least $5,000, and about
167,000 beneficiaries (0.6 percent) were liable for at least $10,000.
In contrast, private employer-sponsored health plans for active workers
in 2000 typically limited maximum annual out-of-pocket costs for
covered services to less than $2,000 per year for single
coverage.11
---------------------------------------------------------------------------
\11\ The Kaiser Family Foundation and Health Research and
Educational Trust, Employer Health Benefits: 2000 Annual Survey (Menlo
Park, Calif. and Chicago: 2000).
---------------------------------------------------------------------------
Furthermore, Medicare provides no coverage for certain health care
services, such as most outpatient prescription drugs. These limitations
put beneficiaries at additional risk of incurring potentially
catastrophic expenses. Current estimates suggest that the combination
of Medicare's cost-sharing requirements and limited benefits leaves
about 45 percent of beneficiaries' health care costs uncovered. In
2000, the average beneficiary is estimated to have incurred about
$3,100 in total out-of-pocket expenses for health care--an amount equal
to about 22 percent of beneficiary income.12
---------------------------------------------------------------------------
\12\ Stephanie Maxwell, Marilyn Moon, and Mesha Segal, Growth in
Medicare and Out-Of-Pocket Spending: Impact on Vulnerable Beneficiaries
(Washington, D.C.: Urban Institute, 2000).
---------------------------------------------------------------------------
The combination of Medicare cost-sharing and costs of uncovered
services represents a much greater financial burden for some
beneficiaries. For example, in 2000, elderly beneficiaries in poor
health and with no Medicaid or supplemental insurance coverage are
estimated to have spent 44 percent of their incomes on health care.
Low-income single women over age 85 who are in poor health and not
covered by Medicaid are estimated to have spent more than half (about
52 percent) of their incomes on health care services.13
These percentages are expected to increase over time as Medicare
premiums and costs for prescription drugs and other health care goods
and services rise faster than incomes.
---------------------------------------------------------------------------
\13\ Maxwell, Moon, and Segal.
---------------------------------------------------------------------------
Current Medigap Policies Address Some Medicare Shortcomings But Are
Expensive
The shortcomings in Medicare's benefit package underscore the
importance of supplemental health insurance for program beneficiaries.
More than one-fourth of beneficiaries have Medigap policies to fill
Medicare coverage gaps, but these policies can be expensive and do not
fully protect beneficiaries from catastrophic out-of-pocket expenses.
Medigap policies that provide drug coverage offer only limited
protection from prescription drug expenses because of high cost-sharing
and low coverage caps. The extent to which the president's proposed
plan types--which include catastrophic coverage protection, a
prescription drug benefit, and beneficiary cost-sharing requirements--
would address these shortcomings will depend on the details of the new
policies.
Medigap Fills Some Needs
More than 10 million Medicare beneficiaries have Medigap policies
to cover some potentially high costs that Medicare does not pay,
including cost-sharing requirements, extended hospitalizations, and
some prescription drug expenses. By selecting from among a group of
standardized plans, beneficiaries can match their coverage needs and
financial resources with plan coverage. Medigap policies are widely
available to beneficiaries, including those who are not eligible for,
or do not have access to, other insurance to supplement Medicare, such
as Medicaid or employer-sponsored retiree benefits. In fact, most
Medicare beneficiaries who do not otherwise have employer-sponsored
supplemental coverage, Medicaid, or Medicare+Choice plans purchase
Medigap policies, demonstrating the value of this coverage to the
Medicare population.
Medigap Policies Can Have High Premiums
Medigap policies can be expensive. In 1999, the average annual
Medigap premium was more than $1,300. Premiums varied based on the
level of coverage purchased. Plan A, which provides the fewest
benefits, was the least expensive, with average premiums of nearly $900
per year. (See table 3.) The most popular plans--C and F--had average
premiums of about $1,200. The most comprehensive plans that provide
some drug coverage--I and J--were the most expensive, with average
annual premiums around $1,700.
TABLE 3: DISTRIBUTION OF MEDIGAP PLANS AND ANNUAL PREMIUMS PER COVERED
LIFE, 1999
------------------------------------------------------------------------
Average annual
Medigap plan Covered lives (percentage) premium
------------------------------------------------------------------------
A 2.7 $877
------------------------------------------------------------------------
B 7.8 1,093
------------------------------------------------------------------------
C 15.7 1,158
------------------------------------------------------------------------
D 3.7 1,032
------------------------------------------------------------------------
E 1.5 1,067
------------------------------------------------------------------------
F 22.9 1,217
------------------------------------------------------------------------
G 1.5 981
------------------------------------------------------------------------
H 1.4 1,379
------------------------------------------------------------------------
I 1.5 1,698
------------------------------------------------------------------------
J 2.6 1,672
------------------------------------------------------------------------
Prestandard (policies 34.9 1,525
sold before July
1992)
------------------------------------------------------------------------
Plans in states in 4.0 1,368
which insurers are
exempt from offering
standardized plan a
------------------------------------------------------------------------
Total b 100.0 c 1,311
------------------------------------------------------------------------
a Massachusetts, Minnesota, and Wisconsin have alternative plans in
effect and waivers that exempt them from selling the national standard
Medigap plans.
b Data reported by insurers to the National Association of Insurance
Commissioners (NAIC) do not include plan type for policies
representing less than 8 percent of Medigap policy covered lives, with
an average paid premium of $1,275. These plans are not included in the
table.
c Percentages do not add to 100 due to rounding.
Source: GAO analysis of data collected by the NAIC from the 1999
Medicare Supplement Insurance Experience Exhibit.
----------
Medigap premiums also varied across geographic areas and insurers.
For example, in 1999, average annual premiums in California were 35
percent higher than the national average for policies conforming to the
standard plans. While premiums may reflect geographic differences in
use of Medicare and supplemental services and costs, beneficiaries in
the same state may face widely varying premiums for a given plan type
offered by different insurers.14 For example, in Illinois,
plan A premiums for a 65-year-old ranged from $467 to $1,202, depending
on the insurer. Similarly, in New York, plan F premiums for a 65-year-
old ranged from $1,617 to $2,800, and in Texas, plan J premiums ranged
from $2,059 to $5,658.
---------------------------------------------------------------------------
\14\ Premium quotes are from 2000 and 2001 state consumers guides
on Medigap policies.
---------------------------------------------------------------------------
Medigap policies are becoming more expensive. One recent study
reported that, from 1999 to 2000, premiums for the three Medigap plan
types offering prescription drug coverage (H, I, and J) increased the
most rapidly--by 17 to 34 percent. Medigap plans without prescription
drug coverage rose by 4 to 10 percent.15
---------------------------------------------------------------------------
\15\ Weiss Ratings Inc, ``Prescription Drug Costs Boost Medigap
Premiums Dramatically,'' (Palm Beach Gardens, Fla.: Mar. 26, 2001).
http://www.weissratings.com/NewsReleases/Ins--Medigap/
20010326Medigap.htm (downloaded May 3, 2001).
---------------------------------------------------------------------------
A major reason premiums are high is that a significant share of
premium dollars is used for administrative costs rather than benefits.
On average, more than 20 cents from each Medigap premium dollar is
spent for costs other than medical expenses, including administration.
Administrative costs are high, in part, because nearly three-quarters
of policies are sold to individuals rather than groups.16
The share of premiums spent on benefits varies significantly among
carriers. The 15 largest sellers of Medigap policies spent from 64 to
88 percent of premiums on benefits in 1999. The share of premiums spent
on benefits is lower for Medigap plans than either typical
Medicare+Choice plans or health benefits for employees of large
employers. In comparison, 98 percent of Medicare fee-for-service funds
are used for benefits.
---------------------------------------------------------------------------
\16\ Federal law requires Medigap plans to spend at least 65
percent of premiums over time on benefits for policies sold to
individuals and 75 percent for policies sold to groups. See 42 USC
Sec. 1395ss(r)(1)(A).
---------------------------------------------------------------------------
Medigap Provides Limited Coverage for Prescription Drugs
Medigap policies can leave beneficiaries exposed to significant
out-of-pocket costs for prescription drugs. Medigap policies with a
drug benefit are expensive, yet the drug benefit offered can be of
limited value to many beneficiaries. The Medigap annual prescription
drug benefit has a $250 deductible, requires 50 percent coinsurance,
and limits coverage to $1,250 or $3,000, depending on the plan
purchased. These dollar amounts have not been increased since they were
established in 1992. As a result of the deductible and coinsurance
provisions, a beneficiary with Medigap plan type J would have to incur
$6,250 in prescription drug costs to get the full $3,000 benefit.
Moreover, Medigap policies offering drug coverage typically cost much
more than policies without drug coverage. For example, plan type J--the
most popular plan with prescription drug coverage--costs, on average,
$450 a year more than the most popular plan without drug coverage (plan
F).
Having a Medigap policy with drug coverage versus one without has
little effect on beneficiaries' out-of-pocket spending on drugs. In
1998, Medigap policyholders with prescription coverage spent, on
average, $548 out of pocket on prescription drugs. Medigap paid only 27
percent of policy holders drug costs. Medigap policyholders without
prescription drug coverage spent, on average, $618 out of pocket on
drugs--about 13 percent more than beneficiaries with drug coverage.
The high cost and limited benefit of existing Medigap plans may
explain why more than 90 percent of beneficiaries with Medigap coverage
purchased standard plans that do not include drug
benefits.17 Another reason is that, in most states, Medicare
beneficiaries who do not purchase Medigap policies when they initially
enroll in part B at age 65 or older are not guaranteed access to the
Medigap policies with prescription drug coverage. For those
beneficiaries, insurers may either deny coverage or charge higher
premiums.
---------------------------------------------------------------------------
\17\ While less is known about the benefits offered by
prestandardized plans that were sold prior to 1992--representing about
one-third of Medigap enrollment in 1999--one expert estimated that most
are likely to have some coverage for prescription drugs but that this
coverage is even more limited than that offered by the standardized
plans. See Deborah J. Chollet, Mathematica Policy Research Inc.,
``Medigap Coverage for Prescription Drugs,'' testimony before the U.S.
Senate Committee on Finance, April 24, 2001.
---------------------------------------------------------------------------
First-Dollar Coverage Increases Medigap Premiums and Weakens Medicare's
Cost Control Features
The most popular Medigap plans are fundamentally different from
other health insurance policies, which typically include cost-sharing
provisions in the form of deductibles, coinsurance, and copayments.
Cost-sharing requirements are intended to make beneficiaries aware of
the costs associated with the use of services and encourage them to use
these services prudently. In contrast, Medigap's first-dollar
coverage--the elimination of any deductibles or coinsurance associated
with the use of covered services--undermines this objective. All
standard Medigap plans cover hospital and physician coinsurance, with
some of them also covering the full hospital deductible, skilled
nursing facility coinsurance, or the part B deductible. Nearly all
beneficiaries purchasing a standard Medigap plan choose one that covers
the full hospital deductible, and most select plans that cover the full
skilled nursing home coinsurance and part B deductible. The president's
proposed plan types would be different from the existing popular
Medigap plans in that they would not include first-dollar coverage.
Medigap's first-dollar coverage reduces financial barriers to
health care, but it also diminishes beneficiaries' sensitivity to costs
and likely increases beneficiaries' use of services, adding to total
Medicare spending. Having first-dollar coverage may also add to Medigap
premiums. The extra spending induced by first-dollar coverage causes
insurers' outlays to rise and likely increases Medigap premiums. The
premiums may increase not only to cover the additional expected health
care expenses but also insurers' administrative costs.
Our analysis and other research indicate that Medicare spends more
on beneficiaries with supplemental insurance than on beneficiaries who
have Medicare coverage only. For example, our analysis of the 1998
Medicare Current Beneficiary Survey data found that annual Medicare
expenditures for beneficiaries with Medigap insurance were about $2,000
higher than for beneficiaries with Medicare only.18 Medicare
annual spending for beneficiaries with employer-sponsored plans was
about $1,700 higher than for beneficiaries with Medicare only.
---------------------------------------------------------------------------
\18\ GAO-01-941.
---------------------------------------------------------------------------
Some evidence suggests that first-dollar, or near first-dollar,
coverage may partially be responsible for the higher spending. For
example, one study found that beneficiaries with Medigap insurance use
28 percent more medical services (outpatient visits and inpatient
hospital days) compared to beneficiaries who did not have supplemental
insurance but were otherwise similar in terms of age, sex, income,
education, and health status.19 Service use among
beneficiaries with employer-sponsored supplemental insurance was
approximately 17 percent higher than the service use of beneficiaries
with Medicare coverage only.
---------------------------------------------------------------------------
\19\ Sandra Christensen, Ph.D. and Judy Shinogle, M.S., ``Effects
of Supplemental Coverage on Use of Services by Medicare Enrollees,''
Health Care Financing Review 19 (1997).
---------------------------------------------------------------------------
Unlike Medigap policies, employer-sponsored supplemental insurance
policies and Medicare+Choice plans typically reduce beneficiaries'
financial liabilities but do not offer first-dollar coverage. Although
there is a wide variety in design of employer-sponsored insurance
plans, many retain cost-sharing provisions. Medicare+Choice plans also
typically require copayments for most services. Moreover, unlike the
traditional fee-for--service program, Medicare+Choice plans require
referrals or prior authorization for certain services to minimize
unnecessary utilization.
Under the president's Medigap proposal, the two new plan types
would require beneficiary cost-sharing and, in this way, would be
similar to the features of employer-sponsored insurance plans. In
eliminating first-dollar coverage, the proposal seeks to keep the new
policies more affordable for beneficiaries and create incentives to
restrain overall program spending.
Concluding Observations
Interest remains high in improving supplemental coverage available
to Medicare beneficiaries while fostering the prudent use of health
care services. The president's proposal to create two new plan types
that require cost-sharing and provide coverage for prescription drugs
seeks to balance access and affordability with incentives for
beneficiaries to be cost-conscious. The exclusion of first-dollar
coverage from the new Medigap policies would make them more like
employer-sponsored supplemental insurance policies that include
incentives to minimize unnecessary use. These reforms could serve the
interests both of beneficiaries and the program, making drug coverage
more affordable while helping to moderate program expenditures. Details
of the president's proposal will reveal the extent to which the new
plan types offer better value for beneficiaries' premium dollars than
the existing Medigap plan types. In our view, an effective health
insurance plan would discourage the inappropriate use of services and
protect beneficiaries from catastrophic health expenses, including
prescription drug costs. We look forward to working with this
subcommittee as it considers various options to reform Medigap and
improve health care coverage for individuals.
Madam Chairwoman, this concludes my statement. I would be happy to
answer any questions that you or members of the subcommittee may have.
Contacts and Acknowledgments
For more information regarding this testimony, please contact me or
James Cosgrove at (202) 512-7118. Other contributors to this product
were Rashmi Agarwal, John Dicken, Hannah Fein, Jennifer Podulka, and
Lisa Rogers.
(290178)
Chairman Johnson. Thank you very much. Dr. Young, a
pleasure to have you with us today, as well.
STATEMENT OF DONALD A. YOUNG, M.D., PRESIDENT, HEALTH INSURANCE
ASSOCIATION OF AMERICA
Dr. Young. Thank you, Mrs. Johnson, distinguished Members
of the Subcommittee. I am Donald Young, M.D., President of the
Health Insurance Association of America (HIAA). The HIAA's
nearly 300 members provide health, long-term care, dental,
disability----
Chairman Johnson. Don, could you get a little closer to the
microphone, please?
Dr. Young. Dental, disability, and Medicare supplemental
coverage to more than 100 million Americans. We commend the
President for his leadership, and this Committee for the
efforts you are making to develop Medicare and Medigap policies
that will better meet the needs and expectations of Medicare
beneficiaries. And we greatly appreciate the opportunity to
join in today's discussion.
Plans to supplement Medicare fill important gaps in
Medicare coverage. About 20 million seniors have such
supplemental coverage, either through an employer-sponsored
retiree health plan, or through an individually purchased
Medigap plan. Many other seniors have supplemental coverage
through Medicare+Choice or Medicaid.
Surveys done by government agencies and by private
pollsters regularly confirm that Medigap policy holders are
satisfied or very satisfied with their coverage, and consider
the policies a good or excellent value.
However, making improvements to Medicare benefits,
especially with respect to prescription drug coverage, also
means that the design of Medicare supplemental products would
need to be reexamined. The President has devoted considerable
attention to Medicare coverage gaps relating to prescription
drugs, and recently proposed several mechanisms to help
Medicare beneficiaries with these costs.
One of these mechanisms would involve the creation of two
new Medigap plans. These plans are intended to offer enhanced
coverage for prescription drugs, protect beneficiaries against
catastrophic illness, and provide for nominal beneficiary cost
sharing. And we heard more details about them just recently.
During 2000 and 2001, the National Association of Insurance
Commissioners (NAIC) undertook a reexamination of the 10
standardized Medigap policies. The NAIC working group conferred
with consumer representatives, State and Federal regulators,
Medicare supplement insurance carriers, and their trade
associations, including HIAA. Their final report contains a
list of possible revisions for further consideration.
However, the report emphasizes that in the absence of
overall Medicare reform, the implementation of incremental
changes to Medigap may be ill advised, given the need for
regulatory changes at the State level, the need for beneficiary
education, and the potential for adverse selection.
I would like to offer a few recommendations about Medigap
reform. First, since the design of any new or revised Medigap
plans would be heavily dependent upon the features of a
modernized Medicare program, we believe that Congress should
make final decisions about the Medicare program itself, and
then proceed to address corresponding Medigap issues.
Second, changes affecting Medigap should be made at one
time, and not in an incremental or piecemeal fashion. Making
Medigap changes in two or more rounds of reform would increase
administrative costs and increase beneficiary confusion.
Third, we suggest that Congress allow a process similar to
that used under the Omnibus Reconciliation Act 1990 for any
mandated redesign of Medigap benefits. In 1990, the Congress
did not specify in statute the contents of the 10 standardized
Medigap plans we have today; but instead, called for the NAIC
to bring together consumer representatives, State regulators,
and insurers, to design Medigap benefit options. We believe it
would be in the best interests of consumers to follow the same
approach at the proper time.
Finally, it is important to remember that when it comes to
Medigap, Medicare beneficiaries are the customers. They are
free to buy, or to not buy, available products. Whatever we do
must be viewed as beneficial, not harmful, to the interests of
the typical Medicare beneficiary, and result in Medigap
products that provide value and are affordable.
I will end by emphasizing that in the context of broader
Medicare benefit modernization, HIAA certainly understands the
need to take a fresh look at Medigap. We wish to bring the
experience and views of our Member companies to this
Committee's efforts to reexamine the structure of Medigap
benefits and related matters.
Thank you again for giving me this opportunity to appear
before you today, and I would be happy to take any questions
you may have.
[The prepared statement of Dr. Young follows:]
Statement of Donald A. Young, M.D., President, Health Insurance
Association of America
Introduction
Mr. Chairman, distinguished members of the Subcommittee, I am
Donald A. Young, MD, President of the Health Insurance Association of
America (HIAA). HIAA is the nation's most prominent trade association
representing the private health care system. Its nearly 300 members
provide health, long-term care, dental, disability, and supplemental
coverage to more than 100 million Americans. Many of HIAA's members
provide Medicare supplemental insurance products, including individual
Medigap policies, and we, therefore, greatly appreciate the opportunity
to join in today's discussion.
Current Medigap Market
Because Medicare was designed with deductibles and coinsurance,
with limits on covered services, and with certain services not covered
at all, there have been gaps in coverage from the very beginning. In
fact, it's been estimated that Medicare covers only about half of the
health care costs incurred by seniors and other beneficiaries, leaving
many at significant financial risk for illness. Medicare supplemental
insurance was designed to address this financial risk. Approximately 20
million seniors have Medicare supplemental coverage, either through an
employer-sponsored plan for retirees (11.5 million beneficiaries) or
through an individually purchased Medigap plan (8.4 million
beneficiaries). Many other seniors have supplemental coverage through
Medicare+Choice (5.5 million) or Medicaid (3.8 million). About 4.3
million beneficiaries have no supplemental coverage.1
---------------------------------------------------------------------------
\1\ Laschober, Mary A., Michelle Kitchman, Patricia Newman, and
Allison A. Strabic, ``Trends in Medicare Supplemental Insurance and
Prescription Drug Coverage, 1996-1999,'' Health Affairs, February 27,
2002. Figures are for fall 1999, except for Medicare+Choice (6.0
million in fall 1999), which has been updated by CMS data to February
2002.
---------------------------------------------------------------------------
In 1990 Congress mandated the creation of 10 standardized Medigap
plans, Plans A through J. In addition, two high deductible policies
were authorized by the Balanced Budget Act of 1997. Three of the 10
standardized plans, H, I and J, and the J high deductible plan, provide
limited coverage for prescription drugs.
Popularity of Medigap Among Seniors
Surveys conducted bi-annually by the Inspector General of the
Department of Health and Human Services continue to show a high level
of satisfaction among seniors with their Medigap coverage. A survey
conducted last summer by a private company, American Viewpoint, found
that 89 percent of respondents were satisfied or very satisfied with
their Medigap coverage, while 76 percent of respondents said that,
considering the premiums they pay, the policies are a good or excellent
value. What they value most is peace of mind from knowing what their
medical costs will be and the lack of paperwork--they don't have to
hassle with medical bills. The vast majority (81%) would recommend
Medigap coverage to a friend or relative when they turn 65 and enroll
in Medicare.2
---------------------------------------------------------------------------
\2\ AmericanViewpoint, National Medigap Enrollees Survey,
Conducted for the Coalition to Preserve Choice for Seniors, June 22-
July 1, 2001.
---------------------------------------------------------------------------
Transition Issues
In considering potential changes to Medigap, it is important to
understand that essentially any change would raise a variety of
transition issues that would need to be very carefully addressed. I'd
like to take a few minutes to discuss the most important of these.
Treatment of old policies. One very important element of any
Medicare and Medigap reform is the treatment of current Medigap
policyholders. Public policy must be carefully crafted to support a
stable supplemental insurance market and avoid adverse selection. When
the 10 standardized plans were implemented in the early '90s,
beneficiaries were granted a 6-month open enrollment period, during
which they could purchase any of the new policies available in their
state. They also were allowed to keep their pre-standardized policy
instead of buying one of the new policies, if they preferred. The one-
time opportunity to choose the desired level of supplemental coverage
protects the market and the plans with richer benefits from rate
spirals that result from adverse selection.
We envision a very different transition in the context of
comprehensive Medicare and Medigap reform. Standardized policies A-J
were designed to mesh with the current Medicare benefit structure.
Comprehensive reform, which may entail eliminating the Part A and Part
B distinction or otherwise changing the structure of beneficiary cost-
sharing, will require that new standardized supplemental policies be
defined which mesh with the new Medicare covered benefits. In that
case, policyholders with plans A-J would most likely need to transition
to new supplemental policies, and policies A-J would be retired. Having
a one-time, limited open enrollment opportunity for the new
supplemental policies, in the context of comprehensive reform, should
be workable (in terms of the hazards of adverse selection) because all
beneficiaries (the more healthy and less healthy) will be moving into
the new policies.
Regulatory implementation. Another important element of transition
from current Medigap offerings to new supplemental policies is
regulatory implementation. In a process created by OBRA 1990, Congress
preserved for the States (and the National Association of Insurance
Commissioners (NAIC)) the role of defining detailed standards and
regulating Medigap carriers. Thus, after Congress enacts guidelines for
reformed supplemental benefits, the NAIC must design new standardized
policies and develop model regulations, and the Department of Health
and Human Services must adopt the NAIC model as part of the federal
requirements. Subsequently, each state must change its laws and
regulations to implement the new requirements, to ensure that state
requirements are at least as stringent as federal requirements.
Since states play a central role in regulating Medigap insurance,
Congress must recognize that this process takes time, and the
implementation period must be sufficiently long to allow for this. The
timeline set under the BBA for implementing the new standardized high
deductible policies was too short, and much confusion resulted. On the
other hand, we also believe that the NAIC would need to consider some
form of ``speed to market'' arrangement for any reformed Medigap plan
offerings so that the opportunity for beneficiaries to purchase better
coverage is not unduly delayed.
Education. Yet another very important element of transition is
education. Clearly provisions for adequate regulator, insurer, agent,
and beneficiary education are essential in order for beneficiaries to
receive the supplemental insurance options intended by Congress.
Because reeducation in the Medigap market is such a massive
undertaking, and because the market has experienced much stress in
recent years, the frequency with which Congress changes Medigap
standards should be kept to a minimum.
NAIC Consideration of Medigap Reform
In considering Medigap reform, we believe it is useful to review
recent efforts by the NAIC. In 2000 and 2001, the NAIC undertook a
reexamination of the 10 standardized Medigap policies, assigning the
task to the Medicare Supplement Working Group. In conducting its
examination, the Working Group conferred with consumer representatives,
state and federal regulators, Medicare supplement insurance carriers
and their trade associations, including HIAA. Through a seven-month
structured fact-finding process, the Working Group elicited statistical
data, information and opinions from the various interested parties.
And, at the 2000 NAIC Winter National Meeting, the working group held a
public hearing.
The final report of the Working Group,3 adopted by the
NAIC Health Insurance & Managed Care (B) Committee on December 10,
2001, contains a list of possible revisions for further consideration--
but only in the context of comprehensive Medicare reform. Importantly,
the report highlights a number of concerns about the prospect of
numerous, incremental changes to Medigap. In this regard, relevant
excerpts from the report include the following:
---------------------------------------------------------------------------
\3\ ``Report on Revisiting Medicare Supplement Insurance
Standardized Plans,'' Final Report of the Medicare Supplement Working
Group of the NAIC Senior Issues Task Force. December 10, 2001
---------------------------------------------------------------------------
``In the absence of comprehensive Medicare and Medigap
reform, which would need to contain appropriate transitional
periods for relevant Medigap blocks of business and
implementation of amended state regulations, most interested
parties cautioned against incremental changes to the Medigap
benefit design.''
``It is important to note [that] frequent changes in
Medigap benefits are costly and confusing to beneficiaries.''
``Any revision to the [Medigap] standardized plans
must consider the transition issues that involve regulatory
changes, beneficiary education, and adverse selection where
existing plans are grandfathered.''
The Working Group's report does present a number of suggested
modifications to Medigap benefits ``if larger Medicare reform is
adopted, thus necessitating changes to Medigap.'' Examples include the
following:
Delete coverage for services that are now Medicare
covered services (e.g. certain preventive benefits), or that
are no longer needed due to Medicare program changes (e.g.
coverage for excess charges, coverage for at home recovery).
Consider including new benefits (e.g. cost-sharing for
Medicare hospice benefit).
Include deductibles and copayments/coinsurance to
create incentives for appropriate service utilization.
Have fewer standardized plans.
Allow use of benefit utilization controls such as
tiered drug formularies in those Medigap plans that include
prescription drug coverage.
The Issue of First-Dollar Coverage
The announcement for this hearing expressed concern about the fact
that many of the Medigap plans purchased by seniors cover Medicare Part
A and Part B deductibles as well as Part A copayment and Part B
coinsurance amounts. This is typically referred to as first-dollar
coverage. The concern is that first-dollar coverage, by lessening
beneficiary price sensitivity, may increase Medicare spending, perhaps
inappropriately.
This is not a new issue, and things are not as simple as they might
first appear. To begin with, not all Medigap plans provide full first-
dollar coverage. However, it is certainly true that those that do are
the most popular plans among the nation's seniors. Medigap plans C, F
and J are the three that cover both the Part A and Part B deductibles.
These three plans are twice as popular as the other seven plans
combined. This popularity is likely due to the fact that Medicare
beneficiaries are risk averse and derive a great deal of financial and
personal security from their supplemental insurance policies.
Moreover, under the Balanced Budget Act of 1997, Congress provided
for two, new high-deductible Medigap products. However, few such plans
have actually been sold, and there are reports that the biggest hurdle
to the sale of these products is overcoming beneficiary expectations
that a Medigap plan will provide first-dollar coverage. Thus, any
Congressional plan to restrict Medigap first-dollar coverage of
deductibles and other cost-sharing obligations is likely to require
considerable Medicare beneficiary education and involvement in order to
overcome expected beneficiary resistance to this idea.
Second, if Medicare spending is higher for beneficiaries who
purchase a Medigap plan with first-dollar coverage, it cannot
automatically be assumed that such spending is for medically
inappropriate or unnecessary services. Medicare's existing coverage and
utilization review mechanisms are specifically designed to assure that
Medicare pays only for items and services that are reasonable and
necessary. Medicare supplemental insurers do not make independent
coverage decisions. Thus, attempts to move away from first-dollar
coverage might in fact impose barriers to the receipt of necessary
care. A special study performed a few years ago for HIAA by Gerard
Anderson and his colleagues at Johns Hopkins noted that the burden of
Medicare cost-sharing is distributed unequally across beneficiaries,
increasing as they become older, develop chronic illnesses, or have
catastrophic illnesses.4 Supplemental insurance spreads this
risk, thereby reducing the financial burden on older beneficiaries and
those with chronic or catastrophic illnesses.
---------------------------------------------------------------------------
\4\ Anderson, GF; Wiest, A; Shaffer, T; Hussey, P; and Bilenker,
J. Concerns About the Theory of Increased Cost-Sharing for Medicare
Beneficiaries and Its Policy Implications for the Medicare Program.
Washington, DC: Health Insurance Association of America, 1999.
---------------------------------------------------------------------------
Dr. Anderson's study also noted that the available literature
suggested that Medicare beneficiaries' price sensitivity is greatest
for preventive and physician services. According to Dr. Anderson's
study, Medicare beneficiaries without supplemental insurance were much
less likely to have flu shots, mammograms, and pap smears. For this and
other reasons, Dr. Anderson cautioned that comparisons of the Medicare
expenditures incurred by beneficiaries with supplemental coverage and
those who do not overestimate the effect of supplemental insurance on
Medicare spending.
Even the celebrated RAND Health Insurance Experiment, which
investigated the impact of cost-sharing on health care utilization by a
non-elderly population, found that when faced with cost-sharing,
individuals were just as likely to limit the use of ``highly
effective'' care as ``less effective'' care. Thus, as far as we can
determine, the Medicare savings predicted from restrictions on first-
dollar coverage of Medicare deductible and coinsurance amounts would,
at least to some extent, be due to the fact that beneficiaries would be
discouraged from seeking medically appropriate care. In a report last
year, the Congressional Budget Office acknowledged that ``the decrease
in use of services by Medigap policyholders'' produced by restrictions
on first-dollar coverage ``might not be limited to unnecessary care, so
the health of some policyholders might be adversely
affected.''5
---------------------------------------------------------------------------
\5\ Congressional Budget Office, Budget Options, February 2001.
---------------------------------------------------------------------------
Medigap Benefit Design
The committee's announcement for this hearing also questioned the
value of one of the prescribed benefits for most Medigap policies,
foreign travel insurance, asserting that most beneficiaries never leave
their home country. This benefit covers 80 percent of the medically
necessary emergency care received in a foreign country, after a $250
deductible, up to a lifetime maximum of $50,000.
Ideally, any redesign of Medigap benefits would take account of the
needs and preferences of today's seniors. Many seniors do travel
outside the United States, and may well value the peace of mind
associated with Medigap coverage when they do so. On the other hand, if
a benefit is infrequently used, it does not contribute very much to
product pricing, and so dropping the benefit would not, by itself,
produce much benefit.
In this regard, it also needs to be remembered that current law
requires that Medigap products be guaranteed renewable. This means that
a Medigap policy may not be cancelled or have its benefits changed.
Thus, any revisions to current Medigap benefits would raise very
important transition issues, which are likely to be complex and
difficult to resolve.
In the case of the elderly, many of whom suffer from chronic
illnesses, treatment costs for such things as prescription drugs and
regular physician office visits can be more or less predictable. This
relative predictability certainly permits each beneficiary to make a
reasoned economic judgment about the expected near-term value of an
insurance product. In other words, beneficiaries can be expected to do
the math, comparing anticipated benefits with known premium costs. This
raises the potential that healthier Medicare beneficiaries will seek
out lower cost Medigap products or even decide to self-insure, thereby
further driving up the average costs of coverage for those remaining
behind. As insurers know only too well, benefit redesign, if not very
carefully done, can lead to adverse selection and ultimately make the
re-designed insurance product simply unaffordable for the average
citizen.
Bush Administration Proposals
As part of his fiscal year 2003 budget plan, President George W.
Bush has proposed several mechanisms for providing prescription drug
benefits for Medicare beneficiaries. One of these would involve the
creation of two new Medigap plans. These plans would offer prescription
drug coverage, protect beneficiaries against catastrophic illness, and
include nominal beneficiary cost-sharing, all presumably for a lower
premium cost than the most popular Medigap plans today.
To date, few details have been released about the exact nature of
the benefits for the two new Medigap plans or how they would be
implemented. For example, the degree to which the new products would or
would not provide coverage for Medicare deductibles and other
beneficiary cost-sharing obligations has not been spelled out. The
Administration maintains that the new plans will offer better benefits
at a lower premium than the most popular Medigap plans today. However,
it seems more likely that these new policies would require premiums
comparable to, or even higher than, the premiums for today's most
popular policies, especially since they promise more generous
prescription drug benefits than current Medigap policies, catastrophic
expense protection, and only ``nominal'' beneficiary cost sharing
obligations.
Furthermore, there appears to be considerable risk that the new
Medigap products would be subject to adverse selection, since they
would be more likely to appeal to beneficiaries expecting high health
care utilization (e.g., high prescription drug costs). This risk, would
likely discourage Medigap carriers from offering the new products,
especially since they would expect to find it difficult to secure from
state regulators future rate adjustments needed to cover the level of
cost increases induced by adverse selection and rising prescription
drug costs. In this context, it goes without saying that Medigap
carriers would strongly oppose any attempt to require them to offer the
new Medigap options. Such a mandate could prompt some carriers to exit
the Medigap market entirely.
HIAA certainly looks forward to getting more information about the
President's Medigap proposal and to helping the Congress assess its
various components. We certainly share everyone's desire to find ways
to better meet the needs of Medicare beneficiaries.
HIAA's Recommendations to the Congress
What I have tried to do today is to provide a context for the
understandable desire to reform not only the basic Medicare program,
but Medigap coverage options as well. I hope it is apparent that even
the most tempting Medigap reforms would need to navigate some difficult
ground. The design of any new or revised Medigap plans would, of
course, be heavily dependent upon the features of a modernized Medicare
program. Thus, it seems to us that the Congress should first make
decisions about the Medicare program itself, and then proceed to
address corresponding Medigap issues.
HIAA also believes that changes to Medigap policies should be done
in conjunction with comprehensive changes in Medicare benefits, and not
before that time. Further, changes affecting Medigap should be made at
one time and not in an incremental or piecemeal fashion. Making Medigap
changes in two or more ``rounds of reform'' would add significantly
more administrative costs to the system than making such changes at one
time, and would likely increase beneficiary confusion.
We would also suggest that Congress provide as much flexibility as
possible for any mandated redesign of Medigap benefits. As you know,
under the Omnibus Budget Reconciliation Act of 1990, the Congress did
not specify the contents of the 10 standardized Medigap plans we have
today, but instead allowed for a process where consumer
representatives, state regulators, and insurers worked together to
design Medigap benefit options. Similarly, we believe that it would be
extremely risky for Congress to mandate by statute the contents of
insurance products intended for voluntary sale and purchase in the
private marketplace.
Finally, to state the obvious, when it comes to Medigap, Medicare
beneficiaries are the customers, and they are free to buy--or not buy--
available products. In the end, whatever we do must be viewed as
beneficial, not harmful, to the interests of the typical Medicare
beneficiary, and result in Medigap products that are affordable.
Conclusion
I hope that my testimony today helps elucidate the many issues that
arise in any consideration of changes to Medigap. HIAA is open to
considering Medigap reforms, such as those catalogued in the NAIC
Medicare Supplement Working Group report, in the context of broader
reform of Medicare covered benefits. However, without knowing how the
core Medicare benefit package is structured, it is difficult, if not
impossible to properly evaluate the merit of individual Medigap reform
suggestions. In addition, some suggestions may not be well received by
Medicare beneficiaries, could risk subjecting Medigap plans to adverse
selection, or might otherwise endanger the important goal of
maintaining affordable Medigap products. In any case, HIAA and its
member companies look forward to working with this committee to craft
feasible Medicare and Medigap policies that will meet the needs and
expectations of Medicare beneficiaries.
__________
HIAA Traditional Members
Academy Life Insurance Company-- Manhattan National Life Insurance
Frazer, PA Company--Carmel, IN
AEGON USA, Inc.--Baltimore, MD Mayflower Insurance Company, Ltd.--
New York, NY
AF&L Insurance Company--Warrington, Mayflower National Life Insurance
PA Company--Indianapolis, IN
Affiliated Health Plans, Inc.-- McKinley Life Insurance Company--
Thousand Oaks, CA Canton, OH
AFLAC--Columbus, GA MedAmerica Insurance Company--
Pittsburgh, PA
American Casualty Company--Chicago, MedAmerica Insurance Company of New
IL York--Rochester, NY
American Casualty Company of Mennonite Mutual Aid Association--
Reading, Pennsylvania--Reading, PA Goshen, IN
American Family Mutual Insurance Metropolitan Life Insurance
Company--Madison, WI Company--New York, NY
American Fidelity Assurance Mid-South Insurance Company--Omaha,
Company--Oklahoma City, OK NE
American Heritage Life Insurance MMA Insurance Company--Goshen, IN
Company--Jacksonville, FL
American Medical Security Life Monitor Life Insurance Company of
Insurance Co of GA--Green Bay, WI New York--Utica, NY
American Medical Security, Inc.-- Montgomery Ward Insurance Company--
Green Bay, WI Schaumburg, IL
American Republic Insurance Monumental General Insurance
Company--Des Moines, IA Company--Baltimore, MD
American Specialty Health Monumental Life Insurance Company--
Incorporated--San Diego, CA Baltimore, MD
American Specialty Health Plans of Munich American Reassurance
California, Inc.--San Diego, CA Company--Atlanta, GA
American Specialty Health Networks-- Mutual of Omaha Health Plans, Inc.--
San Diego, CA Omaha, NE
American Specialty Health Care, Mutual of Omaha Insurance Company--
Inc.--San Diego, CA Omaha, NE
American Specialty Health IPA of National Fire Insurance Company of
New York, Inc.--San Diego, CA Hartford--Farmington, CT
AON Corporation Group--Chicago, IL National-Ben Franklin Insurance
Company of Illinois--Chicago, IL
AUL Long Term Care Solutions, Inc.-- New England Financial--Boston, MA
Avon, CT
AUL Reinsurance Management New York Life Insurance Company--
Solutions--Avon, CT New York, NY
AultCare--Canton, OH Niagara Fire Insurance Company--New
York, NY
AUSA Life Insurance Company-- Olympic Health Management Systems,
Purchase, NY Inc.--Bellingham, WA
Bankers Life and Casualty Company-- Optum--McLean, VA
Chicago, IL
Bankers United Life Assurance Pacific Insurance Company--New
Company--Cedar Rapids, IA York, NY
BC Life & Health Insurance Company-- Pacific Life & Annuity Company--
Woodland Hills, CA Newport Beach, CA
Blue Cross and Blue Shield of Pacific Life Insurance Company--
Georgia, Inc.--Atlanta, GA Newport Beach, CA
Blue Cross Blue Shield Healthcare Pan American Insurance Company--San
Plan of Georgia--Atlanta, GA Juan, PR
Blue Cross of California--New Bury Pension Life Insurance Company of
Park, CA America--Frazer, PA
Boston Old Colony Insurance Peoples Benefit Life Insurance
Company--New York, NY Company--Cedar Rapids, IA
Buckeye Union Insurance Company-- Physicians Mutual Insurance
Columbus, OH Company--Omaha, NE
CaliforniaCare Health Plans-- Pioneer Life Insurance Company--
Thousand Oaks, CA Carmel, IN
CHCS Services, Inc.--Weston, FL Principal Financial Group--Des
Moines, IA
Celtic Insurance Company--Chicago, Principal Life Insurance Company--
IL Des Moines, IA
Central Reserve Life Insurance Providian Life and Health Insurance
Company--Strongsville, OH Company--Frazer, PA
Central States Health & Life Pyramid Life Insurance Company--
Company of Omaha--Omaha, NE Mission, KS
Ceres Group, Inc.--Strongsville, OH Pyramid Services, Inc.--Danbury, CT
CNA--Chicago, IL QualChoice Health Plan, Inc.--
Cleveland, OH
CNA Casualty Company of California-- Security General Life Insurance
Los Angeles, CA Company--Oklahoma City, OK
CNA Lloyd's of Texas--Bellaire, TX Senior American Life Insurance
Company--Warrington, PA
Columbia Casualty Company--Chicago, Sentry Insurance A Mutual Company--
IL Stevens Point, WI
Combined Insurance Company of Sentry Insurance Group--Stevens
America--Chicago, IL Point, WI
Combined Life Insurance Company of Sentry Life Insurance Company--
New York--Latham, NY Stevens Point, WI
Commercial Insurance Company of Sentry Life Insurance Company of
Newark, NJ--New York, NY New York--Syracuse, NY
Commercial Travelers Mutual Sentry Select Insurance Company--
Insurance Company--Utica, NY Stevens Point, WI
Companion Life Insurance Company-- Starmark--Lake Forest, IL
Rye, NY
Conseco Direct Life Insurance State Farm Fire and Casualty
Company--Philadelphia, PA Company-- Bloomington, IL
Conseco Health Insurance Company-- State Farm General Insurance
Carmel, IN Company--Bloomington, IL
Conseco Life Insurance Company-- State Farm Insurance--Bloomington,
Carmel, IN IL
Conseco Medical Insurance Company-- State Farm Mutual Automobile
Carmel, IN Insurance Company--Washington, DC
Conseco Senior Health Ins. Co.-- Sterling Life Insurance Company--
Carmel, IN Phoenix, AZ
Conseco Services, LLC--Rockford, IL Stonebridge Insurance Company--
Plano, TX
Conseco Variable Insurance Company-- Teachers Insurance and Annuity
Carmel, IN Association--New York, NY
Conseco, Inc.--Carmel, IN Teachers Protective Mutual Life
Insurance Company--Lancaster, PA
Continental Assurance Company-- Transamerica Life Insurance &
Chicago, IL Annuity Company--Charlotte, NC
Continental Casualty Company-- Transamerica Life Insurance Company
Chicago, IL of New York--Purchase, NY
Continental General Insurance Transamerica Occidental Life
Company--Omaha, NE Insurance Company--Los Angeles, CA
Continental Insurance Company--New Transcontinental Insurance Company--
York, NY New York, NY
Continental Insurance Company of Transportation Insurance Company--
New Jersey--New York, NY Chicago, IL
Continental Insurance Company of Trustmark Insurance Company--Lake
Puerto Rico--Chicago, IL Forest, IL
Continental Lloyd's Company-- Trustmark Life Insurance Company--
Chicago, IL Lake Forest, IL
Continental Reinsurance UNICARE--Huntington Beach, CA
Corporation--New York, NY
CoreSource--Anderson, IN UNICARE Health Insurance of the
Midwest--Chicago, IL
CoreStar--Lake Forest, IL UniCARE Insurance Company--
Camarillo, CA
Cost Care, Inc.--Huntington Beach, UNICare Life & Health Insurance
CA Company--Springfield, MA
Country Life Insurance Company-- Union Fidelity Life Insurance
Bloomington, IL Company--Fort Washington, PA
Destiny Health, Inc.--Bethesda, MD United Behavorial Health--San
Francisco, CA
Employers Dental Services, Inc.-- United HealthCare of Arizona, Inc.--
Des Moines, IA Minnetonka, MN
Exclusive Healthcare, Inc.--Omaha, United HealthCare of California,
NE Inc.--Minnetonka, MN
Federated Insurance Companies-- United HealthCare of Colorado,
Owatonna, MN Inc.--Minnetonka, MN
Fidelity and Casualty Company of United HealthCare of New Jersey,
New York--New York, NY Inc.--Minnetonka, MN
Firemen's Insurance Company of United HealthCare of New York,
Newark, New Jersey--New York, NY Inc.--Minnetonka, MN
First Fortis Life Insurance United HealthCare of the Midlands
Company--Syracuse, NY Inc--Omaha, NE
Fortis Benefits Insurance Company-- United HealthCare of Upstate New
Kansas City, MO York, Inc.--Minnetonka, MN
Fortis Health--Milwaukee, WI United HealthCare of Utah--Salt
Lake City, UT
Fortis, Inc.--New York, NY United of Omaha Life Insurance
Company--Omaha, NE
Frontier National Life Insurance United Resource Networks--
Company--Carmel, IN Minneapolis, MN
GE Financial Assurance--Richmond, United Wisconsin Life Insurance
VA Company--Green Bay, WI
GE Group Life Assurance Company-- United World Life Insurance
Enfield, CT Company--Omaha, NE
General & Cologne Life Re of UnitedHealth Group--Minnetonka, MN
America--Stamford, CT
General Electric Capital Assurance-- UnitedHealthcare--Hartford, CT
San Rafael, CA
Glen Falls Insurance Company--New USAA Life Insurance Company--San
York, NY Antonio, TX
Greater Georgia Life Insurance Valley Forge Insurance Company--
Company, Inc.--Atlanta, GA Reading, PA
Guarantee Trust Life Insurance Valley Forge Life Insurance
Company-- Glenview, IL Company--Reading, PA
Guardian Insurance & Annuity Veterans Life Insurance Company--
Company, Inc.--New York, NY Frazer, PA
Guardian Life Insurance Company of Wabash Life Insurance Company--
America--New York, NY Carmel, IN
Healthyroads, Inc.--San Diego, CA Wausau Benefits, Inc.--Wausau, WI
Illinois Mutual Life Insurance WellPoint Health Networks Inc.--
Company--Peoria, IL Thousand Oaks, CA
J.C. Penney Life Insurance Company-- WellPoint Pharmacy Plan--Thousand
Plano, TX Oaks, CA
John Alden Life Insurance Company-- Western Diversified Life Insurance
Miami, FL Company--San Diego, CA
John Hewitt & Associates--Portland, Woodmen of the World Life Insurance
ME Society--Omaha, NE
Kansas City Fire and Marine World Insurance Company--Omaha, NE
Insurance Company--New York, NY
Liberty Life Assurance Company of Zurich American Insurance Company
Boston-- Boston, MA of Illinois--Schaumburg, IL
Liberty Mutual Group--Boston, MA Zurich American Insurance Group--
New York, NY
Liberty Mutual Insurance Company-- Zurich American Life Insurance
Dover, NH Company--Schaumburg, IL
Life Investors Insurance Company of Zurich Insurance Company--
America--Cedar Rapids, IA Schaumburg, IL
LifeCare Assurance Company-- Zurich Life Insurance Company--
Woodland Hills, CA Schaumburg, IL
LifePlans, Inc.--Waltham, MA ...................................
Chairman Johnson. Thank you very much, Dr. Young. Jennifer
Weiss, of the Medicare Rights Center in New York, nice to have
you.
STATEMENT OF JENNIFER WEISS, DIRECTOR OF POLICY, MEDICARE
RIGHTS CENTER, NEW YORK, NEW YORK
Ms. Weiss. Thank you. Good afternoon. As Chairwoman Johnson
said, my name is Jennifer Weiss, and I am the Director of
Policy at the Medicare Rights Center. The Medicare Rights
Center is a national consumer services organization based in
New York that is dedicated to ensuring that older and disabled
Americans get good, affordable health care. Every year we hear
from more than 60,000 people with Medicare who have questions
about their Medicare rights, benefits, and options. I thank the
Ways and Means Subcommittee on Health for giving me this
opportunity to testify on Medicare supplemental insurance
options.
For the older and disabled men and women we serve, there
are three critical Medigap issues: They want meaningful and
understandable Medigap policies, a good Medigap benefit
package, and affordable Medigap coverage. To the extent Medigap
reform proposals affect these key issues, on behalf of our
clients, we ask that you tread carefully.
As you well know, changes often have unintended
consequences. Adding new Medigap plans that are not affordable,
or that discourage access to needed care, will jeopardize the
health of older and disabled Americans. Changes designed to
save money by dissuading people from seeking the care they need
may end up costing Medicare more in the long run, through
future hospitalizations and through providing other complex
health services.
Any new Medigap option must be designed so that people can
easily understand its risks and benefits. For example, there is
incontrovertible evidence that Medigap standardization has been
successful in allowing consumers a meaningful basis to
comparison shop--a good thing for consumers and for the market.
In an ideal world, there would be a simple answer to the
question of how to design cost sharing in Medigap that strikes
the right balance between ensuring that people who need care
get care, and discouraging people from seeking unnecessary
care. Finding that delicate balance requires a fair and
objective review of our learning on health care usage.
Based on our experience, we have two serious concerns that
we raise here: One, plans that do not provide first-dollar
coverage might deter enrollees from getting needed care. Two,
plans that do not provide first-dollar coverage might draw a
healthier pool of policy holders, which could lead Medigap
insurers to raise rates on the less-healthy pool of policy
holders who elect first-dollar coverage plans.
Moreover, plans with high deductibles are not likely to
attract customers. As you know, the two high-deductible plans
currently available have few enrollees. Today, many more people
sign up for plans that cover their high deductibles and high
cost sharing than for less expensive plans that do not. In
fact, most people even opt for plans that cost more but cover
the modest part B deductible.
Regardless of ideology, none of us wants a health care
system that deters people from getting the care they need. At
the same time, limited public resources should not be diverted
to pay for care that is unnecessary. We need to understand
clearly where the dividing line is.
The tragedy that we hear at the Medicare Rights Center day
after day is from our elderly clients who report that they go
without needed care because they cannot afford it. As you well
know, prescription drugs are the prime example of what we
consider to be an inhumane and uncivilized deprivation in
modern-day America. Remember, the Medicare population is a
group of Americans who have a median income below $24,000 a
year. Indeed, Members of the Committee, our neighbors are going
without needed care as we meet here today.
Our client experiences also tell us that Medigap policies
are the mechanism through which our clients budget for their
health care each month, enabling them to predict many of the
costs they will face. Human beings, of course, are not
clairvoyant and are hard-pressed to self-insure for unexpected
high-cost health care needs. While a high-deductible Medigap
plan may mean a beneficial lower monthly Medigap premium, it
may also mean a gamble about future health care needs and out-
of-pocket health care costs.
As this Committee considers ways to offer people with
Medicare meaningful health care choices, encourage access to
needed care, and discourage unnecessary care, we would urge you
to look at Medicare as a mechanism for offering supplemental
options. Adding supplemental coverage options to Medicare would
allow the millions of people with disabilities under 65 the
right to purchase coverage. It could also spread risk more
broadly, and help stabilize supplemental insurance premiums. We
wonder whether the CBO has ever scored this proposal to expand
Medicare, and strongly recommend that you request further study
of this option.
To conclude, we strongly urge that before pushing forward
with changes to Medigap, that you ask the GAO and the CBO to
study these proposed changes and their potential consequences.
Add to the current Administration proposals serious review of
other options, such as a supplemental policy directly through
Medicare.
No one expected that the Balanced Budget Act of 1997 would
lead to 2.2 million Americans losing their health maintenance
organization (HMO) coverage, and thousands struggling to secure
a Medigap policy. No one would want to offer a change to
Medigap that impeded access to needed care. That said, the
greatest barrier to getting care right now is the lack of a
Medicare prescription drug benefit. Prescription drug coverage
through Medigap has proven to be unworkable. Now is the time
for Congress to expand Medicare to include prescription drug
coverage for everyone. Thank you very much.
[The prepared statement of Ms. Weiss follows:]
Statement of Jennifer Weiss, Director of Policy, Medical Rights Center,
New York, New York
Introduction
My name is Jennifer Weiss and I am the director of policy at the
Medicare Rights Center. The Medicare Rights Center is a national
consumer service organization, based in New York, working to ensure
that older and disabled Americans get good, affordable health care.
Under a contract with the New York State Office for the Aging, with
funding from the Centers for Medicare and Medicaid Services, we operate
New York State's Health Insurance Assistance Program hotline. Every
year we hear from more than 60,000 people with Medicare, who have
questions about their Medicare benefits, rights and options. We also
operate a National Medicare HMO Hotline that assists elderly and
disabled Americans who are struggling to get needed care and coverage
from their HMOs. I thank the Ways and Means Subcommittee on Health for
this opportunity to testify on Medicare Supplemental Insurance
policies.
For the older and disabled men and women we serve, there are three
critical Medigap issues: they want meaningful and understandable
Medigap choices, a good Medigap benefit package, and affordable Medigap
coverage. To the extent Medigap reform proposals affect these key
issues, on behalf of our clients, we ask that you tread carefully. As
you well know, changes often have unintended consequences. Adding new
Medigap plans that are not affordable, or that lead to increases in the
premiums charged for other Medigap plans, or that discourage access to
needed care, will jeopardize the health of older and disabled
Americans. At the same time, changes designed to save money by
discouraging access to needed care may end up costing Medicare more in
future hospitalizations and other complex health services.
Any new Medigap option must be designed so that people can easily
understand its risks and benefits. For example, there is
incontrovertible evidence that Medigap standardization has been
successful in allowing consumers a meaningful basis to comparison
shop--a good thing for consumers and for the market.
Medigap first dollar coverage
In an ideal world there would be a simple answer to the question of
how to design cost-sharing in Medigap that strikes the right balance
between ensuring that people who need care get care and discouraging
people from seeking unnecessary care. Finding that delicate balance
requires a fair and objective review of our learning on health care
usage. Based on our experience, we have two serious concerns that we
raise here: One, plans that do not provide first dollar coverage might
deter people who elect these plans from getting needed care. Two, plans
that do not provide first dollar coverage might draw a healthier pool
of policyholders, which could lead Medigap insurers to raise rates on
the less healthy pool of policyholders who elected first dollar
coverage plans. Moreover, plans that do not provide first dollar
coverage are not likely to attract subscribers. As you know, the two
high deductible plans currently available have few subscribers. Today,
many more people sign up for plans that cover their high deductibles
and high cost sharing than for less expensive plans that do not.
Regardless of ideology, none of us wants a health care system that
deters people from getting needed care. At the same time, limited
public resources should not be diverted to pay for unnecessary care. We
need to understand clearly where the dividing line is. The tragedy we
hear at the Medicare Rights Center, day after day, is from our elderly
clients who report that they go without needed care because they cannot
afford it. As you well know, prescription drugs are the prime example
of what we consider to be an inhumane and uncivilized deprivation in
modern day America. Remember, the Medicare population is a group of
Americans who have a median income below $24,000 a year. Indeed,
members of the Committee, our neighbors are going without needed health
care as we meet today.
Our client experiences also tell us that Medigap policies are the
mechanism through which our clients budget for their health care each
month, enabling them to predict many of the costs they will face. Human
beings, of course, are not clairvoyant and are hard-pressed to self-
insure for unexpected high cost health care needs. While a high-
deductible Medigap plan may mean a beneficial lower monthly Medigap
premium, it may also mean a gamble about future health care needs and
out-of-pocket costs that keep people from getting necessary care.
Reducing first dollar costs
As this Committee considers ways to offer people with Medicare
meaningful health care choices, encourage access to needed care and
discourage unnecessary care, we would urge you to look at offering
supplemental coverage options directly through Medicare with a co-pay
and a premium. Adding supplemental coverage options to Medicare would
allow the millions of people with disabilities under 65 the right to
purchase coverage, promoting their access to needed care. It could also
spread risk more broadly and help stabilize supplemental insurance
premiums. We wonder whether the Congressional Budget Office has ever
scored this proposal to expand Medicare and strongly recommend that you
request further study of this option.
Access to Medigap and Prescription Drug Coverage
To conclude, we strongly urge that before pushing forward with
changes to Medigap that you ask the GAO and the CBO to study these
proposed changes and their potential consequences. Add to the current
Administration proposals serious review of other options, such as a
supplemental policy directly through Medicare. No one expected that the
Balanced Budget Act of 1997 would lead to 2.2 million Americans losing
their HMO coverage and thousands struggling to secure a Medigap policy.
No one would want to offer a change to Medigap that impeded access to
needed care. That said, the greatest barrier to needed care right now
is the lack of a Medicare prescription drug benefit. Prescription drug
coverage through Medigap has proven to be unworkable. Now is the time
for Congress to expand Medicare to include prescription drug coverage
for everyone.
Thank you.
Chairman Johnson. Thank you very much, Ms. Weiss. Mr.
McCrery.
Mr. McCrery. Thank you, Madam Chair.
Ms. Weiss, your last statement was that, ``Providing
prescription drugs through Medigap policies has proven to be
unworkable,'' I believe is what you said.
Ms. Weiss. Yes.
Mr. McCrery. Why do you think that is?
Ms. Weiss. I would say that I believe that is the case
because only between 8 and 10 percent of people who have
Medigap have chosen the Medigap plans that offer prescription
drug coverage. The fact that they have only a 50-cents-on-the-
dollar coverage and high deductibles means that people
essentially have to spend over $6,000 to get $3,000 worth of
coverage. So my sense is that the Medigap plans that do offer
prescription drug coverage are not a good value. And we have
seen that indicated by the few number of enrollees who have
actually signed up for them.
Mr. McCrery. Dr. Young, do you agree with that analysis?
Dr. Young. Yes. That is the same that we hear back. The
Medicare beneficiaries look at that and say, ``This is not a
good deal for me, and I'll choose one of the other options.''
Mr. McCrery. And why is the price so high in relation to
the benefit for those policies?
Dr. Young. That has to do with the problem of selection, of
adverse selection. And Medicare's beneficiaries with drug costs
have a very good idea of what their drug costs are going to be;
if they are going to be $500 or less, or if they are going to
be $1,000 or $2,000. So they can go through the arithmetic. And
if they are going to have high drug costs, then they are likely
to pick that option, and they will be in that 8 or 9 percent.
That results, though, in the premiums going up, because
everybody there has drug costs that are much higher than
average. You cannot spread the costs across a larger group and
keep the premiums lower.
Mr. McCrery. So Mr. Jindal, how do we solve that problem?
If we cannot provide prescription drugs effectively to the
Medicare population, to the universe of Medicare beneficiaries,
through Medigap policies, because of adverse selection, how do
we solve that problem?
Mr. Jindal. Well, I also want to add that one of the
concerns we have with the Medigap policies, in addition to what
the previous two speakers said and what the Chair has said, is
the problem being that you have to buy all of these other
benefits before you get to the prescription drug coverage. It
is not possible to get the drug coverage unless you buy first-
dollar coverage.
So I think a couple of principles the Administration is in
support of is, first, no longer requiring beneficiaries to buy
first-dollar coverage for other utilization before they get
prescription drugs. Second, we do believe that, if offered
through risk-bearing, integrated plans, if you buy drug
coverage that includes not a capped drug coverage, but also
includes catastrophic coverage, you will get a better sharing
of that risk.
So two changes would be, first, divorcing it from having to
buy first-dollar coverage and, second, not making it a capped
benefit, but rather making it a catastrophic benefit in an
integrated, privately offered, risk-bearing plan, would be a
way to get more affordable drug coverage to Medicare seniors.
Mr. McCrery. Bottom line, though, if we are going to have
effective and affordable prescription drug coverage, do we not
have to pretty much spread that across the Medicare population?
Mr. Jindal. Yes.
Mr. McCrery. Then that brings me to Mr. Stark's question,
or his statement, that a Federal program would be 20 percent
less expensive to provide than private programs. That does not
seem to be the way the administration is going; and I doubt if
that is the way Dr. Young would want to go. So maybe you would
like to comment on Mr. Stark's proposal.
Mr. Jindal. I would be happy to start. I would like to
follow up that the Administration certainly, in addition to
supporting the President's call for drug coverage for Medicare
seniors, also supports intermediate and short-term steps. That
is not to say we should not do anything. And that is why we are
proposing the two new plans while we are proposing the
Pharmacy-Plus waiver program, the discount card, and the low-
income plan as well.
In terms of the question of CMS administering the Medigap
option, I would say a couple of things. One, certainly, the
Administration supports modernizing the fee-for-service cost-
sharing structure, so that we may be able to even reduce the
demand or need for supplemental coverage.
For example, we think that adding stop-loss coverage in a
restructured cost-sharing package can be done in a way that may
reduce the need to buy wrap-around coverage. Currently, there
are several gaps. In addition to a lack of prescription drug
coverage, you also have the lack of unlimited hospital days.
You have got a cap on the number of hospital days a senior can
get in any given year. You have increasing co-payments on both
hospital days and nursing home care. In other words, you do
have some financial disincentives for those seniors that face
the highest health care costs. So one thing we are in agreement
with is the need to re-look at the cost sharing in the
government-run fee-for-service plan.
Second, we do have some concerns, however, about asking
CMS, given all of their other responsibilities, to actually
manage an additional set of responsibilities. And I am sure Dr.
Young can also point out the other benefits offered by Medigap
providers, whether they are discount cards or other services.
So on one hand, we are very supportive and want to work
with this Committee and Congress to look at changing the fee-
for-service cost-sharing structure, especially the addition of
catastrophic and stop-loss coverage. But, on the other hand, we
do have some concerns about asking CMS to take on those
additional responsibilities.
Mr. McCrery. Madam Chair, if Dr. Young could respond?
Dr. Young. Yes. The figure that has been used, that was in
the GAO testimony as well, Medicare's administrative cost--3
percent--is a very misleading figure. Those are the direct
costs at the Health Care Financing Administration and to
contractors. It does not include any of the costs of the tax
system to collect premiums and to collect information.
Many of Medicare's costs in fact are passed on to its
insurance carriers, through requirements for beneficiary
education that the Medicare program does not carry out. So
there are many things built into the government overhead and
cost that do not show up in that 3-percent figure.
In addition, the market does do things that the government
does not do. Bobby touched on a couple of them, in terms of
education, in terms of drug discounts, in terms of services. So
it is apples and oranges.
There is a third factor in there, and we are not any
happier about it than Mr. Stark. But that is a 2- or 3-percent
State premium tax that we have to pay in order to do business
in every State. And if you can help us out with that, we would
be grateful.
Mr. McCrery. Thank you.
Chairman Johnson. Thank you, Mr. McCrery. Mr. Stark.
Mr. Stark. Well, I am just going to raise a couple of
issues here that I cannot quite make jibe, and I do not know if
it is Mr. Jindal or Dr. Young who can answer them. But in the
President's budget he talks about that his plans will improve
by offering a prescription drug benefit to protect against
catastrophic illness, and at a lower premium cost than the most
popular Medigap plans today. Those are ``C'' and ``F,'' I
believe; and those average costs are about 1,100 and 1,200
bucks. The drug benefit plans run 1,700, so somewhere in there,
there is 600 bucks for drugs. There may be some travel stuff,
but I do not think that amounts to a hill of beans.
What I cannot get to is, unless you are really going to
deny people a lot of coverage, when you say first dollar, if
you are really going to say they have got to be a couple of
thousand bucks out-of-pocket, which I do not think we want to
do, I think there is evidence--and maybe Mr. Scanlon and Dr.
Young and Ms. Weiss would agree--that you get as much reduction
of utilization for a $10 co-pay as you do for a major 20-
percent co-pay; that the minimal dollar amount--and I know that
Kaiser has found this--is absolutely as effective as a higher-
dollar one in keeping people from carelessly using medical
services. And I would hope we would keep that in mind. There is
no sense punishing them. If we can get them to not abuse it for
10 bucks, let us leave it at that; rather than a higher amount.
But what I cannot get together here is how you are going to
provide what, as I read your plan, is basically the same drug
benefit that is currently in ``J,'' and maybe in ``A'' and
``I.'' So either you have got to have a phenomenally high
premium, or you are just wild about how much money you are
going to save by cutting back first-dollar coverage.
And it would help if you, in cooperation perhaps with Dr.
Young's group--because we will not be able to set the price for
this. This is whatever the insurance company is going to set.
And if nobody buys it--because they are sure as hell not buying
the drug benefits today. Why would they buy a policy with no
first-dollar coverage and no better drug benefit? I cannot make
that fit.
And I think that perhaps--and let me just throw out an
idea, and then I will shut up--the possibility has occurred to
me that I have no idea what this would cost. But because I do
not want to fight with the private insurers, because then we
would not get anything passed, for now, what if we said: Let us
go back to the good old days of a catastrophic bill, a
Federally administered catastrophic bill that would be
universal community rate. Let us say we would pick up
everything over two or three grand out-of-pocket. That would
cut the risk, the long-term risk, for Dr. Young's Members
dramatically. Let them fuss about first-dollar coverage then.
And to show that we would let the private market help, we would
let Dr. Young's companies, basically, sell that. The Federal
government, in effect, would sell reinsurance. So you could
tack that into your policies. We would underwrite it, as a
reinsurer, as a Federal reinsurer, at whatever level we could
afford. And then all of the policies would have some kind of an
out-of-pocket cap, and it would include drugs.
And then, even for the people who choose to go without
insurance--and as Dr. Young and Mr. Scanlon have said, the
seniors know quickly; they do the arithmetic--then it is a
question of the actuaries figuring out how to sort out those
risks and charge a reasonable amount.
I think we could redesign this system, if the health
insurers would work with us. And I do not think they are all
jumping up and down to have that long-term liability, anyway.
And that might be a different way to get to solving this
problem. But I just do not think we can just move the pieces
around on the chess board, because the costs are going to be
the same, the instincts to purchase are going to be the same,
the commissions are going to be the same.
I do not know how we get there from here. Maybe Mr. Jindal
can tell me what I am missing. There cannot be that big a
savings in the first-dollar coverage to pay for a major drug
benefit. I mean, maybe there is, but I do not think Mr. Scanlon
or I would agree with you. I would love to be convinced
otherwise, but I do not see that. Can you help me with that?
Mr. Jindal. Congressman, I thank you for the questions.
With the Chair's permission, I would like to answer both of
your questions.
First, the Administration has provided a couple of
examples. We are obviously willing to work with you and the
Members of the Committee on the details. We have provided a
couple of examples of what Plans ``K'' and ``L'' could look
like. And the independent actuaries at CMS, at the Department,
have said that these would cost $500 less per year than current
Medigap policies that cover drugs. In other words, making them
comparable to what other Medigap policies are today that do not
currently cover--
Mr. Stark. To ``A'' and ``C.'' To bring them down to ``A''
and ``C,'' yes.
Mr. Jindal. That is correct. So you would bring it down in
that ball park. And so you would be immediately offering a
premium savings of $500 per year. You would do that. Not only
would you save beneficiaries money, but also save the Medicare
Program money, by doing modest cost sharing. We agree with you,
it would not be a ridiculous amount of cost sharing.
Mr. Stark. But would that savings not all come out of their
first-dollar coverage?
Mr. Jindal. The premium reductions and the government
savings would come down from the reduction of over-utilization.
Mr. Stark. And that is out-of-pocket to the beneficiaries,
then. So I mean, it is pretty much--I mean, there may be some
actuarial savings, but at the first-dollar level, I would guess
that the premium reduction or increase is almost linear with
the deductible for the first-dollar coverage.
Mr. Jindal. Well, I think we are only talking about a $100
deductible to generate the $500.
Mr. Stark. But I am talking about the 20 percent and those.
But go ahead. I am sorry.
Mr. Jindal. Well, no, but I think you will see the savings.
And I would certainly defer to the actuaries and others that
would want to look at this. I think you will see the savings
will come through utilization decreases. It would not be a cost
shift. And I think you can see that by comparing the cost of
employer-provided supplemental coverage with Medigap first-
dollar provided coverage, if you look at utilization between
those two populations.
And I think that Mr. Scanlon referred to the fact that even
those employees with employer-provided coverage with very
modest cost sharing and a structure similar to what we are
describing here have lower utilization than those with first-
dollar coverage.
And so, certainly, the concept that we are proposing and
that we want to work with you on is how to drive down the over-
utilization and use those savings to benefit both beneficiaries
and the Medicare program. And I think you have heard all of the
witnesses today and you have heard Members on both sides agree
that that would be a good thing, if we could accomplish that.
Mr. Stark. What are some of the areas? Where is the highest
over-utilization? What is the area that is most abused?
Mr. Jindal. Well, I think, again, if you look at the GAO
work and the CBO work, what you will find is----
Mr. Stark. No, no, no, no, no. In Medicare, what is the
area? What do us ``old farts'' do? Where do I go spend money
that is the most abusive? Where do I waste the most money for
Medicare? Is it getting proctoscopic examinations, buying
medicine for strep throat? I mean, where do you find that us
seniors abuse the system the most?
Mr. Jindal. Well, Congressman, certainly, I am not going to
make that characterization you made in terms of who is----
Mr. Stark. OK, but where?
Mr. Jindal. Again, if you look at the CBO and GAO studies,
and you look at where the utilization is higher for those with
Medigap, versus those without Medigap----
Mr. Stark. But stop a minute. You are not hearing the
question. What do the seniors buy with our taxpayer dollars?
What is the highest abuse going to visit the doctor, going to
the emergency room? What are the procedures that are the
highest, the most abused, over-utilized?
Mr. Jindal. I mean, I will not be able--I will defer to
GAO, in terms of picking which single service is the most over-
utilized. But again, if you look at the CBO and GAO studies,
you see higher utilization across the board, in terms of both--
--
Mr. Stark. Would Mr. Scanlon know that?
Mr. Scanlon. I cannot give you a list of procedures
specifically. I think that one of the things that we do
ascertain from looking at the work that Dr. Wenberg does, in
terms of the variation that exists across the country, is that
all medical care is not necessarily optimal.
And that is part of this, I think. Because I think it is an
issue that it is not necessarily a procedure, because with
procedures often the needs criteria are more clearly defined.
It can be chronic care for a condition, in which visits every 6
weeks could be adequate; but when there is no cost-sharing,
there is no resistance on the part of the beneficiary or the
provider to come back monthly. So it is something like that
that may be affected by this kind of a change. That kind of a
change would be benign.
Mr. Stark. But could we not also change that by restricting
the providers in some cases, to say, in this case--if we could
determine that--that every 2 weeks is too much, but perhaps
every 4 weeks is correct?
What I am getting at is that sometimes I think that we
blame the beneficiaries for things that they may not choose to
do. And I am sure that most of us do not choose diagnostic
tests, for instance. Most of them are not any fun. Possibly, a
visit to the doctor; but often that takes getting on the bus,
you know. I am not sure that it is entirely the patient. There
may be some areas.
Mr. Scanlon. I agree with you, it is not entirely the
patient. And we are not here to blame the patient. I think,
though, that the idea that we could manage the program through
utilization review is not feasible, given that we have got
about 600 million claims for physician services in the course
of a year.
We really need, I think, to enlist both beneficiaries and
providers to be sensitive to cost. I mean, that is part of why
cost sharing is in employer-based insurance, why it was
originally put into Medicare. It is just that Medigap has taken
away cost sharing from the Medicare Program. And having some
cost sharing, I think, puts it more on the same basis as the
way the rest of insurance is designed, and will provide some of
that sensitivity to cost and will prompt questions about the
value of services. That is what I think we can hope for at
best.
Mr. Stark. Except that for the people in those plans, the
difference between those--for example, with drugs and without
drugs--is almost non-existent. The out-of-pocket costs--in
other words, the Medigap with prescription drug and Medigap
without prescription drug--the difference in the out-of-pocket
costs for the beneficiaries is only 30 bucks a year. So that
part of this first-dollar cost is the $1,000 premium they are
paying. In other words, they are kind of pre-paying. They are
funding their own medical savings account.
And depending on how far up you go, you are saying they are
already paying $1,000; are you going to make them pay $5,000
before we clock in? I mean, how much more do you want to kick
up their out-of-pocket costs? Or do you think if you made them
pay the $1,000 on a per-doctor visit, they would spend less?
That is possible. I do not know. Dr. Young?
Dr. Young. I think this is a very important issue that
deserves more attention and discussion than we have given it.
As a physician, what concerns me is the research that has
shown, yes, increasing out-of-pocket spending does indeed
reduce utilization of services; but it could be unnecessary or
necessary services.
Mr. Stark. Right.
Dr. Young. So how do you know which one you are doing? And
that may be a tool that is just a little too blunt,
particularly for seniors, and frail seniors.
The other end of the research spectrum is on low-income
people; and most of Medigap purchasers are low-income. And the
Center, I think, has good data on that. It is that clearly,
when you remove the affected insurance and simply look at
service utilization by income, service utilization increases as
income increases. And those at the low end report not having a
regular physician, not getting the care that they need,
delaying care. And so that very much concerns me, when we look
at blunt data that says, ``Here is how much money you can
save.'' That may just be too blunt.
Mr. Scanlon. I think it should then concern all of the
employers that are offering the same kinds of policies that we
are talking about today in terms of restructured Medigap.
Dr. Young. There are options that can be considered, and I
think they should be when it is time to do a comprehensive
reform. An option that looks at payment from a deductible may
have a different effect than one that looks at copayments. An
option that looks at copayments through increased cost sharing
will have huge administrative costs to it. So as the time comes
to look at a comprehensive reform and a comprehensive set of
packages, we are very interested in taking you up on your offer
and discussing these things with you and trying to identify the
best approach. Our interest is in a product that Medicare
beneficiaries want to buy.
Mr. Jindal. And if I could just add one final thing--and I
know others may have other questions--I do think it is
important to note that it is possible to decrease over-
utilization without negatively impacting beneficiaries' health.
And the choice is not either first-dollar coverage, or under-
utilization. I do think there is a middle road. And we would be
happy to work with the Members of the Committee.
I know there have been studies looking at self-reported
health status and others. I think as long as the cost sharing
is modest and reasonable and there are reasonable protections
and out-of-pocket exposure, there is a way to, as Bill has
mentioned, make beneficiaries aware of the cost of additional
services without, as the Congressman has suggested, giving them
false incentives to under-utilize care.
So I do not want to leave the Committee with the impression
that the choice is either first-dollar coverage and over-
utilization, or under-utilization. We do think there are
moderate policies that can balance both of those competing
goals, and do so better than we are doing so today.
Ms. Weiss. I also just want to reiterate that we would
again recommend considering moving Medigap into Medicare and
looking at the first-dollar coverage issue with maybe a modest
co-pay or a modest premium--with the emphasis on ``modest.''
There are multiple benefits to doing this. Again, we could talk
about spreading risk throughout the entire Medicare population.
But again, two other key issues, one which I mentioned in
the testimony: Currently, there are a number of States that do
not provide Medigap coverage to people who are under 65 with
disabilities. And the second point is that, depending on where
you live, that determines how affordable your Medigap coverage
is. States that have community rating provide the same cost to
each person who enrolls, no matter what their age or when they
buy the policy. However, most States have moved toward attained
age rating. And while it may be a cheaper policy at the time
you buy it when you are 65, as you age the costs go up, and it
becomes more unaffordable at the very time when people have
less money to spend. So again, I would reiterate looking at the
option of moving it into Medicare.
Mr. Stark. The Chair is going to indulge me with one more
question. Dr. Young, think about this. You cannot answer it
here. But if we were to follow Ms. Weiss' idea, or even my idea
of Federalizing Medigap, in effect, or some of it, what
portions of the risk exposure--it is my understanding there are
only five or six underwriters of Medigap left, anyway. That is
close; isn't it?
Dr. Young. Now you are talking about the overall risk
exposure, in terms of services?
Mr. Stark. No, I am talking about--there are only four or
five insurance companies left writing Medigap, as far as I
know. Maybe there are a few more.
Dr. Young. Oh, there are well over a 100 different
insurance companies that sell this product.
Mr. Stark. There are?
Dr. Young. Yes.
Mr. Stark. OK.
Dr. Young. A large number of them.
Mr. Stark. The question is, if we were going to pick and
choose, if we were going to Federalize a portion of the risk
that they are now insuring through this variety of Medigap
plans, what are the most profitable segments that your guys
would like to keep, and what would you like to get rid of? In
other words, I am sure the long-term liability you would love
to get rid of, right?
Dr. Young. Well, there are a lot of things we would like to
get rid of.
Mr. Stark. No, I am serious. I am serious. I mean, that is
the risky part.
Dr. Young. Yes. I mean, the bottom line is what I said
earlier. We would like to keep the piece the beneficiaries
love. And I must say that one thing that is the highest on
their list is they like the certainty of knowing what their
out-of-pocket spending is going to be.
My mother, who could easily self-insure--and we have had
this conversation many times, and I have concluded she is
right--she loves her Medigap. Because she knows what her
expense is going to be every single month.
And we forget in these conversations that Medigap is
insurance. When the year begins, she does not know if she is
going to be hospitalized twice, or once, or no times. She does
not know if something is going to come up that is going to
require 10 or 20 doctor visits. So she is sharing the risk of
that unknown as the year moves forward. So she has the
certainty; she has the peace of mind. And she has absolutely
convinced me this is a good deal for her.
Mr. Stark. Well, I think that it is a good deal for you
guys, too. And you are getting $1,000 or $1,100 a year, on
average, $1,158, for, on average, 1,369 bucks out. So you are
clearing a couple of hundred bucks per policy, which is about
what you ought to be making. It is that simple.
Dr. Young. Well, I mean, we are not clearing that on the
profit side. My Members would love to.
Mr. Stark. No, but you are on your loss ratio side, easily.
Dr. Young. Oh, in terms of the overall administrative
costs, including everything.
Mr. Stark. Yes. But that is your word. I mean, that goes
all to your Membership fees. But my point is that you are
trading dollars with your mother. You are saying, ``Mom,
instead of putting the $2,000 in the savings and loan, and
drawing on that if you need it, you pay so many bucks a month
for your Medigap policy, and it is going to work out.'' And on
average--which is what you depend on--it does.
Now, I am just saying you ought to take the front end of
that and take the $2,000 chunk, and let us take the high costs
and the outliers. And we should figure out, because there is no
sense fighting with your guys--There is a lot of
administration, a lot of fees, a lot of claims for you to pay.
Maybe you would rather take the high stuff. I do not know.
Dr. Young. Well, the problem with that approach is, as you
get a product you are selling that is less and less and less in
value--that is, has less benefits in it--your fixed costs
remain the same. So the share of the fixed costs grows. If you
can spread those fixed costs across a larger benefit package,
then everybody is better off because of that.
Chairman Johnson. Thank you.
Mr. Stark. Thank you, Madam Chairman.
Chairman Johnson. I would like to pursue the topics that my
colleagues initiated. I let them go first because I know that
it is late and the last date, and they have other obligations,
and I know Mr. Stark is not feeling very well. But I do want to
pursue a couple of things.
First of all, the RAND health experiment study that showed
that individuals were just as likely to limit the use of highly
effective care as less-effective care, also indicated that
there was no overall effect on health for the average person.
So I am not aware of any studies that indicate that first-
dollar coverage erodes health.
Dr. Young. That is a very good point. The problem with that
is the kind of research that you need to do, if you were to
prove that. Because a large amount of medicine, every-day
medicine, does not have an effect on mortality or a measurable
outcome. It has an effect on activities of daily living; it has
an effect on peace of mind; it reduces pain.
Chairman Johnson. But for example, Dr. Young, though, would
it not be quite easy to look at Medicare participants who
cannot afford Medigap? Those are the ones, frankly, I am most
concerned about. The other group are Medicare recipients who
can afford Medigap. Because you have two groups with exactly
the same coverage; one of whom has first-dollar
responsibilities, and one of whom does not. I mean, are we
aware of any difference in health outcomes in those two groups?
Dr. Young. As far as I know--and Bill can comment on this--
we are not aware of it on either end of the spectrum, because
it is such a difficult issue to measure. But we will see if he
has some insights.
Mr. Scanlon. No, I am afraid I do not. I do not think we
have good health status measures. I agree that we do not have
comprehensive measures, and it is difficult to deal with. But
at the same time, I think that there are discretionary services
that people, when they are sensitive to costs, will forego. We
have got to design cost sharing in ways that try to avoid
people foregoing important services.
Chairman Johnson. I appreciate that.
Mr. Scanlon. Like hospitalization.
Chairman Johnson. I appreciate that, and I am not proposing
that the answer is necessarily that we have no exceptions to
the exposure of deductible. But I think it is important to
remember that we have no evidence showing that seniors who have
Medicare and no other coverage are in worse health.
Now, we do know we have to exclude prescription drugs
because, of course, that is not part of Medicare. And that
seniors who have Medigap coverage, without prescription drugs,
have better health outcomes because they are not exposed to the
deductible. See, there really is no evidence supporting this.
I understand that that means the reverse is not necessarily
true. But the one piece of evidence that we clearly do have is
that the people who have first-dollar responsibility use fewer
services. Though, we do not know that that necessarily results
in poorer health outcomes. Now, logic would dictate that we
have an interest in those people using preventive services.
And so we could use coverage as an incentive. We have never
done that for any groups; where services are singled out as
having no copayment, and therefore in a sense focusing on them
and providing some kind of incentive to use them. And so,
personally, I think that is philosophically a worthy thing to
do.
I did want to get clearly on the board that one of the
reasons the Committee is compelled to look at prohibiting 80
percent of first-dollar coverage, or 100 percent of first-
dollar coverage, is because there is increased evidence that
these people use more services, pushing premiums up for
existing seniors and pushing taxpayer costs up. This money
could be better utilized.
Now, I want to ask two sort of basic questions about the
Administration's proposal. Are you proposing these two plans,
and eliminating all other Medigap policies? Or are you
proposing these two as additional Medigap policies?
Mr. Jindal. I think that we absolutely are proposing these
as additions to existing policies. So we are not trying to take
away anything from seniors, or deprive them of options they
have today.
I also want to absolutely agree with your earlier remarks.
When you look at not only the RAND study, but other self-
reported studies, you are right that seniors do not report a
decrease in self-reported health status, as well. And I think
that, from one of the previous questions, it is true that when
you look at employer-provided coverage, either retiree or pre-
retiree coverage, outside of this market, I am not aware of
another market where you have got first-dollar coverage without
some kind of coordination of care, without some kind of
examination of utilization.
Clearly, what this Congress, what you have done through
creating additional options for seniors, and in private plans,
is you have allowed them to buy down--meaning Medicare+Choice
and other plans--you have allowed them to buy down their cost
sharing, reduce their cost sharing, but to do so in an
integrated plan that also coordinates their overall care.
Chairman Johnson. Now, if these are options, why would you
not be concerned about adverse selection? If I were a senior,
for just 50 percent of Medicare cost sharing, that is 50
percent of the Part B deductible, really--no, you are not going
to cover the Part B deductible.
Mr. Jindal. That is correct.
Chairman Johnson. But then, your copayments for doctors'
visits and things like that would be 10 percent, instead of 20
percent, right? You know, for really a rather modest first-
dollar responsibility, because you are proposing that you would
cover the co-insurance in long-term hospital stays.
Mr. Jindal. That is correct.
Chairman Johnson. Which has always been a big problem. And
also, in nursing home? The variations in nursing home
deductibles?
Mr. Jindal. That is correct.
Chairman Johnson. So really, for the $100 deductible in
Part B, and 50 percent less exposure in the co-insurance area,
you are going to provide a $4,000 limit on out-of-pocket
expenses, and 50 percent of all drug costs up to $6,000. Now,
that seems to be an awful lot to be paying for, with just this
change in the deductible. And you say this will be a lower
premium than current Medigap policies.
Now, what do you think the premium is going to be? And what
would be the difference between the premium for, say, your two
proposals?
Mr. Jindal. Well, first of all, we think the premium will
be $500 or less than what it costs currently for Plans ``H''
and ``J.'' So it would be competitive with what seniors
currently pay for Medigap without drug coverage. So you are
absolutely right. We look at this as a great deal for seniors,
but also a good deal for the Medicare program, as well.
Seniors will be able to reduce their out-of-pocket spending
on premiums by $500. The Medicare Program will save well over a
billion dollars. Plus, you have over 700,000 seniors who do not
have drug coverage today, who would get drug coverage through
these options. So we absolutely agree with you.
Chairman Johnson. But now, just a little bit slower. You
say this would be $500 less. And yet, instead of providing 50
percent of drug costs, for a maximum of up to $3,000, this
would go up to $6,000. So you are getting, you know, $1,500
more in drug costs, and the $5,000 limit on out-of-pocket
expenditures under the rest of the plan. And you can do that
for $500 less, just because of the copayment changes?
Mr. Jindal. That is right. Well, and the drug benefit is
actually identical to what is contained in Plans ``H'' and
``J'' now. And that helps to address part of your concerns
about adverse selection. By not varying the drug benefit, but
by using the changes in over-utilization to help pay for that,
that helps to make the plan more affordable, and increase the
number of seniors with drug coverage.
Now, we do not look at this as a comprehensive solution. We
look at this as a first step that we would like to work with
you and other Members to help increase the numbers with drug
coverage and reduce the cost for seniors.
Chairman Johnson. And what would be the premium on the one
that covers 75 percent of cost sharing, and a $2,000 limit on
out-of-pocket expenditures, but only covers 50 percent of
drugs, up to $2,500?
Mr. Jindal. And again, it would be roughly $500 less than
Plan ``H.''
Chairman Johnson. Both of them have roughly the same
premium?
Mr. Jindal. That's right--Well, no, they are $500 versus
their counterparts. So Plan ``K'' would be roughly $500 less
than Plan ``J,'' Plan ``L'' would be roughly $500 less than
Plan ``H,'' in terms of what seniors can pay today. And
obviously, as you heard, there is a variation across States and
across plans, but it would be roughly $500 less than their
counterparts today.
Chairman Johnson. That is very interesting. Do you have any
comment on that, Mr. Scanlon?
Mr. Scanlon. I cannot comment in terms of the amounts of
the premiums. We did not have the details before today. And
also, we need to think about talking with actuaries about this.
I do think the issue that you raise of selection is a very
important one here. One of the things that is true about
current Medigap plans is that beneficiaries have an open
enrollment period in the first 6 months in which they are
Medicare eligible. And then there are certain enrollment rights
when people leave Medicare+Choice plans or when their employer
coverage is dropped. What the terms would be, in terms of
beneficiaries being able to sign up for new plans, would be
critical in affecting selection.
I would surmise that perhaps some of the low use of Medigap
drug coverage today is the fact that most seniors became 65
when drugs were not such an important issue. I mean, if you
think about it, our focus on drugs as both expensive and as
having incredible therapeutic value has been a relatively
recent phenomenon. People that are turning 65 today may have a
very different perspective on wanting to buy drug coverage than
those that turned 65 in the early nineties or in the eighties.
Chairman Johnson. Thank you. I was not aware that Medigap
was quite so rigid as I heard from your description. You can
change Medigap plans from one to another now, although
sometimes you will have to pay more because you get medically
underwritten, right?
Mr. Scanlon. That is correct. I mean, generally, plans are
available without underwriting when there is no drug coverage
involved. But when drug coverage is involved, it is very hard
to find a plan without underwriting.
Chairman Johnson. And Mr. Jindal, would there be
underwriting for eligibility for Plan ``K'' and Plan ``L''?
Mr. Jindal. The protections we envision will be those
similar to what exists today, in terms of the 6-month
enrollment. So that seniors would have a chance to sign up 6
months after they become eligible for the program, when they
turn 65.
And given those assumptions, that is the basis on which the
actuaries assumed you would have one and a half million
beneficiaries choose these plans and, as a conservative
estimate, you would save the program over a billion dollars,
but you would also save beneficiaries $500 a year in premiums.
So again, that is why we described it as a ``win-win'' for the
program and for beneficiaries.
Chairman Johnson. And would you envision opening Plan ``K''
and Plan ``L'' only to new retirees? Or would there be a one-
time opportunity for all Medigap participants to change into
those plans?
Mr. Jindal. I think we could certainly--I think we would be
open to that one-time opportunity for existing Medicare
beneficiaries, as well; not just those turning 65.
Chairman Johnson. Can you also look at, as you estimate--
and this is all of you, because I am sure all of you in your
own bailiwicks will be looking at this. But I think we ought to
begin looking at opening it every 5 years. You know, the
rigidity of the plans does not seem to be in the interests of
seniors, and not necessarily in the interests of government.
Now, that would be particularly true if we also eliminated
the absolute first-dollar coverage of all of the Medigap plans.
Anyone who can afford to buy a Medigap plan can actually afford
some level of first-dollar responsibility. And so, if there
were some first-dollar responsibility across the board, you
might then be able to open these bigger plans more frequently
that have more catastrophic coverage aspects to them, both in
the catastrophic coverage for Medicare and in the higher drug
assistance.
Dr. Young. The problem that you will run into, though, very
quickly, if you opened it up, let's say, every 5 years to
anybody who wanted it, is that the healthy people at age 65
would say, ``I am going to wait.''
Chairman Johnson. I appreciate that. Yes, I appreciate that
problem. But it depends on how expensive they are. When you say
they are $500 less than the current plans, those are the most
expensive current plans. So that is a problem.
Dr. Young. Yes. And then that just drives up the premiums
for everybody else, when the people do select like that.
Chairman Johnson. Now, in terms of----
Mr. Cardin. Would the Chairman yield on that point?
Chairman Johnson. Yes.
Mr. Cardin. Just on that point.
Chairman Johnson. Let me welcome Ben Cardin. He is not on
the Subcommittee, but he often joins us. It is nice to have you
here.
Mr. Cardin. Thank you. Thank you, Madam Chair.
What I do not understand is, if there has been continuous
coverage, why do we then require an individual who wants to
join a Medigap plan that has prescription drug coverage to be
subjected to medical underwriting? For example, if a person has
been insured by an HMO, and that HMO pulls out of the market--
which has happened in my State--why should that individual not
be able to join one of the Medigap plans at that time, without
the concern of medical underwriting?
Dr. Young. They are. Under current law, they are allowed
to. There is a special election period when an HMO goes out of
business and leaves the market that they are allowed to, under
current law.
Mr. Cardin. For how long?
Dr. Young. What is the time?
Mr. Cardin. Yes.
Dr. Young. The window that they have that they can make
that election?
Chairman Johnson. I believe it is 2 months.
Dr. Young. Yes, it is 63 days.
Chairman Johnson. Yes.
Mr. Cardin. Now, that also applies to the prescription drug
plans?
Dr. Young. No. No, it only applies to the basic Medigap.
Mr. Cardin. Why does it not apply? My question dealt with
prescription drug plans.
Dr. Young. OK, now I understand your question.
Mr. Cardin. My question is, why does that not apply to the
prescription drug plans?
Dr. Young. Yes. And again, because of, I think, the concern
of the costs and the risks.
Mr. Cardin. I guess I do not understand that, Dr. Young. If
the person had continuous coverage, why would you be concerned
about adverse risk selection? The person is just going from one
plan to another. This is the same situation we do for private
insurance, basically.
Dr. Young. It is if people make the choice to move for that
very purpose. What we have seen, for example, in the Medicare
Choice program is that people have come into Plan A with a
$1,000 benefit; used up their drugs; left; gone to another one;
and received drugs again. So beneficiaries will do those kinds
of things.
Mr. Cardin. Well, no, the scenario I am giving you is a
person who is in an HMO, a senior who is in an HMO, expected to
stay in that HMO. The HMO has left the market. The HMO had
prescription drug coverage. The individual, if the individual
comes from Maryland, has no HMO that that person could enter
into any longer and get prescription drug coverage. The senior
made a decision at 65 to go into the Medicare+Choice HMO to
have prescription drug coverage and forego the opportunity to
get a Medigap plan with prescription drug coverage. I guess I
do not understand the logic as to why we would want to restrict
a senior----
Chairman Johnson. If the gentleman will yield----
Mr. Cardin. Who has had continuous coverage.
Chairman Johnson. If the gentleman will yield, I think the
point he is making is really very well taken. If your plan
leaves the market, why can you not buy a comparable plan? Now,
if you had not been paying for one with prescription drugs, I
can see the problem. But if you have been paying a higher
premium for prescription drugs, why could there not be that
continuity, so you would have access to one with prescription
drugs?
If you were in an Medicare+Choice plan that did not have
prescription drugs, then your only choices would be other plans
that did not have prescription drugs. But I find it hard to
believe that we cannot structure that kind of arrangement.
That does not solve the other problem that we are having,
which is when Medicare+Choice plans do not leave the market,
but change their benefits so dramatically that people are not
getting the best value for their dollar, and you decide to move
into another Medigap plan. There are some circumstances in
which you can do that, but I do think we need to clarify those
situations.
Dr. Young. I think your points are well taken. And it is
important to remember, as Mr. Scanlon told us a bit ago, that
the rules and the policies that are currently in place for
Medigap came about in 1990 or 1992 when they were implemented.
The world has changed dramatically since that time. The Medigap
structure, in terms of adding a couple of new benefits, has
changed dramatically since that time.
And as you consider Medicare reform, as I said in my
testimony, that will be the time to look at all of these
issues, revisit them all, and see what are the best policies
that work for the beneficiaries. So we are dealing today in a
world and a set of policies that are now 12 years old.
Chairman Johnson. Well, I do appreciate the testimony of
the panel. And I appreciate, Ms. Weiss, your comment that
seniors are adverse to change, and need security. That is why I
was so interested in whether Mr. Jindal's proposals were as a
substitute for all of the existing Medigap proposals, or simply
an addition.
And actually, let me see if my colleague, Mr. Cardin, has
any further questions.
It is very interesting how the literature has come
together--and I do not want this point missed--to indicate that
first-dollar responsibility is responsible. And I think we do
need to take that into account, especially now that we have
some very, very powerful information as to how that money could
be reused to expand benefits.
So I thank you for the thinking that you have done on this,
Mr. Jindal. And I ask all of you now to go back and run numbers
on his ideas, and run numbers on some of the other ideas that
have come up, like holding harmless preventive health care,
which the administration has talked about but which is not in
this particular plan. Because I think we need to see what are
the outlines of the most progressive plans that are still
different from the Medicare Choice option, which will have a
better ability to provide product, disease management, case
management of very ill people, and some other things that also
are important for us to better understand.
Thank you very much for your attendance this afternoon. I
appreciate your input, and look forward to working with you.
Thank you.
Mr. Jindal. Thank you, Madam Chairman.
Mr. Scanlon. Thank you.
Dr. Young. Thank you.
[Whereupon, at 3:43 p.m., the hearing was adjourned.]
[Questions submitted from Mr. Shaw to Mr. Jindal, and his
responses follow:]
U.S. Department of Health and Human Services
Washington, DC 20201
Question 1:
The Congressional Budget Office (C.B.O.) indicated that elimination
of first-dollar coverage would save approximately $1 billion but did
not consider the impact of such a policy change on states that mandate
first-dollar coverage. Would you be willing to work with Congress and
the C.B.O. in order to quantify the impact on states which have this
mandate?
Answer:
Thank you for giving me the opportunity to clear up any confusion
surrounding our Medigap proposals. The Administration is proposing to
increase the choices available to Medicare beneficiaries and would not
eliminate any existing policies. Specifically, we propose immediate
action to add two new Medigap policies to the array of choices
available to seniors to purchase Medicare supplemental insurance. We
have labeled these new policies ``K'' and ``L'' because they would be
offered in addition to current standardized policies labeled ``A''
through ``J.'' These new policies would combine limited cost-sharing
with stop-loss protection for Medicare covered services and a
prescription drug benefit. Again, they would not replace existing
Medigap policies but rather provide additional options for seniors.
Currently, seniors can choose between any of the ten standardized
policies as well as two high-deductible options. It is true that
virtually all states require new Medigap policies to conform to these
standards, and that most of the current policies--particularly the most
popular ones--include first-dollar coverage. We believe it would not be
difficult to add these two new options, however, in the same way that
the Balanced Budget Act added the high-deductible options, and want to
work with Congress and the state insurance commissioners to make this a
reality. This would also give seniors a choice that falls between
getting first-dollar coverage for hospital costs and doctor visits--but
with drug coverage available only as an expensive add-on--and having to
pay all costs below the high-deductible level. While seniors with any
of these existing Medigap policies would have a one-time opportunity to
switch to one of the new policies, no beneficiary who was happy with
their current policy would be required to switch.
As for the estimate of savings prepared by the Congressional Budget
Office, our understanding is that their analysis of the President's
budget proposals assumed there would be new Medigap policies--ones that
would not provide first-dollar coverage--and did not assume all
existing first-dollar coverage would be eliminated. Apparently they
also assumed a benefit design for these new policies that is different
from the one described in my testimony. Nevertheless it is important to
point out that the administration also projected 10-year savings of
over $1 billion just by offering these two new options.
Question 2:
American Viewpoint conducted a poll and listening groups on behalf
of Blue Cross Blue Shield Association asking seniors about their
satisfaction with their Medigap policy. CMS also has similar data
showing an overwhelming number of Medigap policy holders (between 80%
to 90% based on various estimates) are ``very satisfied'' with their
Medigap policy. In the Administration's proposal to eliminate first-
dollar coverage, have you considered incorporating a transition period
in order to gradually phase out this feature of Medigap policies?
Answer:
Again I want to emphasize that the administration is proposing to
expand choices available to seniors, not to limit them. In designing
this proposal we were very much aware of the data you cite and we know
that many beneficiaries are satisfied with their current supplemental
coverage and do not want to change. Others may prefer to purchase
policies that include limited cost sharing but have lower premiums and
include prescription drug coverage. The new policies proposed by the
administration would give them this chance. We estimate that as many as
1.5 million beneficiaries would welcome such an opportunity--and that
nearly half of them (about 700,000) would be beneficiaries who do not
have drug coverage now. Moreover, we can achieve this significant
increase in drug coverage among seniors right away, not several years
down the road, while saving money for beneficiaries and the Medicare
Program. It is interesting to note that the same poll you cite found
that about one-third of Medigap policy-holders would favor a proposal
that required Medigap plans to have a modest deductible and some
payments for doctor visits and hospital stays--even without the offer
of drug coverage. Thus, our proposal--which would offer such coverage
but not require it--might attract more enrollees than we project.
Question 3:
Have you considered implementing preemptive initiatives to minimize
disruption or confusion that the administration proposal might cause
for Medigap policy holders in Florida?
Answer:
I wish to emphasize that our proposal does not entail disruption of
the current Medigap market. Medigap policy holders should not
experience any disruption because of the availability of new
supplemental policy options. Since the OBRA 1990 Medigap reforms
standardized Medigap benefit designs, the options offered to
beneficiaries have hardly changed while medical practice has evolved
and policy premiums have continued to rise. We believe that many
beneficiaries will welcome the chance to purchase more affordable
supplemental policies with limited cost sharing, protection against
high out of pocket costs, and prescription drug coverage. On the other
hand, seniors who are happy with their current Medigap policies will be
able to keep them as long as they like. The Administration is committed
to increasing beneficiary choice and keeping seniors fully informed
about all of the choices available to them, including the availability
of local Medicare+Choice plans as well as Medicare supplemental
policies.
[A submission for the record follows:]
Statement of the National Association of Health Underwriters,
Arlington, Virginia
The National Association of Health Underwriters (NAHU) is an
organization of over 17,000 insurance professionals specializing in the
sale and service of health insurance and related products. Many of our
Members who specialize in the senior market regularly counsel and work
with Medicare beneficiaries on Medicare, Medigap, and Medicare+Choice
options as well as other types of products. We are pleased to offer
comments and suggestions regarding the current options and enrollment
procedures for supplemental health insurance coverage for Medicare
beneficiaries.
NAHU believes that there are a number of inherent problems within
the Medicare program that can only be addressed through comprehensive
Medicare reform. The current Medicare programs A and B present an
antiquated approach to the financing of health care reminiscent 1960,
when the greatest fear for most seniors was an extended hospital stay.
Now, with many services provided on an outpatient basis and the
availability of stronger and more effective prescription drugs, many
beneficiaries are able to avoid hospitalization. Due to the advances in
medical treatments, the level of coverage provided under traditional
Medicare is inadequate protection for most seniors. The best solution
to the problem would be to combine Parts A and B into one comprehensive
program, with a mid-range combined deductible and adequate protection
against catastrophic risk, including the cost of prescription drugs.
This would require Medicare supplemental coverage as we know it to
change dramatically to conform to the new comprehensive form of
Medicare.
Given the current political climate, however, it appears that it
may be necessary to achieve Medicare reform on an incremental basis. If
we presume that the basic Medicare program is not going to change
dramatically in the immediate future, the first task will be to make
sure that consumers have a variety of choices to allow them to select
the type of plan most suitable for their personal situation. The first
step will be to ensure that Medicare+Choice plans and Medicare
supplement providers have incentives to participate in health plans for
Medicare beneficiaries. It is essential that the current regulatory
requirements for Medicare+Choice plans be eased and that they be
compensated fairly.
Although today's hearing concerns Medigap coverage, the current
instability in the Medicare+Choice program obviously has a significant
impact on increasing demand for Medigap coverage on a guaranteed issue
basis. This increased demand may significantly alter both the
availability and the cost of Medigap policies. Action by Congress to
address this urgent situation will only have a positive impact on
beneficiaries purchasing Medigap policies.
Our Members report the following regarding market experience and
beneficiary preferences concerning Medigap policies:
The most popular benefit is coverage of the Part A
deductible. Coverage of the Part B deductible is sometimes purchased,
but often because some other benefit in the plan is desired.
The skilled nursing benefit isn't used often because of
the difficulty in meeting the requirements for skilled care due to the
mandatory 3-day hospital requirement, and because most care quickly
falls into a custodial category not covered by Medicare.
Coverage of Part B excess charges is becoming more and
more important, especially in rural areas where physicians may not feel
compelled to accept Medicare assignment. In the absence of any stop-
loss provision being added to the basic Medicare program, coverage of
these excess charges should remain available.
The most popular plans sold by our members are C, F, H
and I. Although some employers offer this benefit plan for their
retirees, very few people want to pay the premium associated with plan
J.
The benefits beneficiaries request most often, that are
not currently covered by Medigap, are for coverage of dental care,
vision services, hearing aids, and of course, prescription drugs.
BENEFICIARY REACTION TO MEDICARE
Based on what Medicare beneficiaries tell our Members, the most
significant problem facing them today is the cost of health care. Many
Americans approaching retirement age believe that when they become
eligible for Medicare, all of their health care needs should and will
be taken care of. Their first step into the Medicare maze comes when
they discover that they must purchase Part B to cover outpatient and
other physician care. Many of these beneficiaries believe that Part B
is a supplement, especially since the Medicare supplements are alpha
labeled, and they don't understand that they will still have
significant financial exposure for the cost of their medical care.
Often beneficiaries first become aware of the gaps in coverage
after they have passed open enrollment for Medigap. Unfortunately, by
that time some have developed health problems, limiting or eliminating
their choices for supplemental coverage. Having been participants in
low co-pay drug cards as employees for many years, they are amazed to
find out how much coverage for prescription drugs will cost them, if it
is available at all, and many of them seek supplemental coverage for
prescription drugs at this time.
They are even more amazed to learn the extent of the other medical
services not covered under the traditional Medicare program. Many of
these same individuals who may have sought supplemental coverage in
order to secure insurance for prescription drugs end up buying plan C
or F (which doesn't cover outpatient prescription drugs) primarily to
cover hospital and physician charges not covered by the Medicare
program. Since the benefit under a Medigap policy that includes limited
coverage for prescription drugs is often equal to or less than the
extra premium charged, many beneficiaries choose not to purchase
prescription drug coverage. Many of these Medicare beneficiaries have
low incomes limited to little beyond their Social Security benefit, but
for a variety of reasons they may not be eligible for Medicaid or other
low-income programs. Additionally, the Medicare+Choice plans, which
they might have been able to afford, may no longer be available in
their area.
RECOMMENDATIONS
So how could Medigap be structured to make it more meaningful as
well as more affordable? Again, in the absence of basic in-depth
changes to the Medicare program, our first recommendation would be that
no Medigap plan subsidize the Part B deductible. There are numerous
statistics that show that individuals with Medigap coverage utilize
medical services at a significantly higher rate than Medicare
beneficiaries without supplemental coverage. Their utilization rate is
also higher than that of retirees with supplemental coverage through
their former employers. We believe the reason for this is that there is
typically some cost sharing for beneficiaries covered under employer
plans, and that plan utilization can be safely reduced if there is some
financial incentive, however small, that causes a person to think
before seeking medical care for even the most minor illnesses.
In terms of prescription drug coverage, we are very skeptical of
any sort of mandate on Medigap plans to provide drug coverage.
Insurance carriers report that plan utilization is significantly higher
on Medigap plans H, I and J, and, based on their experience, they have
consistently maintained that drug-only policies or mandatory drug
coverage on all policies is simply not an insurable risk. Although
pharmacy benefit managers have expressed interest in being providers in
a Medicare prescription drug program, they have not indicated a desire
to take on all of the risk for the program.
While it may seem an easy and simple solution to the problem of
providing a drug benefit for seniors, in the absence of overall
Medicare reform, we see no way to magically produce a drug benefit for
seniors by requiring that it be offered by Medigap carriers. If it is
offered as a mandate on all plans, the cost of coverage will increase
beyond what is affordable for many seniors. If it is offered
voluntarily, the plans with drug coverage will be selected by those
that need them most, while others will continue on as they are now.
This will simply exacerbate the already serious problem of the cost of
coverage by increasing anti-selection causing carriers to leave the
Medigap market, leaving even fewer choices for seniors than they have
today.
On a positive note, some insurance carriers, as well as some of our
member agents, routinely provide Medicare beneficiaries with a
prescription drug discount card, often at no cost to the beneficiary.
Some Blue Cross organizations have begun to extend the discounts they
have negotiated through the pharmacy benefit managers, with whom they
contract for their under-65 insureds, to their Medicare Supplement
policyholders. This allows policyholders to purchase their outpatient
prescription drugs at significantly discounted rates, as much as 15 to
30%, even though outpatient drugs are not specifically covered by their
Medigap policy. This provides no risk for the insurance carrier, but is
an excellent way for beneficiaries to reduce their cost by using their
numbers to negotiate discounts. For this reason, we're extremely
pleased with the Administration's proposal for a prescription drug
discount program for Medicare beneficiaries. We believe the discounts
that could be provided by these programs will be greater than the
Administration's estimates, based on the experience of employer plans
in the under-65 market, and that beneficiaries would greatly value the
assistance the discounts would provide. As an interim solution in the
absence of overall Medicare reform, the discounts will bring a valuable
price break to Medicare beneficiaries at all income levels.
NAHU also recommends that additional study be given to the very
complicated coordination between COBRA and Medicare, and between
individual health plans and Medicare. It is very difficult for
beneficiaries, agents and employers to navigate through the landmines
associated with these benefits. Many beneficiaries discover too late
that they should have made different decisions when applying for Part B
after they prematurely trigger Medigap open enrollment rights, or when
they are forced to go without Part B for an extended period of time due
to late enrollment time penalties.
Many others retain individual health insurance policies for years
because they believe the policy will serve as a Medicare supplement,
only to find that their individual policy will actually pay little
beyond what Medicare pays due to language on guaranteed renewability
found in HIPAA. This is not the fault of the carriers, agents or
employers but rather the complexity of several overlapping Federal laws
that don't coordinate adequately or provide for adequate notice to
insureds of their rights and responsibilities.
Disabled Medicare beneficiaries need better access to Medigap
coverage. Due to cost considerations, we are not suggesting that
disabled beneficiaries have the same purchase rights and plans as those
age 65, since doing so may mean increases to Medicare beneficiaries'
already escalating Medicare supplement premiums. We do believe that
creative options should be explored for extending coverage that won't
increase costs for other beneficiaries, such as offering coverage for
disabled beneficiaries through state high-risk pools.
Currently eight states allow disabled beneficiaries to purchase
coverage through high-risk pools. This allows these less healthy
individuals to be pooled with other individuals in the same category,
provides a place to purchase supplemental coverage, and keeps the costs
down in the regular Medigap pool. We've included a chart for members of
the committee illustrating the type of supplemental coverage currently
available through high-risk pools.
Medigap policies are highly valued by Medigap beneficiaries and
provide a great sense of security for millions of Medicare
beneficiaries. Although changes need to be made to Medigap coverage, it
may be difficult to implement broad reform without knowledge of the end
result of reforms in the Medicare program itself, and any changes
undertaken should be done with careful consideration of any impact they
may have on current market availability.
For additional information, contact Janet Trautwein at
[email protected] or (703) 276-3806.
__________
HIGH-RISK POOLS THAT INCLUDE MEDICARE SUPPLEMENT
------------------------------------------------------------------------
If No
Is Medicare Standardized Standardized Are
State Disabled Plans Offered? Plans, What Is Prescription
Covered? Offered? Drugs Covered?
------------------------------------------------------------------------
Alaska Yes Plans A & I. ............... Yes
Medicare
``carve-out''
offered to
those under
age 65.
------------------------------------------------------------------------
Minnesot Yes No Two plans, Yes, but only
a Basic Plan and from Extended
Extended Basic Basic Plan.
Plan.
------------------------------------------------------------------------
Mississi Yes No An individual Yes,
ppi under age 65 prescription
who becomes benefits are
eligible for covered under
Medicare after the high-risk
purchasing a pool.
high-risk pool
plan may keep
the plan as a
Medicare
``carve-out.''
------------------------------------------------------------------------
Montana Yes No Medicare Yes
``carve-out''
offered.
------------------------------------------------------------------------
North Yes Plan F ............... No
Dakota
------------------------------------------------------------------------
Washingt Yes No Medicare Yes
on ``carve-out''
offered.
------------------------------------------------------------------------
Wisconsi Yes No Individuals Yes
n under age 65
are offered
Medicare
disability
plan.
------------------------------------------------------------------------
Wyoming Yes No High-risk pool Yes
is secondary
to Medicare.
------------------------------------------------------------------------