[House Hearing, 110 Congress]
[From the U.S. Government Printing Office]

                           MEDICARE ADVANTAGE



                               before the

                         SUBCOMMITTEE ON HEALTH

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION


                           FEBRUARY 28, 2008


                           Serial No. 110-72


         Printed for the use of the Committee on Ways and Means


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                      COMMITTEE ON WAYS AND MEANS

                 CHARLES B. RANGEL, New York, Chairman

FORTNEY PETE STARK, California       JIM MCCRERY, Louisiana
SANDER M. LEVIN, Michigan            WALLY HERGER, California
JIM MCDERMOTT, Washington            DAVE CAMP, Michigan
JOHN LEWIS, Georgia                  JIM RAMSTAD, Minnesota
RICHARD E. NEAL, Massachusetts       SAM JOHNSON, Texas
MICHAEL R. MCNULTY, New York         PHIL ENGLISH, Pennsylvania
JOHN S. TANNER, Tennessee            JERRY WELLER, Illinois
XAVIER BECERRA, California           KENNY HULSHOF, Missouri
LLOYD DOGGETT, Texas                 RON LEWIS, Kentucky
EARL POMEROY, North Dakota           KEVIN BRADY, Texas
MIKE THOMPSON, California            PAUL RYAN, Wisconsin
JOHN B. LARSON, Connecticut          ERIC CANTOR, Virginia
RAHM EMANUEL, Illinois               JOHN LINDER, Georgia
EARL BLUMENAUER, Oregon              DEVIN NUNES, California
RON KIND, Wisconsin                  PAT TIBERI, Ohio
BILL PASCRELL JR., New Jersey        JON PORTER, Nevada

             Janice Mays, Chief Counsel and Staff Director

                  Brett Loper, Minority Staff Director


                         SUBCOMMITTEE ON HEALTH

                FORTNEY PETE STARK, California, Chairman

LLOYD DOGGETT, Texas                 DAVE CAMP, Michigan
MIKE THOMPSON, California            SAM JOHNSON, Texas
RAHM EMANUEL, Illinois               JIM RAMSTAD, Minnesota
XAVIER BECERRA, California           PHIL ENGLISH, Pennsylvania
EARL POMEROY, North Dakota           KENNY HULSHOF, Missouri
RON KIND, Wisconsin

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



Advisory of February 21, 2008, announcing the hearing............     2


Kerry Weems, Acting Administrator, Centers for Medicare and 
  Medicaid Services, U.S. Department of Health and Human Services     7
James C. Cosgrove, Acting Director, Health Care Issues, U.S. 
  Government Accountability Office...............................    15
Byron Thames, M.D., Member, Board of Directors, American 
  Association of Retired Persons, Orlando, Florida...............   108
Jim Mattes, President and CEO, Grande Ronde Hospital, La Grande, 
  Oregon.........................................................   112
David Lipschutz, Interim President and CEO, California Health 
  Advocates, Los Angeles, California.............................   118
Daniel C. Lyons, M.D., Senior Vice President, Government 
  Programs, Independence Blue Cross, Philadelphia, Pennsylvania..   127

                       SUBMISSIONS FOR THE RECORD

Association for Community Affiliated Plans, statement............   155
Cathy Roberts, statement.........................................   157
Kathy Castor, statement..........................................   158
The Senior Citizens League, statement............................   159

                           MENTAL HEALTH AND
                         SUBSTANCE ABUSE PARITY


                      THURSDAY, FEBRUARY 28, 2008

             U.S. House of Representatives,
                       Committee on Ways and Means,
                                    Subcommittee on Health,
                                                    Washington, DC.

    The subcommittee met, pursuant to notice, at 10:01 a.m., in 
Room 1100, Longworth House Office Building, Hon. Fortney Pete 
Stark [chairman of the subcommittee] presiding.
    [The advisory announcing the hearing follows:]


                                                CONTACT: (202) 225-3943
February 21, 2008

                   Health Subcommittee Chairman Stark

               Announces a Hearing on Medicare Advantage

    House Ways and Means Health Subcommittee Chairman Pete Stark (D-CA) 
announced today that the Subcommittee on Health will hold a hearing on 
the costs seniors and people with disabilities pay through the Medicare 
Advantage Program. The hearing will take place at 10:00 a.m. on 
Thursday, February 28, 2008, in the main committee hearing room, 1100 
Longworth House Office Building. At the hearing, the Government 
Accountability Office (GAO) will release and discuss findings of a new 
report on cost-sharing changes under Medicare Advantage plans.
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be from invited witnesses only. However, 
any individual or organization not scheduled for an oral appearance may 
submit a written statement for consideration by the Committee and for 
inclusion in the printed record of the hearing.


    Of the 43 million Medicare beneficiaries, 8.8 million (20%) are 
enrolled in what are currently known as Medicare Advantage (MA) plans. 
These private health plans must provide benefits ``actuarially 
equivalent'' to those covered under traditional fee-for-service (FFS) 
Medicare (Parts A&B). However, Medicare Advantage plans can and often 
do limit the network of providers that are available to beneficiaries, 
and often have higher cost-sharing requirements for selected services 
and different premiums than traditional FFS Medicare. MA plans can 
provide additional benefits that are not covered by traditional 
Medicare, such as eyeglasses and yearly physical exams. However, some 
of these same plans charge higher cost-sharing for covered Medicare 
    The number of private plans available to Medicare beneficiaries and 
enrollment in such plans have grown steadily since 2003, as plan 
payments and options have increased. There are now eight different 
types of MA plans: Health Maintenance Organizations (HMOs); Provider 
Sponsored Organizations (PSOs); Preferred Provider Organizations 
(PPOs); Regional PPOs; Private Fee For Service Plans; Cost Contract 
Plans; Special Needs Plans (SNPs); and Medical Savings Account plans.
    According to the Medicare Payment Advisory Commission (MedPAC), MA 
program payments were on average 113 percent of FFS expenditure levels 
in 2007. To create financial neutrality between private plan and FFS 
payment rates, MedPAC has recommended setting MA benchmarks equal to 
100 percent of FFS. For many years, plans were paid at 95 percent of 
FFS rates, reflecting industry claims that private plans were more 
efficient. Only in recent years have payments risen to be substantially 
higher than local FFS payments.
    ``I am concerned that seniors enrolling into Medicare Advantage 
plans may be unaware that under certain circumstances, they may be 
charged more than traditional Medicare,'' said Chairman Stark in 
announcing the hearing. ``I look forward to hearing from CMS, GAO and 
our other witnesses about the costs associated with Medicare Advantage 
plans, and the steps that the Administration is taking to ensure that 
these costs are accurately explained. I also think we need to get a 
better sense of what services plans are actually providing with the 
extra dollars, instead of more rhetoric about what is offered. It's an 
important distinction that deserves a full discussion.''


    The hearing will focus on the structure, costs and oversight of the 
Medicare Advantage program.


    Please Note: Any person(s) and/or organization(s) wishing to submit 
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March 13, 2008. Finally, please note that due to the change in House 
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encounter technical problems, please call (202) 225-1721.


    The Committee relies on electronic submissions for printing the 
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    Note: All Committee advisories and news releases are available on 
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materials in alternative formats) may be directed to the Committee as 
noted above.


    Chairman STARK. Good morning, and thank you for joining us 
on this hearing this morning as we review the value of Medicare 
Advantage overpayments. We will commence our hearing in a 
    We are now overpaying Medicare Advantage plans around 13 
percent, on average, according to MedPAC's latest analysis. In 
some areas, we are overpaying them by 50 percent. The President 
just sent us a budget with more than half a trillion dollars in 
cuts to Medicare over the next decade, but none of those cuts 
came from Medicare Advantage. The overpayments in that budget 
remain firmly in place.
    The President's budget also sent to Congress a legislative 
response to the so-called Medicare trigger. Again, the 
President's plan protects the special interests of the Medicare 
Advantage plans and puts all the costs or the cuts of meeting 
what I think is an irresponsible trigger policy squarely on the 
backs of America's seniors by increasing prescription drug 
premiums for millions of beneficiaries.
    Clearly, the administration believes that these 
overpayments are warranted. We asked the GAO, the Government 
Accountability Office, to report back to us regarding to what 
extent these overpayments translate into reduced cost-sharing 
or extra benefits, and if any or if so, whether this is an 
efficient way to achieve any goals that were inherent in these 
reduced costs or extra benefits.
    The report was requested jointly by the Committee on Ways 
and Means, our subcommittee, Energy and Commerce, and the 
Government Oversight Reform. I don't want to steal the GAO's 
thunder, but I think it is worth highlighting a few of the 
things that the report will discuss today.
    First, we have no idea what beneficiaries actually receive 
in Medicare Advantage plans because there is absolutely no 
requirement that the Medicare Advantage plans turn over any 
data on the services actually rendered to the government or to 
beneficiaries. The only way GAO could analyze the different 
benefits was to rely on projections from the Medicare Advantage 
plans with respect to how they said they would spend their 
subsidies. That is not acceptable. That is just like no-bid 
contracts in Iraq. We ought to know what we are getting, and it 
would be a simple matter for CMS to request that data.
    Second, if you look at the Medicare Advantage plans' own 
projections, the GAO finds that beneficiaries can spend more in 
a Medicare Advantage plan than they would in fee-for-service 
Medicare. They can spend; they don't necessarily all spend 
more. The services most often associated with higher co-
payments are home health and hospitalizations, two services 
that are vital to sick people and are obviously more of a 
burden to low-income people. If plans successfully cherry-pick 
healthy seniors, which they do, and the payments are based on 
averages, it means we are overpaying them even more than we 
    Third, the report shows that MA plans invest 3 percent in 
Part B premium reductions, and that is the only improvement 
that is guaranteed to be valuable to every enrollee.
    Fourth, the Medicare Advantage plans are far less efficient 
than fee-for-service Medicare, which essentially operates with 
a 98 percent medical loss ratio. In contrast, in the average 
Medicare Advantage plan, the medical loss ratio is 87 percent. 
But nearly one-third of the plans have a medical loss ratio of 
less than 85 percent. It would be good to know how low the 
medical loss ratios actually go. CMS has actually refused to 
release that data to GAO, and my hope is that they will be able 
to explain why they won't release the data and perhaps change 
their minds.
    GAO's findings raise serious questions about the value of 
lavishing subsidies on Medicare Advantage plans as a means to 
``help'' Medicare beneficiaries. Today's second panel will 
reveal what is happening to Medicare beneficiaries in the real 
world as they attempt to navigate the confusing world of 
Medicare Advantage and the shoddy sales practices that their 
shyster-like sales people foist on frail and often confused 
Medicare beneficiaries.
    Our witnesses will confirm that many Medicare beneficiaries 
are unaware that their costs may be higher than they would in 
traditional Medicare. They believe that they are enrolling in a 
Medigap plan under which they would never pay more, and they 
are shocked when they learn how much they have to pay. These 
issues are only a small part of the oversight needed in the 
Medicare Advantage plans.
    I would be remiss not to highlight that the CHAMP Act, 
which we passed out of the House last year and is still pending 
in the Senate, addressed many of these concerns. It leveled the 
playing field on payments to Medicare Advantage plans. It 
required plans to meet a medical loss ratio of 85 percent to 
    It ensured that beneficiaries wouldn't pay more in Medicare 
Advantage than they would in traditional fee-for-service 
Medicare. And it provided states with the tools they need, and 
the Federal Government refuses to use, to regulate marketing of 
Medicare Advantage plans to protect consumers.
    It may sound differently, but I am not against private 
plans in Medicare. My district has perhaps the highest 
penetration of Medicare Advantage in the country. Half of the 
people in my district--not half of the insured, half of the 
people--in my district belong to Kaiser Permanente, a credible 
managed care plan. And they should have the choice to join 
    But the rest of us shouldn't be subsidizing the people who 
choose to go into Kaiser. Plans should compete on a level 
playing field and preserve many of the core choices that really 
matter to beneficiaries.
    I think that managed care and multi-discipline group 
practice will be the medical delivery plans of the future, but 
I see no reason that they have to be grossly overpaid and 
    Mr. Camp?
    Mr. CAMP. Well, thank you, Mr. Chairman. And what are the 
benefits of Medicare Advantage plans and what they provide to 
beneficiaries is an important question. So thank you for having 
this hearing. It really goes to the heart of the debate about 
Medicare Advantage.
    Unfortunately, most of the witnesses today are going to use 
the highly selective data and hypothetical scenarios to draw 
negative conclusions about the benefits provided by Medicare 
Advantage plans. This stilted analysis does not reflect the 
experience of most Medicare Advantage enrollees or the actual 
value of the plans they provide.
    Medicare Advantage plans provide significant savings for 
their enrollees compared to what is charged in traditional 
Medicare. According to the GAO, beneficiaries in Medicare 
Advantage would expect to pay $804 less this year in out-of-
pocket expenses than those in traditional Medicare.
    And these findings were echoed in a recent Kaiser Family 
Foundation report that examined actual beneficiary health 
spending. The Kaiser report found that, on average, 
beneficiaries enrolled in Medicare Advantage coordinated care 
plans would save nearly $550, and beneficiaries who use the 
most healthcare services would save nearly $4,200 compared to 
those in fee-for-service Medicare.
    Anyone who doubts that Medicare Advantage plans provide 
real savings to beneficiaries need only look at the rapid 
growth in enrollment in these plans. If beneficiaries did not 
see the real value in these plans, enrollment in Medicare 
Advantage would not have doubled since 2003, bringing total 
enrollment in these plans to nearly nine million beneficiaries.
    Fee-for-service Medicare fails to protect beneficiaries 
from catastrophic healthcare costs, and often forces them to 
pay large deductibles and cost-sharing payments. This reality 
is the reason why approximately 40 percent of Medicare 
beneficiaries have either enrolled in Medicare Advantage or 
have otherwise purchased Medigap plans.
    Instead of attacking programs that provide choices and 
quality care, we should be looking at ways to perform the 
traditional Medicare, which provides less. This is exactly what 
the Republican majority did when it created Medicare Advantage 
in 2003. I am disappointed by the analysis in GAO's report, 
which fails to reflect the real-world experience of the 
beneficiaries enrolled in Medicare Advantage.
    In fact, GAO's report does not reflect the reality of a 
single beneficiary in any Medicare Advantage plan. The report 
only looks at hypothetical beneficiaries who use only certain 
types of services and enroll in a narrow selection of plans. I 
frankly expected more from the GAO.
    At the conclusion of this hearing, I intend to send a 
letter to the Comptroller General asking that GAO undertake a 
new study. I hope this study will review the actual services 
used by real beneficiaries and compare that to the benefit 
packages of the most popular Medicare Advantage plans. I 
suspect that this analysis will give a much fairer and more 
representative view of the savings that Medicare Advantage 
plans provide to Medicare beneficiaries.
    Critics of the program will undoubtedly use this report to 
attack Medicare Advantage and assert that it fails to provide 
real benefits to program enrollees. In doing so, they will 
ignore the reality that the vast majority of plans actually 
provide much better cost-sharing benefits. They will also 
ignore the fact that GAO found that half a million 
beneficiaries have chosen to enroll in plans that have no cost-
sharing on inpatient hospital visits.
    Some opponents of seniors being able to choose their 
healthcare instead of government believe that seniors are not 
smart enough to make choices about their healthcare. I 
fundamentally disagree, as do the 18 million seniors who have 
chosen Medicare Advantage and Medigap plans, as I said, more 
than 40 percent of all Medicare beneficiaries.
    If we give them the opportunity, seniors will choose the 
plan that best fits their needs and provides them with the best 
benefits. And if we are really concerned about seniors not 
getting access to the best possible cost-sharing protections, 
perhaps we can agree to improve the comparative data that we 
provide to all Medicare beneficiaries. If everyone in Medicare 
could see how much they could save by enrolling in Medicare 
Advantage, I believe that even more beneficiaries would enroll 
in this important program.
    Thank you, and I yield back the rest of my time.
    Chairman STARK. As between bureaucracies, if my friend 
would yield, I would like a report also about what 
beneficiaries receive, not what they are offered, and have 
asked CMS repeatedly to give us that information. They can tell 
you they don't have it and they don't collect it.
    The GAO would love to do the report for us, and the data 
doesn't exist. So I would be delighted to join with my 
colleague to say, let's require this data. And I am not sure 
who would be able to better use it for their position. But the 
fact that we are not getting the data, I think, is that we are 
kind of legislating in the blind.
    And I hope you would agree that we can require that data to 
be forthcoming, and it could be sanitized so we protect 
competitive advantage and that sort of thing.
    Mr. CAMP. I think being able to use real data from real 
plans, and not hypothetical plans--this report purports to be 
an analysis of cost-sharing and Medicare Advantage, and it does 
nothing of the kind.
    Chairman STARK. But let us hear from the people who have 
been wrestling with this. And we will start with Kerry Weems. 
Administrator Weems is the acting administrator for the Centers 
for Medicare and Medicaid Services, affectionately known as 
CMS, from the U.S. Department of Health and Human Services.
    Why don't you proceed to enlighten us, Mr. Weems, in any 
way you would like.

                         HUMAN SERVICES

    Mr. WEEMS. Thank you. Good morning, Mr. Chairman, Mr. Camp, 
members of the committee.
    Mr. Stark, you said you would be delighted, so let me add 
to your delight today. I have directed our Center for 
Beneficiary Choices to begin collecting the data that you 
request on additional benefits. We will collect it for past 
benefit years.
    There will probably be some data analysis that we will have 
to do. But going forward, we will collect the data in a 
regularized format so that we can all understand it. I agree 
with the chairman and with the ranking member. Let's have a 
discussion about the facts, and let's get the facts on the 
table. It is time to do that. I hope to be able to provide that 
information to this committee, to the GAO, and to others, again 
respecting proprietary information.
    Medicare Advantage is providing an affordable, high-value 
choice to roughly nine million beneficiaries. In 2008, plans 
offer an average of over $1,100 in additional value to 
enrollees beyond original Medicare. For example, plans offer 
such benefits as routine eye care, hearing exams, additional 
inpatient hospital days, reduced cost-sharing for many 
services, and unlike original Medicare, MA enrollees do not 
face separate cost-sharing for physician and ancillary services 
when hospitalized.
    I would like to now discuss GAO's findings in their report 
released today, and focus on one important Medicare benefit, 
inpatient hospital stays. At the risk of having warring charts, 
I did bring some charts with me today, and I would ask the 
committee's indulgence as I discuss them.
    If we would first turn to the one to my right, your left, 
this is a complex chart but I think it----
    Chairman STARK. Kerry, do we have----
    Mr. CAMP. I am hopeful that you do, sir.
    Chairman STARK. Thank you.
    Mr. CAMP. Let's start with the first column that says ``One 
Day,'' and then we will focus on--for a one-day hospital stay, 
for a Medicare Advantage plan--I am sorry. Do we all have it? 
Do we have enough to go around? Thank you.
    For a one-day hospital stay, the average cost-sharing for a 
Medicare Advantage enrollee is $237, as opposed to $1,108 under 
regular fee-for-service Medicare. And then if you take that and 
weight it by population, for a one-day it is $225 as opposed to 
the $1,108.
    And then we show the various plans at various percentiles, 
the 25th percentile, the median, the 95th percentile. Even at 
the 95th percentile, for a one-day stay you can see that the 
cost-sharing is considerably less than what it is for fee-for-
service Medicare.
    And in fact, if you now turn to the green boxes at the 
bottom, you have to get to the 98th percentile of Medicare 
Advantage plans, and still there is lower cost-sharing. And the 
lower cost-sharing there is $952.
    Then weight that by enrollment, and that is the very last 
row. Ninety-nine percent of beneficiaries have chosen an 
insurance product where their inpatient hospital copay for a 
one-day stay is less than fee-for-service Medicare. And in 
fact, now taking that bottom row, you can look across and see 
how beneficiaries have chosen through this choice to protect 
themselves against catastrophic or very high cost-sharing that 
you can see in fee-for-service.
    So take pretty close to the average--the average inpatient 
hospital stay is about five and a half days. So at six days, 
the expected Medicare cost would be about $1,400. 87.5 percent 
of Medicare beneficiaries enrolled in a Medicare Advantage plan 
have chosen a plan which protects them against those higher 
costs. And then you can see how that plays out, even on very 
long outliers. And this is weighted by the actual plan choices 
that beneficiaries make.
    This chart to my left, the bar chart, shows essentially the 
same data, but it is unweighted by beneficiary. The most 
telling piece, just for this one benefit, is the choices the 
beneficiaries have exercised to protect themselves against very 
high out-of-pocket costs.
    So I think that lays a good foundation for our discussion 
today. I will stop there.
    [The statement of Kerry Weems follows:]

    Chairman STARK. Okay. We can continue this in our inquiry.
    And I would now turn to James Cosgrove, who is the acting 
director of healthcare issues--do you direct the issues or the 
department that looks at the issues--at the GAO. And I guess 
you have to suffer as the author of this. Right?
    Mr. COSGROVE. I wouldn't say I suffered. I think my team 
worked long hours to put it together. So maybe they suffered.
    Chairman STARK. All right. Well, why don't you expand on 
the report, which we have all had a chance to at least see a 
summary of, and enlighten us in any manner you choose.


    Mr. COSGROVE. Thank you, Mr. Chairman and Ranking Member 
Camp and members of the subcommittee. I am pleased to be here 
today to discuss our findings on cost-sharing and additional 
benefits in Medicare Advantage plans.
    In 2006, Medicare paid $59 billion to plans, which was an 
estimated $7.1 billion more than would have been spent if plan 
enrollees had instead received care through the fee-for-service 
program. So an important question is: What do beneficiaries and 
taxpayers get for this additional spending? Our report and my 
testimony today attempts to shed some light on this issue.
    Our findings largely pertain to the rebates that plans 
received. As you know, plans submit bids for providing Medicare 
covered services. Plans that bid less than established amounts 
receive rebates up to 75 percent of the difference. And plans 
must use those rebates to reduce cost-sharing, reduce premiums, 
or add benefits.
    Because the benchmarks are set relatively high, plans may 
submit bids that exceed fee-for-service spending and still 
receive substantial rebates. Plans may also charge 
beneficiaries a premium and use that money to reduce cost-
sharing or add benefits.
    In our report being released today, we analyzed how plans 
projected they would spend the rebates and premiums they 
received in 2007. As has already been discussed this morning, 
these are plan projections because the data currently do not 
exist to know how plans actually spent the money or the 
services that they actually provided.
    Nearly all the plans in our study received a rebate, which 
averaged $87 per member per month. And on average, plans 
projected allocating their rebates as follows: 69 percent to 
reduce beneficiary cost-sharing; 20 percent to reduce premiums; 
and 11 percent to add some coverage for benefits that are not 
provided under traditional fee-for-service.
    For example, plans projected spending about $4 per member 
per month on some dental care. Plans projected spending lesser 
amounts on other types, such as vision care or health 
    Because Medicare pays significantly more for Medicare 
Advantage beneficiaries and plans project using much of that 
additional money to reduce cost-sharing, it is no surprise 
that, on average, plans' overall expected cost-sharing is 
relatively low. However, we found that beneficiaries in some 
plans could pay much more for certain important services than 
they would have paid if they had remained in fee-for-service.
    And this is because plans are allowed, within limits set by 
CMS, to establish their own cost-sharing requirements. So, for 
example, about 19 percent of Medicare Advantage enrollees were 
in plans that required cost-sharing for home health services. 
In contrast, beneficiaries in the traditional fee-for-service 
program pay nothing for that care.
    We also found that beneficiaries in some plans could face 
expensive cost-sharing for inpatient services depending on how 
long they were hospitalized. So, for example, as our chart 
shows, some plans charge $275 or more for the first ten days of 
care. This is an example of one plan, but there were 15 or 16 
other plans like it.
    In fact, there were 80 plans that charged more than $200 a 
day, some as much as $375 a day. Some charged for more than ten 
days of care. Of the 80 plans, they enrolled half a million 
beneficiaries. Many of these plans had maximum out-of-pocket 
limits, but many of these plans also had maximums that excluded 
certain services.
    As our chart also shows and as Mr. Weems has pointed out, 
beneficiaries in those same plans might pay relatively less for 
either short hospital stays or extremely long ones. Nearly half 
the plans we reviewed projected using some of their rebates to 
limit beneficiaries' annual out-of-pocket spending for cost-
sharing. But as I just mentioned, many plans excluded certain 
services from those maximums; for example, physician 
specialists, mental healthcare, outpatient substance abuse 
treatment, home health services, prosthetics, and durable 
medical equipment.
    So in closing, it is important to remember that there is no 
free lunch when it comes to Medicare Advantage. Any reductions 
in cost-sharing or premiums and any increases in benefits have 
largely been made possible only through the infusion of 
billions of extra dollars into the Medicare Advantage program.
    These extra dollars have resulted in a greater burden on 
taxpayers and higher Part B premiums for all beneficiaries, 
including those in the fee-for-service program. And in spite of 
these extra dollars, some beneficiaries may face higher cost-
sharing for important services.
    As Congress considers the design and the cost of the 
Medicare Advantage program, it is important to remember to 
balance the needs of all beneficiaries and ensure the program 
is sustainable.
    Mr. Chairman, this concludes my prepared remarks. I am 
certainly happy to respond to any questions that you or other 
members might have.
    [The statement of James C. Cosgrove follows:]

  Statement of James C. Cosgrove, Acting Director, Health Care Issues,
                 U.S. Government Accountability Office

    Chairman STARK. Thank you. Is it your feeling, Mr. 
Cosgrove, that if we required data from the plans, obviously 
retroactively, as to what they actually provided--and I guess I 
would like to make this distinction, Mr. Weems and Mr. 
Cosgrove--a benefit offered is a different cat than a benefit 
    In other words, take a look at me and you could offer me a 
lifetime membership in a weightlifting club, and as valuable as 
that might be to my young, vigorous ranking member, it would be 
absolutely useless to me. And so while it has a value if I used 
it or if I could sell it to somebody, so if you offer--I was 
looking at the dental benefit, for example. Four bucks a month, 
that is less than $50 a year. Now, I don't think you can get 
your teeth cleaned for $50 any place. As I recall, it is maybe 
$100 and change, as I think.
    So, I mean, I think that if we had some figures as to what 
was actually spent and used by our beneficiaries, we would have 
a better ability to assess the value of these plans. Is that--
    Mr. COSGROVE. Absolutely. We have no information on 
utilization. I want to point out that the dental benefit, the 
$4 per member per month, was on average the most expensive 
additional benefit the plans offered. And $1 of that $4 is 
actually paid by beneficiaries through additional premiums.
    Chairman STARK. Also, we skipped over here. But according 
to your full report, a third of the private fee-for-service 
plans--and I am sure our guests will learn that there are kind 
of two plans, I think, or two types of plans--charge more for 
home healthcare than stand-alone fee-for-service Medicare, and 
if they offer an out-of-pocket cap, they often exclude things 
like mental health, home healthcare, the most valued for very 
sick people and probably the most expensive for them to 
    Is that a fair assessment of----
    Mr. COSGROVE. Overall, roughly half of beneficiaries are in 
plans that have a cap, but half of those are in plans that have 
a cap that excludes something. And home health is frequently 
one of the services that are excluded, yes.
    Chairman STARK. And we are talking generally across the 
spectrum about a medical loss ratio of 85 percent, some perhaps 
a little higher, a third of the plans or 30 percent of the 
plans lower.
    Mr. COSGROVE. That is correct.
    Chairman STARK. And just for the record, what that means is 
that 85 percent of what the plans take in in premiums or 
subsidies or government payments, whatever, for every dollar, 
they spend 85 cents on medical care and the other 15 cents can 
be most anything.
    Mr. COSGROVE. Well, the other 15 cents is going to 
administrative expenses and profit.
    Chairman STARK. And if you compare that with Medicare, our 
medical loss ratio there is north of 95 percent, probably 97, 
98 percent. Is that fair, Mr. Weems?
    Mr. WEEMS. According to the trustees' report, it is 
approximately 98 percent.
    Chairman STARK. So what we are saying is for every buck the 
taxpayers and the beneficiaries pay into Medicare, they are 
getting 97 or 98 cents' worth of medical care. And I think that 
is important to compare.
    And I know, Mr. Weems, you have suggested that in the 
services offered--and again, I don't want to beat this dead 
horse--but when you say that two-thirds of the plans have 
coverage for eyeglasses, you don't mean that they get a pair of 
eyeglasses every year?
    Mr. WEEMS. No.
    Chairman STARK. All right. And they are often a limited 
dollar amount?
    Mr. WEEMS. Typically.
    Chairman STARK. And so that for any of my colleagues who, 
as I do, have Blue Cross, and they give you a list of places 
where you think you can get eyeglasses for 50 bucks, guess 
again. I mean, maybe $500, unless you go to Wal-Mart or Costco. 
But we don't have, I think--and I think we will hear from 
witnesses later--either defined benefits and/or marketing 
restrictions that would prevail in most States.
    We have pretty defined benefits under the old Medigap 
rules. I mean, what, are there 11 plans?
    Mr. WEEMS. Right.
    Chairman STARK. And when we wrote that bill, I think we had 
pretty much agreement among all the insurers who were writing 
Medigap at the time, including AARP and whoever else was in the 
business, that with those 11 plans, that gave them enough 
leeway to provide a variety of coverage for people to choose 
    Why wouldn't something similar to that be useful to the 
beneficiaries in Medicare Advantage? Let's say that we said, 
look. If you have got how many thousand plans here, let's 
design a set of benefits within which, these parameters, they 
could operate and compete, come back to you or to us for 
additional benefits if necessary. But why wouldn't that 
simplify your lives for keeping track of it, ours for 
understanding what the beneficiaries are entitled to.
    Do you have an objection to that, Mr. Weems?
    Mr. WEEMS. Mr. Chairman, at its heart, the Medicare 
Advantage program is about choice. And restrictions on the 
benefits would limit those choices. And I think we should be in 
a position of giving our beneficiaries a large number of 
choices. One of the things that we have done is to move to make 
sure that those choices are more understandable and presented 
to beneficiaries in a more standardized fashion.
    Chairman STARK. But you don't think they should be limited 
in number?
    Mr. WEEMS. No, sir.
    Chairman STARK. Well, then, in Part D, you would suggest 
that anybody signing up for a Part D drug plan should be able 
to buy any drug they want?
    Mr. WEEMS. Well, not any drug. We want to make sure that 
they are FDA approved.
    Chairman STARK. I will spot you that one. What is next?
    Mr. WEEMS. Well, and then we allow plans to provide choices 
through various formularies.
    Chairman STARK. But you allow them to limit my choice, 
don't you?
    Mr. WEEMS. The same way that Medicare Advantage plans allow 
a range of choices through different benefit arrangements. Yes, 
    Chairman STARK. Okay. Mr. Camp?
    Mr. CAMP. Thank you.
    Mr. Cosgrove, let me first begin by saying I appreciate the 
GAO staff briefing the minority staff earlier in the week on 
this report. I am disappointed we couldn't get the full report 
before today's hearing, yet apparently the New York Times did 
not have this problem as there is a story in today's paper 
quoting from the report. So they had things that the minority 
staff didn't have. If we are going to have a meaningful 
discussion, I think we do need full information.
    Now, just let me move on to the thrust of the report as I 
understand it in this short time frame. I am concerned that 
your report isn't an actual representation of beneficiaries 
enrolled in Medicare Advantage plans but instead, again, this 
hypothetical scenario for beneficiaries using a single type of 
service for a small subset of plans.
    So let me ask you: In your testimony, you included a chart 
that showed how Medicare beneficiaries could pay more for 
inpatient services. Is it true that this just reflects one plan 
out of over 2,000?
    Mr. COSGROVE. No. It is a representative plan out of 80 
plans that we found.
    Mr. CAMP. I believe it is a representative of one plan out 
of over 2,000 plans beneficiaries have choices of. Let me ask 
you again: Is it true that 84 percent of beneficiaries are 
enrolled in plans where they could pay less cost-sharing for 
input services than in traditional fee-for-service?
    Mr. COSGROVE. Well, as we point out in the report----
    Mr. CAMP. I believe the answer is ``Yes'' to that, and I 
guess I would prefer just a simple answer there. I am correct, 
am I not?
    Mr. COSGROVE. Yes.
    Mr. CAMP. Is it also true that over half a million 
beneficiaries are enrolled in plans that charge no cost-sharing 
for inpatient hospital stays?
    Mr. COSGROVE. Yes. That is in our report.
    Mr. CAMP. I think it is important to understand that many 
beneficiaries who are buying insurance are buying protection 
against catastrophic events, even if they don't use it. And 
from what I can understand, the services that you have chosen 
to look at are used less often. And, frankly, services such as 
physician office visits, which are used more often, are less 
likely to have a higher copay.
    So I think we have to look at the kinds of comparisons that 
are being made. And, frankly, your report looks at inpatient 
hospital and home health and ignores physician office visits, 
which 97 percent of beneficiaries experience, 8.5 percent 
experiencing home health and 25 percent experiencing inpatient 
    You know, it is my view that this report ignores reality. 
And I think if we are going to have a meaningful discussion--
and I appreciate, Mr. Weems, your comments that you are going 
to get some actual data to us so that we can really have a 
meaningful discussion about this. So thank you for that. Thank 
you for your testimony as well.
    So I guess I think it is important that we get a report 
that is real, that we have an opportunity to review so that we 
can have a meaningful discussion. I think this really is a fake 
report with fake conclusions, and we are having this fake 
hearing about it so we can all run to the media and make 
certain pronouncements.
    I think healthcare is too important. I think our seniors 
are too important. I think the choices that they want to make 
are too important to conduct the people's business in this way.
    So again, I am going to send a letter to the Comptroller 
General. I look forward to his response as soon as possible. 
Thank you, Mr. Chairman.
    Chairman STARK. Well, you are welcome. I am sure that there 
will be others here who don't like the report, and I will 
reserve my comment until a second round and ask Mr. Thompson if 
he would like to inquire.
    Mr. THOMPSON. Thank you, Mr. Chairman.
    Mr. Cosgrove, we have heard in testimony before this 
committee in the past, and we heard it again today, that 
Medicare Advantage plans, especially private fee-for-service 
plans, are rapidly increasing in enrollment.
    And your testimony notes that the Medicare Advantage plans 
were originally envisioned as a potential source of savings. Is 
that correct?
    Mr. COSGROVE. That is correct. What was once called the 
risk program started in the 1980s, yes.
    Mr. THOMPSON. Are they currently achieving savings for 
today's Medicare program?
    Mr. COSGROVE. No, absolutely not. According to the MedPAC 
analysis, the average plan bid for simply providing A and B 
services is 101 percent of fee-for-service. And on top of that, 
plans get rebates.
    Mr. THOMPSON. I would like to talk about something that 
hadn't been brought up yet, and that is the impact that these 
plans are having, and if we don't do some sort of reform to the 
Medicare Advantage plans, will continue to have on Medicare's 
trust fund solvency.
    Can you speak to that at all?
    Mr. COSGROVE. As I mentioned in my statement, in 2006, for 
example, we paid an additional $7.1 billion extra to Medicare 
Advantage plans that would not have been paid if those 
beneficiaries had been in fee-for-service. It is true that 
beneficiaries in those plans did receive lower cost-sharing and 
additional benefits. But there is not a free lunch. That came 
out of the $7 billion.
    Mr. THOMPSON. And it is my understanding that the Medicare 
Advantage overpayments and rebates, had it not been for those, 
the Medicare trigger never would have been pulled. Can you 
comment on that at all?
    Mr. COSGROVE. I have heard that. I haven't looked at the 
numbers. According to the Medicare actuary, it certainly has 
reduced the life of the HI trust fund. And it certainly has 
contributed to higher Part B for all beneficiaries.
    Mr. THOMPSON. And your report also found that plans are 
allocating 20 percent of their rebates, or $17 per month, on 
reducing premiums. However, you note that 41 percent of the 
beneficiaries are charged an additional premium for the 
privilege of participating in a Medicare Advantage plan, and 
that the additional premium averages about $58 per month.
    So at the end of the day, are the beneficiaries who are 
charged an additional premium actually seeing any savings on 
their premium cost?
    Mr. COSGROVE. Well, they are seeing--the average 
beneficiary is seeing savings overall, but not on the premium 
cost, no.
    Mr. THOMPSON. And how about in comparison to traditional 
    Mr. COSGROVE. I am sorry. The question is?
    Mr. THOMPSON. The savings, the cost savings over 
beneficiaries in traditional Medicare?
    Mr. COSGROVE. Well, again, it depends on whether you are 
talking about the average beneficiary or some beneficiaries. 
The average beneficiary would see, overall, some cost savings. 
But there are beneficiaries in plans who could see higher 
    Mr. THOMPSON. Mr. Weems?
    Mr. WEEMS. Good morning, sir.
    Mr. THOMPSON. I am perplexed that the budget, the 
administration budget, paid a lot of attention to Medicare 
spending and solvency, specifically in the areas where they 
tried to strengthen Medicare such as cutting physician rates by 
over 10 percent or cutting hospital payments billions of 
dollars, so severely, I might add, that in California our 
hospitals alone would see a loss of over $800 million in 2009. 
And yet there is no mention of any payment reform for Medicare 
Advantage plans.
    GAO stated that these plans achieve no savings. CBO has 
stated that reforming the Medicare Advantage payment rates 
would improve trust fund solvency. And MedPAC has stated that 
there is no policy-based merit for these overpayments.
    Why do you think these plans deserve such special treatment 
when it is clear that they don't yield any special results? And 
if you guys aren't listening to the GAO and the CBO and MedPAC, 
which experts are you listening to when you develop your policy 
for the Medicare Advantage policies?
    Mr. WEEMS. Thank you, Congressman. Medicare Advantage at 
its heart is about choice. You note the growth in private fee-
for-service. That growth is in rural areas, where the kinds of 
services and benefits that Medicare Advantage offers has not 
been available.
    As for our budget, our budget protects those kinds of 
choices but goes directly to the kinds of solvency issues that 
you mention. If our budget were enacted, the solvency of the 
Part A trust fund would be extended by ten years.
    Mr. THOMPSON. I would like to see your budget come to a 
vote of this full committee and to a vote of the full House 
because I don't think there are three votes for it. You cannot 
tell me that if we cut by over 10 percent physician rates and 
decimate funding for hospitals, and those are hospitals that 
are also in rural areas, that somehow that is good for the 
people who need healthcare in not only rural areas but urban 
areas as well.
    And to the question of who you listen to, who you get your 
information from in developing these policies?
    Mr. WEEMS. Congressman, we get information from a variety 
of sources, including the GAO, the Congressional Budget Office, 
outside groups.
    Mr. THOMPSON. And MedPAC?
    Mr. WEEMS. And MedPAC.
    Mr. THOMPSON. But they have all said contrary to what your 
policies are proposing.
    Mr. WEEMS. Those are financial analyses. The Congress, when 
it enacted this bill, made a policy choice about choice. And 
that at its heart is what Medicare Advantage is. It is about 
giving beneficiaries choices.
    Mr. THOMPSON. Thank you.
    Chairman STARK. If the gentleman would yield, I believe, 
Mr. Weems, your own actuary said we are paying too much for 
Medicare advantage.
    Mr. WEEMS. Our own actuary would say that----
    Chairman STARK. He may not phrase it that way.
    Mr. WEEMS. He would say that Medicare Advantage is paying 
above the fee-for-service rate. Yes, sir.
    Chairman STARK. Well done. You are not going to fire him.
    Mr. Becerra, would you like to inquire?
    Mr. BECERRA. Thank you, Mr. Chairman. And thank you for 
coming to testify today.
    Let me see if I can ask Mr. Cosgrove to make something 
clear to me. The gentleman from Michigan, Mr. Camp, took 
umbrage to the fact that your report was based on projections 
and did not in one instance talk about the reality for one 
particular individual who receives his or her care through the 
Medicare program's Medicare Advantage system.
    And just to be clear, Medicare Advantage is an HMO-type 
setting where, through an insurance program, through an 
insurance company, a senior receives his or her care versus the 
senior receiving traditional Medicare, which is where the 
senior can go to any doctor or any hospital to receive the care 
because he or she is a Medicare beneficiary and can go anywhere 
he or she likes. But if you go to the insurance company and 
that insurance company system, you have to stay within that 
system, and you accept that package that that system offers 
    But again, Mr. Camp took offense that your report was based 
totally on hypotheticals, on projections.
    Mr. COSGROVE. Yes.
    Mr. BECERRA. My understanding is you had no choice but to 
base it on hypotheticals and on projections because the law 
doesn't require CMS to talk about real people. And so 
therefore, your analysis has to be based on what you get from 
CMS. Is that correct?
    Mr. COSGROVE. That is absolutely correct. Plans are not 
required to provide any data on what they actually spent or the 
benefits they actually provided. The only data that we have 
available are the data the plans submit annually, and that is 
in their bid proposals and their plan benefit packages.
    Mr. BECERRA. And so, Mr. Cosgrove, your projections and 
analysis of these hypothetical patients under these Medicare 
Advantage plans that Mr. Camp took offense to are the actual 
projections or based on the actual projections provided by the 
plans themselves to CMS?
    Mr. COSGROVE. Yes. That is true.
    Mr. BECERRA. So our difficulty--and I agree with Mr. Camp, 
we should be talking about real people. Your problem is when 
the Congress in early 2000, or 2002 or so, passed this law on 
Medicare Advantage under the then-Republican-controlled 
Congress, it did not require CMS to collect data on real 
people. In fact, CMS has no authority under statute to collect 
information on real people under the Medicare Advantage plans. 
Is that correct?
    Mr. COSGROVE. That is correct. And that contrasts with the 
situation in Medicaid, where many States contract with managed 
care plans and require those plans to provide data so that 
States can know whether their Medicaid beneficiaries are 
receiving preventive care and other services.
    Mr. BECERRA. So I think all of us probably on this dais 
would agree with Mr. Camp that we should be talking about real 
people, which would require that the plans do what other 
medical programs that get government subsidies do, and that is 
to report on real people, what their outcomes are. And I think 
it will be fair to ask for that and then base some of our 
judgment on that.
    A few years ago--actually, a number of years ago--we would 
constantly hear stories about the 3- or 4- or $500 toilet seat 
that the Department of Defense was buying for this or that 
plane or facility, how we are paying tens of dollars for a 
screw. And we just found that things weren't being done well, 
and lots of waste in the Department of Defense.
    We are being told by the plans that they will do certain 
things with the money we are giving them, and including the 
rebate, which is above and beyond what a doctor or hospital 
would receive under traditional Medicare.
    Mr. COSGROVE. Right.
    Mr. BECERRA. But we have no guarantee, as I think Mr. Camp 
pointed out, what in fact real people are getting from these 
plans. And so while it may not be the same as a $500 toilet 
seat, in many ways we can't determine if we are getting a $500 
toilet seat or not out of some of these plans, can we?
    Mr. COSGROVE. That is absolutely correct. There is no way 
to determine that. We would certainly welcome the request from 
Mr. Camp, and we would welcome the ability to get data from 
    Mr. BECERRA. And I think it is important for us to get that 
information because many of us are in some of these health 
plans, or have family or friends who are in these health plans. 
My parents are in a Medicare Advantage plan, in Kaiser--Mr. 
Stark mentioned Kaiser--in Sacramento, California. They have 
been in Kaiser. They enjoy having Kaiser as their provider. And 
so there are a lot of plans that are doing some great work.
    And so I think what we want to do is get the facts so that 
we don't disparage the good folks who are providing good 
services. And that way we could distinguish between those that 
are providing the best of services.
    My final question is this: I believe, Mr. Weems, you 
mentioned at the end, right before I started my questioning, 
that in fact the actuary for CMS has said that Medicare 
Advantage plans are receiving a greater reimbursement amount or 
dollar amount than are traditional fee-for-service providers.
    Mr. WEEMS. That is correct.
    Mr. BECERRA. And I believe, Mr. Cosgrove, you said that 
total $59 billion more is going to Medicare Advantage than 
would go for the same services under a traditional Medicare 
service program.
    Mr. COSGROVE. No. That was total spending in 2006. The 
additional spending amounted to $7.1 billion in one year.
    Mr. BECERRA. Okay, $7.1 billion. And so we are talking real 
money. Whatever the amount is, we are talking real money. And 
those are billions of dollars that we spent, taxpayers spent, 
to provide Medicare services to seniors. Not really sure how it 
was spent. In some cases we think it was spent well. Other 
cases we are wondering.
    But given that we are in this crisis and everyone is 
talking about how the sky is falling for healthcare, and 
Medicare in particular, I think we do have to get the real 
numbers. So I think, Mr. Weems, we are looking forward to 
receiving that information. And I think Mr. Camp's request is 
legitimate, and I hope we all join in requesting that 
information so that we can base our aim on the facts.
    So I thank the gentlemen, and the chairman for the time.
    Chairman STARK. And before I recognize Mr. Pomeroy, I would 
like to--Mr. Camp is carrying the whole other side of the dais 
here, and I would like to give it to him for a few minutes.
    Mr. CAMP. I certainly appreciate it, Mr. Chair. I just want 
to comment.
    I didn't ask to be yielded to during your time, Mr. 
Becerra. But it is part of it that it is not just real people, 
but it is also the problem that it is only inpatient and home 
health. And those services that are used more often, which are 
not included in this report, have a higher cost-sharing.
    So I think it is not just the people. It is the focus of 
the report. I would also like to see them include physician 
office visits and other portions, not just inpatient and home 
    So thank you, Mr. Chairman.
    Chairman STARK. Mr. Pomeroy, would you like to inquire?
    Mr. POMEROY. Yes, Mr. Chairman. Thank you.
    I have the greatest respect for the administrator. He has 
come to North Dakota. He has helped us with the hospital 
problem. A career man, ultimately appropriately on merit 
advanced to the No. 1 slot. And I am very pleased--truly, I am 
very pleased with his leadership. This is a no-nonsense, get-
it-done guy. And we know that representing the administration, 
he has to defend Medicare Advantage.
    What I want to focus on is what we are getting for the 
extra money we are paying. So, Mr. Administrator, you don't 
contest the $7 billion in extra payment as opposed to if we had 
run those same benefits through Medicare. We paid $7 billion 
extra to have the insurance companies involved.
    Do you agree with GAO's comment on that?
    Mr. WEEMS. That there are additional costs associated with 
the additional benefits and additional choice; that, right now, 
Medicare Advantage plans are above the fee-for-service rate.
    Mr. POMEROY. And because of the variety on the plans that 
are not fee-for-service, let's just talk about Medicare 
Advantage Private fee-for-service. It is generally believed 
that we are paying somewhere in the neighborhood of 12 to 17 
percent more per dollar of benefit administered in order to 
have the private entity make that payment. Do you contest that?
    Mr. WEEMS. It is not just the private entity make that 
payment. It is also the insurance value of the product that is 
being purchased by the individual, by Medicare, at that point. 
It is not just simply an administrative processing.
    For instance, a private fee-for-service plan offers in some 
cases, for instance, a known co-payment for a doctor's visit. 
So a regular doctor's visit will, say, cost $20, not 20 
percent, or $10, or $5. So the additional benefits may come in 
the certainty of cost-sharing, the same way many of us have 
that certainty in our own private insurance that we have rather 
than a percentage, which would now be the case for----
    Mr. POMEROY. Although Medigap insurance has existed for 
decades that covers the unknown of the other coverages. And 
people can choose that if they care to. But as a system, we are 
paying 17 percent more to have the private insurance companies 
administer that benefit, and the rationale is, it is about 
choice. Is that basically your position?
    Mr. WEEMS. Again, with respect I take issue with the 
``administer the benefit.'' They offer additional benefits 
also. But yes, it is about choice. It is about offering these 
type products in areas which, before, they were not able to be 
    Mr. POMEROY. I just take such issue with the 
administration's assessment of priorities within the Medicare 
program, as reflected in their budget. I have got a whole page 
here of provider cuts, deep and painful provider cuts. The 
total in North Dakota would be devastating to the healthcare 
delivery system sustained across our rural reaches.
    You close a rural hospital, you have taken away choice. You 
drive physicians out of accepting Medicare because they are 
reimbursed so far below costs they just don't want to do that 
any more, and we are really believing we are about on the edge 
on that with some of our providers, you remove choice.
    So in my opinion, you really take a meat axe to provider 
payments. I agree with my colleague Mike Thompson when he says 
there wouldn't be any support for this on either side of the 
aisle because of the fear of that.
    But on the other hand, you don't take anything out of the 
overpayment to insurance companies that you acknowledge runs 12 
to 17 percent. GAO tells us in one year we spent $7 billion 
just to the insurers. If Medicare administers the benefit, we 
are $7 billion better off in one year, $35 billion over five at 
that rate. And the five-year figure actually is going to be 
much larger than that because of the marketing growth of 
Medicare plans.
    Mr. WEEMS. Absolutely.
    Mr. POMEROY. And I want to focus on that growth in my final 
comments. We have been exchanging correspondence trying to get 
a handle on the consumer protection capability within CMS. You 
are aware, of course, that this choice that you defend includes 
insurance agents making cold calls on the homes of senior 
citizens. Is that correct?
    Mr. WEEMS. Yes.
    Mr. POMEROY. There are not too many people I represent that 
choose to have that kind of visit. They would just as soon 
choose not to have that kind of visit.
    Mr. WEEMS. Congressman----
    Mr. POMEROY. But what worries me most about it is you don't 
have much ability to oversee it, and you keep State regulators 
out of the picture.
    Do you see a resolution there? How are we going to get more 
consumer protection for the people that are getting the cold 
calls from the insurance companies paid 17 percent more for 
what they are doing than what Medicare does?
    Mr. WEEMS. Thank you, and this is an important issue. No 
beneficiary should be deceived into accepting one of these 
products. And CMS has taken a number of steps, and have a 
number of steps underway, to prevent this.
    First of all, beginning in September, we built a rather 
substantial surveillance system. And as you may know and others 
may know, we spend a lot of time and effort doing secret 
shopping and actually sitting in the marketing campaigns. I sat 
in on them in rural areas and in urban areas with a baseball 
cap on. They didn't know who I was. And immediately after those 
marketing campaigns, if there was a violation, we fed that 
right back to the plan. In some cases sanctioned them. And we 
saw a steady reduction in the amount of complaints.
    We are not done yet. We have some additional actions that 
we are going to take in the very near future that deal with 
exactly the same kinds of things that you are concerned about: 
how an insurance company makes contact with a beneficiary, what 
their commission structure looks like, and then also clarifying 
some of our civil and monetary penalties.
    Mr. POMEROY. I will just say--because I know my time is 
up--I mean, I used to do this for a living. I was an insurance 
commissioner. I wrote the Medicare standards that are now in 
place through the States as we enforce Medigap sales.
    To me, what you are describing is very kind of 
happenstance. It is not a comprehensive regulatory system. The 
protections that you just described are available in State 
insurance departments and in State law, and I believe this 
administration ought to advance--I mean, for one thing, we try 
to get you more resources, the President vetoes the bill.
    So you don't have enough resources internally. I believe 
you need to work with State insurance departments. And I would 
like to see more from CMS in terms of working arrangements 
    My time is expired, Mr. Chairman. Thank you.
    Chairman STARK. Thank you.
    Mr. CAMP. Thank you, Mr. Chairman. I have heard of being in 
the minority before, but this is----
    Chairman STARK. Kind of a lonely day. [Laughter.]
    Mr. CAMP. So thank you. Mr. Weems, I just wanted to say 
that I have heard some reports about some of the unacceptable 
behavior by agents and brokers who are selling some types of 
Medicare Advantage plans, and I think there is bipartisan 
agreement these activities need to be stopped.
    What are you and CMS doing or going to do to stop this and 
protect beneficiaries from these kinds of individuals and 
    Mr. WEEMS. Well, beginning in September, as I said, we 
built a rather substantial surveillance system, which included 
not only the secret shopper program but also a system of 
calling beneficiaries. Did you know you signed up for a plan? 
Do you know exactly what you signed up for? To ensure the 
beneficiaries understand the choices that they are making.
    We also made it very, very clear to insurance companies 
that we are not going to tolerate this kind of abuse. In fact, 
one company, we suspended. We had them suspend enrollment and 
marketing for the entire period of enrollment and marketing 
because there were systematic errors in the way that they were 
marketing the product, and it was completely unacceptable.
    And there are still additional steps that we are going to 
take in the areas of the way that the commission structure 
works--beneficiaries should not be churned year to year; in the 
way that the insurance companies come into contact with the 
beneficiary; and then lastly, clarifying our own ability to 
level civil and monetary penalties.
    Mr. CAMP. Also, if you could comment. Thank you for that 
answer. By purchasing a Medicare Advantage plan with a cap on 
cost-sharing, can beneficiaries protect themselves against 
catastrophic costs? And isn't that what insurance is about, is 
protecting yourself against something that you think might 
happen but may not necessarily happen?
    Mr. WEEMS. Absolutely. And in fact, that is what this chart 
demonstrates, is that beneficiaries can make choices about 
where they would like to protect themselves. Even at the very, 
very long stays that we have on here, you ask yourself, well, 
what is the probability of that? What would cause that?
    Well, our experts say that yes, there are some of those 
very long stays, and the things that cause them are substantial 
comorbidities. You are a very, very ill individual. But even 
being very, very ill, using a Medicare Advantage program, you 
can protect yourself from some very substantial out-of-pocket 
    Mr. CAMP. Well, and I think nearly half of Medicare 
Advantage beneficiaries are in plans that cap their out-of-
pocket costs. And is that something that is available in 
traditional Medicare, the ability to cap catastrophic 
healthcare costs?
    Mr. WEEMS. No. No, it is not available in traditional 
    Mr. CAMP. All right. Thank you. Thank you very much for 
your indulgence, Mr. Chairman. I appreciate it.
    Chairman STARK. Mr. Kind, would you like to inquire?
    Mr. KIND. Thank you, Mr. Chairman. And I want to thank the 
witnesses for your testimony today.
    This is just an incredibly important issue back home. And 
Mr. Weems, I know you cited La Crosse, Wisconsin, which is in 
the heart of my congressional district in western Wisconsin, to 
make a point on----
    Mr. WEEMS. A lovely city.
    Mr. KIND. Right. I agree--to make a point on some of the 
regional differences in payments. And you compared it with Dade 
County, Florida.
    But when you talk to the providers in western Wisconsin, 
they are always extremely frustrated that they are receiving, 
in their view, a lower reimbursement rate. And part of that is 
based on the efficiency and lower utilization that is taking 
place there. Yet study after study after study shows high 
quality of outcomes in the care that seniors are receiving 
under traditional fee-for-service.
    And so I am not quite sure the regional differentiation 
that you are making in your testimony really applies all that 
well. It seems to be you are saying, listen. You got to look at 
the regional price differences in order to explain the 
overpayments for MA plans today, and you use La Crosse as an 
    And in order to entice private plans to come into that 
area, in essence you have to bribe them above what the fee-for-
service providers are getting in reimbursements. And I am not 
sure that is a real accurate apple-to-apple comparison to make 
under the circumstances.
    My question is, and maybe Mr. Cosgrove, since you are the 
one releasing the study today, is what has been frustrating 
with the MA plans is the lack of hard data that we have access 
to. Is there any way that you can get your hands on quality of 
outcomes or performance base with what the MA plans are 
providing with seniors today?
    *Mr. COSGROVE. There is relatively little information 
available on that. Certainly, under Medicare Advantage, plans 
do have to submit some things. And I think Mr. Weems mentioned 
it in his testimony in terms of satisfaction surveys and a 
health outcome survey to cover Part C of beneficiaries. Those 
surveys tend to measure very narrow things and not basic 
    Mr. KIND. What about utilization data? Can we get any 
information at all from the myriad of MA plans out there on 
what utilization is taking place?
    Mr. COSGROVE. I am sure MA plans have it. As you know, the 
plans that serve rural areas tend to be the private fee-for-
service plans. These plans pay claims just like the traditional 
program does, and so they certainly would have the data. They 
just don't have to submit any of that.
    Mr. KIND. And that is the rub, isn't it? I mean, that is 
really the crux of the problem here, is that they don't submit 
it. And yet CMS--and I think, Mr. Weems, you are saying in your 
testimony that in 2008, MA plans will offer, on average, over 
$1100 in additional annual value to seniors that they cannot 
get under fee-for-service in the form of cost savings and added 
    Mr. WEEMS. Correct.
    Mr. KIND. But if we can't get utilization data, if we don't 
know what type of services are being provided, how can you 
define value? How can you make that claim that there is $1100 
of additional value if we are not getting the basic data that 
we need in order to calculate the costs?
    Mr. WEEMS. Well, Congressman, we are not completely blind 
to the utilization. It is in the bid tools. We do audit plans. 
We do have some sense of this. Nonetheless, I made a commitment 
today to the chairman to provide utilization information on the 
extra benefits, and to do that in an expedited way. And we will 
have a discussion about the facts.
    Mr. KIND. That would be helpful. But I was astounded to 
hear your response to Mr. Thompson's earlier question when he 
was asking, what is CMS basing their defense and justification 
of these MA plans if you are going to choose to ignore GAO 
information, choose to ignore CBO information, choose to ignore 
MedPAC information, and your response was, well, it is all 
about choice.
    That is a philosophy, but it is not based on hard data. And 
that is really what I think we are scrabbling to get our hands 
on right now, is these reporting requirements that should be in 
place so we can go into these plans and find out what is being 
offered. What are the true cost savings, if any, to the 
customers? What is the value that they are receiving? The 
utilization that is taking place? And ultimately, I believe 
that we have got to move to an outcomes-based type of 
reimbursement system as quickly as possible so we are rewarding 
the outcomes, the quality of services being provided, and also 
the efficiency in which it is being provided.
    And we are not getting that from the MA plans. Choice is 
great in a theoretical world. But when you have got a 70-year-
old senior having to compare over 70 different plans in the 
State of Wisconsin that are continually shifting on them, 
whether it is copays or premiums, they are not the ones 
wrapping their arms about this whole choice philosophy. It is 
incredibly complicated. They are subject to marketing tactics 
that are unfair and it is taking advantage to them. And we need 
to tighten this up.
    And it is also astounding to me that we have an 
administration willing to take a whack in their proposed budget 
with the providers across the country, and they don't look for 
one dollar of savings with these MA plans in the budget that 
was just sent up.
    And Mr. Camp, I congratulate you for at least sitting here 
during this hearing. Where is the rest of the dais on your 
side? We are having, I think, a very important hearing on the 
state of MA plans, and yet there is no one on the Republican 
side other than yourself showing up to question the validity of 
it and whether the taxpayers are getting our dollars' worth 
through these plans.
    And yet over $170 billion of proposed cuts with healthcare 
providers--well, and I know he is campaigning hard----
    Chairman STARK. One of them is running for the Senate in 
Wisconsin. You had better watch your step.
    Mr. KIND. That is right. That is right. But I am only 
reflecting the frustration that I am hearing back home from the 
providers, from the seniors, those who are in the plans right 
now, and for us as policy-makers. And we are trying to make 
some policy determinations, and we lack the hard data that I 
think is necessary. So hopefully, with CMS's cooperation, we 
are going to be able to do a better job in the future.
    Thank you, Mr. Chair.
    Chairman STARK. I would like to recognize Mr. Emanuel. And 
if I could get our witnesses, we will have a couple of votes at 
about 11:15, and we will come back after those votes and allow 
the other members to inquire, if I can impose--presume on the 
witnesses to stick around for a few minutes while we vote.
    Mr. Emanuel?
    Mr. EMANUEL. I will try to be quick so maybe one of our 
other colleagues can get in before the votes are called.
    I didn't expect you guys or anybody in the audience to see 
this, but the other day we had a debate among four Democrats 
and four Republicans over at George Washington University. And 
the congressman, Mr. Chairman, that you referred to from 
Wisconsin did acknowledge at the debate that he would take 
seriously and look--I think I am quoting him accurately; Paul 
said this, in fact--that he would look seriously at taking--
that we shouldn't be 125 percent of fee-for-service as long as 
it didn't go into expanding coverage but dealt with the short 
fan of Medicare.
    And when you get out of here and get out of posturing, he 
was honest about, you shouldn't be paying 120 percent. I mean, 
there is a reason this is called Medicare Advantage. It is a 
real advantage for the HMOs. There is just no doubt about it.
    And this is a ideology trumping good judgment. Everybody 
always tells us government should do what business does. So 
here you got a case where you could save on money, but we are 
supposed to pay 120 percent. And I happen to have been there in 
the 1990s in the White House when the HMOs said they could 
deliver it for 95 percent of fee-for-service because they could 
do a better job of managing costs. So we are getting the same 
service now for 120 percent of fee-for-service.
    There were some mistakes made in the 1990s, no doubt. But 
the notion that we are going to try to figure out how to deal 
with the trust fund, but something everybody independent 
analyzed says that could save $50 billion over five years, $150 
billion over ten years, that is off the table, you are never 
going to get an honest discussion of everybody some skin in the 
game and putting something on the table.
    You cannot have a serious discussion about Medicare's trust 
fund if the elephant in the room is not going to be discussed. 
And it is not the only elephant; we have got to look honestly 
at how we pay fee-for-service, whether there should be more 
flexibility. Some of the things the administration is pointing 
to are worth looking at. They are not going to be wholesale 
thrown out.
    But the notion that this big item that you are overpaying 
for can't be looked at on the start gate means that you are 
never going to have a serious discussion and it is just going 
to be political. And at some point, ideology cannot trump good 
judgment. It just can't.
    And if you did it all on HMO, Peter Orszag and others have 
acknowledged it would add three years to the trust fund. Three 
years. That is something that has to carry the whole burden 
here. But the notion that you would start off by saying, this 
can't be part of any solution, is ridiculous. It doesn't hold 
up. And people know it.
    And that means every other good recommendation from the 
administration won't be considered. You have tainted it because 
you basically have said ideology and politics and partisanship 
trump getting a good judgment and a good result. And that is 
unfortunate for all the other good decisions you have made in 
some of the recommendations because they won't get a fair 
hearing. You have hurt yourself that way.
    Second is, as Orszag testified in this committee the other 
day, we don't know what is in these plans and whether we are 
getting our money's worth. It is just like a blank check, 
something my kids would like to have. We wouldn't do that.
    And you can't keep treating taxpayers as dumb money. You 
can't ask them to pay 120 percent for what you can get for 100 
percent. You know, I spent a short time on Wall Street, and 
when people would make investments like that, you would call 
them dumb money.
    So my recommendation is: Let's everybody put their cards on 
the table. There are good recommendations in the 
administration's proposal that are worth looking at. But if you 
start off by saying, we won't look at this and that is an 
absolute, that means every other judgment you have made won't 
get a fair hearing, and you have hurt the cause of trying to 
look at what does it take to deal with the Medicare trust fund 
    Thank you, Mr. Chairman. I hope I have left some time for 
my colleagues.
    Chairman STARK. Ms. Schwartz, would you like to inquire?
    Ms. SCHWARTZ. Yes. Thank you, Mr. Chairman. I really 
appreciate your courtesy in allowing me to ask a question or 
    And I appreciate following up on my colleagues. I think 
they have made it very clear, and I agree with them, that we 
are taxpayers, and actually 80 percent of beneficiaries under 
Medicare are paying more in order to give 20 percent of 
Medicare beneficiaries choice. You made that very clear.
    The issue is we don't really know that they are getting 
more services. You can't tell us that. You can't really tell us 
whether they are actually having any improved outcomes. We have 
no idea. You are going to try and get us that data; that would 
be useful.
    But the point was made that maybe--and Mr. Camp said this--
that maybe we really haven't looked at real people here, that 
maybe real people are getting benefits and we just don't know 
it, but they are getting some additional benefits. They are 
happier because they have choice. I think when we talk about 
healthcare, we ought to make sure that they are healthier also.
    But I want to talk about a particular experience in 
southeastern Pennsylvania in my district. One of the things 
that we have seen in the last year is really an incredible 
growth in the Medicare Advantage Private fee-for-service. That 
has been the strongest growing effort. I know the discussion 
was it was supposed to really be in rural areas; I don't 
represent a rural area. It is an urban/suburban area. We have 
seen an increase of--we went, actually, from in Pennsylvania 
totally, 24,000 in just the fee-for-service plan to almost 
50,000 people in the last year. In my own district, we have 
gone from 1,000 to almost 4,000 beneficiaries.
    Now, if you can say that they are actually getting more 
services, they are healthier, maybe we would be able to feel 
better about this. But what I want to tell you is that three of 
the major hospital systems in the Philadelphia area have 
decided to no longer accept the Medicare Advantage fee-for-
service patients. Theoretically expanding choice; in fact, as 
is pointed out, we are seeing a denial of fewer hospitals 
taking it. These are not just hospitals here; they are really 
these health systems.
    And they say the reasons that they are doing that are 
manyfold. But one of the principal reasons is that the 
beneficiaries and the providers do not know, when they refer to 
physicians, whether in fact those physicians will be covered. 
So there is greater--they don't know. They have no way of 
getting that information. The beneficiaries don't. The 
hospitals don't. So they make referrals, and they have no idea 
whether this is going to be an appropriate referral or not. 
They may show up at that physician's office, get the services, 
and have to pay 100 percent out of pocket.
    So I ask this question because we are paying 20 percent 
more on average for these patients.
    Mr. WEEMS. No.
    Ms. SCHWARTZ. Well, I can tell you, in Pennsylvania the 
private fee-for-service plan in my district are paid, on 
average, 18 percent more than it costs to provide actually the 
same services to Medicare beneficiaries. That is the numbers we 
have. This is in southeastern Pennsylvania in my district. So 
we are paying 18 percent more, and people are going to see less 
care. They are seeing it already. And they are actually not 
getting the information to be able to make choices, and nor are 
their providers.
    So this seems to me not just a bad idea but a disaster. So 
how do you defend that? How can you justify that as either good 
public policy or good healthcare, good outcomes, or anything 
that is positive? And some way we are going to fix this.
    Mr. WEEMS. Thank you for the question. The first thing is, 
we know that--I would have to look at the private fee-for-
service programs in your area. But for the most part, many 
provide protection against very high out-of-pocket costs. That 
is a protection that people get as a matter of insurance.
    Now, it is true that providers don't have to accept private 
fee-for-service. And if it turns out that providers in that 
area aren't doing that, then people are going to leave those 
programs and go into products that are going to be much better 
for them. The plans have considerable outreach into the 
    Ms. SCHWARTZ. So how quickly can they make that change? Not 
quickly. Next year.
    Mr. WEEMS. Next year.
    Ms. SCHWARTZ. Right. So for a year, they may actually have 
no access to care.
    Mr. WEEMS. Not no access to care. They may----
    Ms. SCHWARTZ. Or possibly, if the hospital and the 
providers are not accepting it. They are stuck in a plan that 
has higher costs and no access to care. But they have choice.
    Mr. WEEMS. I wouldn't suggest that it is even higher cost. 
They may be in a plan that has lower costs, and they----
    Ms. SCHWARTZ. But it is theoretically possible they are in 
a higher cost?
    Mr. WEEMS. Many things are theoretically----
    Ms. SCHWARTZ. If they need more outpatient, for example, 
than hospital care, it could be higher cost for them during 
that year. And they could not change for a year.
    Mr. WEEMS. Depending on which plan they chose. That is the 
nature of insurance, yes.
    Ms. SCHWARTZ. Well, it is a very different ideology to say 
that we are moving this to a private insurance model rather 
than one where we are looking at for seniors, and we have said 
to seniors under Medicare, that we are going to help ensure 
that they have access to healthcare.
    We would like it to be quality healthcare. We would like it 
to be cost-efficient. Right? And we think the taxpayers 
shouldn't have to pay more for less. But you are saying as long 
as they have choices, if they have made a bad choice, too bad. 
This is an insurance model.
    Mr. WEEMS. Well, in many cases, the regular Medicare 
program may not be their best choice.
    Ms. SCHWARTZ. It may not be. But the----
    Mr. WEEMS. In which case it is just too bad there, too.
    Ms. SCHWARTZ. Well let me add, and I will give back to the 
Chairman, but the idea here is not to say--I don't think any of 
us are saying, let's limit this to one option. We have never 
said that. We have talked about 11 Medigap plans. We have 
talked about the fact that even under Medicare Advantage, if we 
were paying the same and getting more benefits and people are 
getting better outcomes, it may even be worth paying more, 
although I think there is a lack of justification for why just 
some people should get that and not all.
    But we are not talking about an either/or here. We are 
talking about better oversight. Accountability. Right? Knowing 
what we are doing. Making sure we are getting what we should 
for our taxpayer dollars. And that Medicare recipients are not 
actually disadvantaged by this rather than advantaged.
    So it is simply not good enough to say, wait a minute. If 
we ask hard questions, you are going to say, well, then, we 
won't do any of it? That is not an acceptable answer.
    Mr. WEEMS. If you are talking about reducing the payments, 
you are talking about an either/or situation in many parts of 
this country.
    Chairman STARK. I want to try, if the gentlelady will 
yield, to let Dr. McDermott inquire----
    Ms. SCHWARTZ. Thank you, Mr. Chairman, and thank you for 
your indulgence.
    Chairman Stark.--before the votes ring down. Dr. McDermott?
    Dr. MCDERMOTT. Thank you, Mr. Chairman. I appreciate your 
taking the time. And I just have a couple of questions.
    My understanding from your report is that Medicare 
Advantage has a loss ratio of an average of 87 percent. Is that 
    Mr. COSGROVE. That is correct, yes.
    Dr. MCDERMOTT. And on the other hand, Medicare has a loss 
ratio of 98 percent. That is, 2 percent is going for 
administration, 98 percent going for benefits.
    Mr. COSGROVE. According to the trustees, yes.
    Dr. MCDERMOTT. According to the trustees. Do you trust the 
    Mr. COSGROVE. Absolutely.
    Dr. MCDERMOTT. So where does this 11 percent go, or where 
does it come from, or how does it occur? I mean, we are paying 
insurance companies, and they are giving less care. They are 
taking 11 percent somewhere. Where does it go?
    Mr. COSGROVE. Well, plans obviously have expenses that the 
traditional program doesn't have. Marketing expense----
    Dr. MCDERMOTT. Like what? I mean, what is the benefit to 
the patient for those costs?
    Mr. COSGROVE. Well, marketing expenses would be--but that 
is not a benefit to the patient.
    Dr. MCDERMOTT. Well, you know, my mother is now dead. But I 
used to get about one a month of an advertising campaign for 
somebody, which I don't think did much for a 96-year-old woman. 
I really think--the thing that really puzzles me is that a 
third of those plans, as I understand it, have loss ratios less 
than 85 percent.
    Mr. COSGROVE. That is correct.
    Dr. MCDERMOTT. Can you give us the names of those?
    Mr. COSGROVE. In discussions with CMS, CMS obviously 
considers these data proprietary and very sensitive. So no, 
what we----
    Dr. MCDERMOTT. This is taxpayer money. What do you mean, 
proprietary? You mean the Congress can't know who is ripping 
old people off? We can't look at the data? Is that what you are 
telling us?
    Mr. COSGROVE. Mr. Weems has the data, and it would be up to 
him to share it.
    Dr. MCDERMOTT. It is up to CMS to give it to us. Is that 
    Mr. COSGROVE. They are the owners of the data. They shared 
it with GAO, and they gave it to us with some restrictions as 
to how we could report it.
    Dr. MCDERMOTT. And on what basis, then, Mr. Weems, do you--
how do you hold this data back?
    Mr. WEEMS. These data are proprietary and may affect the 
competitive nature of the firms.
    Chairman STARK. Is there any reason we couldn't see them in 
    Mr. WEEMS. I believe we could make it available under those 
circumstances, sir.
    Dr. MCDERMOTT. You believe we could. Is that a yes or a no?
    Chairman STARK. It probably is a yes.
    Mr. WEEMS. Yes. The answer is yes.
    Dr. MCDERMOTT. So we got an actual yes out of you.
    Chairman STARK. But you can't talk about it, now.
    Dr. MCDERMOTT. Well, it is secret. That is right. Then we 
would be liable for suit. Is that right, if we talked about the 
    Mr. WEEMS. I am not an attorney. I couldn't say.
    Dr. MCDERMOTT. See, the problem here is----
    Chairman STARK. If you gave it to the New York Times, maybe 
you would.
    Dr. MCDERMOTT. I know some guys at the New York Times. The 
fact is that we are--I admit I am a single payer advocate. I 
believe that a single payor system like Medicare is the way to 
go. And you are not giving me any reason--Mr. Kind asked on the 
basis of outcomes, which is what healthcare is supposed to be 
about. If you have healthcare, you are supposed to live longer 
than people who don't have outcomes.
    So we have this Medicare Advantage. We pay them all this 
extra money. They should be getting better outcomes. But you 
have no data to prove that. All you have is 11 percent that is 
going into marketing and profits for insurance companies, I 
guess. I don't know where else it is going.
    Mr. WEEMS. Congressman, through HEDIS data we do have 
outcome data, data that we don't have for the fee-for-service 
    Dr. MCDERMOTT. And can you share that data with us?
    Mr. WEEMS. Of course we can. Absolutely.
    Dr. MCDERMOTT. That is not proprietary?
    Mr. WEEMS. No.
    Dr. MCDERMOTT. I think the committee ought to be provided, 
Mr. Chairman, with that information so that we can actually 
look at the proof that the Medicare Advantage program does any 
good for the heart of senior citizens because that is what this 
is really all about. It is not about choice and it is not--my 
mother didn't want choice at 97. She just wanted to know she 
could call up the doctor and go see him when she was sick.
    Chairman STARK. Would the gentleman yield?
    Dr. MCDERMOTT. Yes.
    Chairman STARK. If you leave out dollars, copays, I don't 
think--and I would ask Mr. Weems--I don't think there is a plan 
in the country that has more choice of physicians and hospitals 
than Medicare. How many hospitals do you know that aren't in 
    Mr. WEEMS. Very few.
    Chairman STARK. How many doctors are not in Medicare? Not 
many. So, I mean, when you talk choice----
    Mr. WEEMS. Well, that is one kind of choice, yes.
    Chairman STARK. Yes, it is. But it is----
    Dr. MCDERMOTT. It is the only choice that matters, Mr. 
    Mr. WEEMS. Now, catastrophic costs matter, too.
    Chairman STARK. Now, they may be limited by cost. That is a 
question, certainly. But on the other hand, some of the plans 
limit them by not recognizing the doctor--not having the doctor 
in the plan.
    So in defending the plan that Mr. Weems runs so well called 
    Dr. MCDERMOTT. Yes. We like that one.
    Chairman Stark.--I would like to point out that he offers, 
what, 80 percent of us Medicare beneficiaries broad choice.
    Mr. WEEMS. Well, we offer it to 100 percent.
    Chairman STARK. Thank you very much for----
    Mr. WEEMS. We offer it to 100 percent. Eighty percent take 
us up on the offer, sir.
    Dr. MCDERMOTT. Both Mr. Stark and I are taking you up on 
it, and we enjoy it.
    Chairman STARK. I want to thank--you can stay here after 
the vote ends, Doctor. But I am going to thank Mr. Cosgrove and 
Mr. Weems for their patience, their indulgence, their 
forthcoming testimony. We will have you back. I want to discuss 
this some more. And we will excuse you gentlemen, and thank you 
very much.
    We will recess for approximately 15 minutes until we finish 
these votes. And if the second panel wants to come on up to the 
witness table or get a cup of coffee, we will be back and 
continue the hearing. Thank you.
    Chairman STARK. The committee will resume, and with 
apologies to the panel, who waited so patiently while Mr. Camp 
and I named three post offices after deserving citizens. And we 
can get back now to the important matters at hand.
    We are privileged to have with us Dr. Byron Thames, who is 
a member of the board of directors of the AARP from Orlando, 
Florida; Mr. Mattes--do I pronounce that----
    Mr. MATTES. Mattes.
    Chairman STARK. Mr. James Mattes, who is president and CEO 
of the Grande Rhode or Rhode----
    Mr. MATTES. Grande Ronde.
    Chairman Stark.--Grande Ronde Hospital of La Grande, 
Oregon; Mr. David Lipschutz, who is interim president and CEO 
of the California Health Advocates in Los Angeles; and Dr. 
Daniel C. Lyons who is senior vice president, government 
programs, of the Independence Blue Cross in Philadelphia, 
    I will ask you gentlemen if you would like to proceed in 
the order that I recognized you. And without objection, all of 
your prepared testimony will appear in the record. And if you 
would like to expand on it or enlighten us in any way, and then 
we can further get information during our inquiry.
    Dr. Thames?


    Dr. THAMES. Thank you, Mr. Chairman, members of the 
committee. I am Byron Thames, a physician member of the board 
of directors of AARP. We thank you for the opportunity to 
present AARP's views on the Medicare Advantage program.
    Let me begin by reaffirming a core principle. AARP is 
committed to the Medicare program. It is a vital component of 
financial retirement security for older Americans and many with 
    I also want to reiterate our support for Medicare 
Advantage. We believe it is important for people on Medicare to 
have genuine choices of how they receive services. To this end, 
beginning this year, most of United Health Care's coordinated 
care Medicare Advantage plans will carry the AARP name.
    We emphatically believe choices must be genuine. Options 
should differ from one another and each offer high quality 
services. AARP believes that MA coordinated care plans hold the 
promise of improving the quality of care.
    We are less sanguine about the private fee-for-service 
option. We did not support its inclusion in Medicare because, 
one, these plans are not required to coordinate care for their 
enrollees or participate in quality improvement activities, two 
key requirements for other MA options. And two, these plans can 
set their own fee schedules and are not subject to Medicare's 
important balanced billing rules.
    In addition, the marketing of these plans is fundamentally 
confusing to many beneficiaries. Just last week AARP was 
contacted by an anxious member. The hospital where her husband 
was scheduled for surgery would not accept his coverage once 
they learned that he was enrolled in a private fee-for-service 
    This member didn't realize that the plan she enrolled in 
was not a supplement to traditional Medicare. She believed that 
she would still be able to freely choose doctors and hospitals. 
The marketing materials did not make the difference between 
traditional Medicare and the private fee-for-service plan 
    There are numerous reports of fraudulent marketing where 
beneficiaries have received inaccurate or misleading 
information about private fee-for-service plans. AARP urges 
action that will put a stop to these practices once and for 
    We commend CMS for the steps it took last summer to curtail 
questionable tactics, but further steps are needed. My written 
statement includes specific recommendations intended to improve 
consumer protections in the Medicare Advantage market.
    AARP also believes that Medicare Advantage plans should 
coexist with the traditional program on an equal footing. 
Currently, payment rates are, on average, skewed in favor of MA 
plans. This does not make economic sense for the program or for 
the people in traditional Medicare, who pay higher premiums for 
benefits they do not enjoy.
    MedPAC reports that, on average, payments to private fee-
for-service plans exceed payments in the traditional program by 
17 percent. We see no justification for the substantial excess 
    Furthermore, because private fee-for-service plans are not 
required to coordinate care or participate in quality 
improvement activities, we question what value these plans 
bring to Medicare. It is not unreasonable to expect coordinated 
care plans to operate efficiently.
    We know that many beneficiaries appreciate the extra 
benefits and most cost-sharing that some MA plans offer. But 
these advantages should derive from savings from high quality 
care, eliminating waste and needless care, and cost-effective 
plan operation, not from Medicare excess payments that favor 
only the 20 percent of beneficiaries who have elected MA 
    AARP strongly concurs with the MedPAC recommendation of 
payment neutrality for all Medicare coverage options. Payments 
can be reduced gradually, without undermining beneficiaries' 
confidence in MA.
    In summary, it is fair and reasonable for Medicare 
Advantage plans to bring real value to Medicare by providing 
high quality, cost-effective, and efficient care. We look 
forward to working with you and your colleagues on both sides 
of the aisle on policies that improve the options offered to 
Medicare beneficiaries. Thank you, Mr. Chairman.
    [The statement of Byron Thames follows:]
           Statement of Byron Thames, M.D., Member, Board of
          Directors, American Association of Retired Persons,
                            Orlando, Florida

    Mr. Chairman and members of the Committee I am Byron Thames, a 
member of the AARP Board of Directors. AARP appreciates the opportunity 
to present our views on the Medicare Advantage program.
    Let me begin by reaffirming a core principle: AARP is committed to 
the Medicare program and believes it is essential that Congress 
continue to strengthen and improve Medicare for current and future 
beneficiaries. Medicare is a vital component of financial security for 
older Americans and many with disabilities, and we must ensure that the 
program continues to remain a viable and responsive part of retirement 
security for all Americans.
    I also want to reiterate our support for the Medicare Advantage 
program. We believe that it is important for people on Medicare to have 
genuine choices when it comes to how they receive Medicare benefits. To 
this end, beginning this year most of UnitedHealthcare's coordinated 
care Medicare Advantage plans will carry the AARP name.
    However, while we support a choice of coverage options, we 
emphatically believe that the choices must be genuine, that the options 
differ from one another and, most importantly, that each option offers 
high quality services.
    AARP believes that MA options in Medicare have the potential to 
bring real value to the program. The coordinated care plans available 
through Medicare Advantage in the form of health maintenance 
organizations (HMOs) and preferred provider organizations (PPOs) hold 
the promise of offering innovations in care delivery that can improve 
the quality of care as well generate savings. We know that many of our 
members enjoy the opportunity for care coordination available through 
integrated health plans, and we recognize that these types of plans can 
marshal resources to provide comprehensive care.
Private Fee for Service Not a Good Option for Medicare
    We are less sanguine about the private fee-for-service (PFFS) 
option and did not support its inclusion as a Medicare coverage option. 
AARP does not support PFFS for several reasons. PFFS plans are not 
required to coordinate care for their enrollees or participate in 
quality improvement activities--two key requirements for other MA 
options. Further, PFFS plans can set their own fee schedules--not 
subject to Medicare's important balance billing rules. And PFFS plans 
are not required to offer Part D prescription drug coverage.
    PFFS plans are also fundamentally confusing to beneficiaries. A 
PFFS plan appears to resemble the traditional Medicare program because 
enrollees can theoretically choose their providers. But this is not 
really the case. Enrollees cannot know in advance whether the doctors 
or hospitals they want to use will accept payment from a PFFS plan. 
Just last week, AARP was contacted by an anxious member who found that 
the teaching hospital where her husband was scheduled for surgery would 
not accept his coverage once they learned that he was enrolled in a 
PFFS plan. In talking to our member, it was quite clear that when she 
enrolled in her PFFS plan, she did not realize that this was not a 
supplement to traditional Medicare as she had purchased in the past. 
She believed that she would still be able to freely choose doctors and 
hospitals. She was confused by the apparent similarity between PFFS and 
the traditional Medicare plan because the marketing materials upon 
which she relied did not make the difference clear.
Unscrupulous Marketing Tactics Must Be Stopped
    There is abundant research, including studies that were 
commissioned by AARP's Public Policy Institute, that demonstrate that 
Medicare beneficiaries do not have an adequate understanding of the 
differences among Medicare's coverage options. A recent study by 
investigators at the Research Triangle Institute concluded that an 
increased number of plan choices complicate the health plan decision 
making process for beneficiaries. This often leaves some beneficiaries 
vulnerable to questionable marketing practices. Here again, PFFS plans 
are often a problem. State regulators and beneficiary advocates have 
reported numerous incidents of fraudulent marketing where beneficiaries 
have received inaccurate or misleading information about PFFS benefits 
and charges. Some of the marketing problems did occur in other MA plans 
as well. State regulators have expressed frustration that they are not 
able to pursue these incidents. AARP urges action that will put a stop 
to these practices once and for all.
    We commend CMS for the steps it took last summer in its effort to 
curtail questionable tactics used to move beneficiaries into MA plans. 
But we think further steps are needed. In testimony before the Medicare 
Private Plans SubGroup of the National Association of Insurance 
Commissioners in September, 2007, AARP made several recommendations 
intended to improve consumer protections in the MA market. These 

      Outbound education and verification calls should be made 
to all new enrollees in Medicare private plans to ensure that 
beneficiaries understand plan rules. These rules should apply to PFFS 
as well as other MA options.
      CMS should develop a mandatory national standardized 
Medicare training program for all agents who sell Medicare products. 
All such representatives should be required to pass a written test, 
based on standardized training, that demonstrates their thorough 
familiarity with Medicare and Medicare products (MA, PDP, Medigap) and 
how Medicare interacts with other coverage such as Medicaid, retiree 
health, VA, etc.
      NAIC should develop model regulations, setting standards 
for agent conduct, and defining prohibited activities with respect to 
the sales and marketing of MA plans. CMS and the States should adopt 
these regulations, which would allow both the State and Federal 
Governments to enforce them. The guidelines should include standard 
timelines for CMS and the States to render decisions.
      CMS and/or NAIC should continue ``secret shopper'' 
programs to determine whether their rules are followed by agents and 
      CMS, together with the States and the NAIC, should create 
a national database to provide and share information about agents and 
brokers who have been sanctioned or terminated by a health plan and for 
use in screening agents.
      The financial incentives or commissions that individual 
brokers receive based on the type of product they sell (e.g., MA, PDP, 
etc) should be publicly disclosed on the CMS website and presented to a 
beneficiary before enrollment. A beneficiary should have the right to 
know if an agent has a financial incentive to recommend one product 
over another.
      The same marketing and enrollment requirements should 
apply to all MA plans. PFFS should not have an unfair advantage in the 
marketplace, such as the extended open enrollment period that they now 
      Special consideration should be given to the marketing of 
PFFS plans to dual eligibles. There have been widespread reports of 
dual eligibles who did not understand the consequences of their 
decision to join a PFFS plan and have lost important Medicaid benefits. 
Because of the special enrollment rules for dual eligibles (i.e., they 
can enroll on a monthly basis), they have been targets of abuse.
      CMS and the States should vigorously enforce guaranteed 
issue protections that apply when agents misrepresent MA plans. 
Consumers who disenroll from an MA plan who wish to enroll in 
traditional Medicare within a certain period of time should have the 
opportunity to purchase Medigap. If someone had a Medigap policy other 
than one of the guarantee issue plans, he/she should be allowed to 
return to it with no break in coverage, and retroactively pay premiums 
for the elapsed period.
Improvements Needed In Medicare's Payment of MA Plans

    As noted earlier, AARP supports MA plans in the Medicare program. 
But we think they should co-exist with the traditional program on an 
equal footing. Currently, payment rates are, on average, skewed in 
favor of MA plans. This does not make economic sense for the Medicare 
program, nor is it fair to people on Medicare who opt for coverage in 
the traditional plan. The payment discrepancy between traditional 
Medicare and PFFS plans is particularly troublesome. The Medicare 
Payment Advisory Commission (MedPAC) reports that, on average, payments 
to PFFS plans exceed those Medicare makes on behalf of beneficiaries in 
the traditional program by 17 percent. The Commission cites two 
reasons: first, insurers offering PFFS plans tend to operate where 
payment rates are especially favorable, notably suburban and rural 
areas; and second, because their bids are relatively high, signaling 
more costly operations than those of HMOs, for example. In light of the 
fact that PFFS plans are not required to coordinate care for their 
enrollees and are not required to participate in quality improvement 
activities, such as reporting HEDIS quality data, we question what 
value these plans provide to Medicare. Furthermore, we see no 
justification for the substantial excess payments.
    HMOs were first introduced to Medicare because it was widely 
assumed from the experience of pre-paid group practice plans like 
Kaiser, Group Health Cooperative of Puget Sound, and others that by 
receiving a capitated payment, plans could oversee and manage care and 
operate efficiently. In fact, in the early days of the program, it was 
expected that private health plans would be able to operate with at 
least 5 percent less in payment than traditional Medicare. AARP 
believes that it is still not unreasonable to expect coordinated care 
plans to operate efficiently and cost effectively. We know that many 
beneficiaries appreciate some extra benefits and modest cost-sharing 
that many MA plans offer. But we believe that these advantages should 
derive from savings that accrue from high quality care, eliminating 
waste and needless care, and cost effective plan operation--not from 
Medicare excess payments that favor only the 20 percent of 
beneficiaries who have elected MA enrollment.
    As a policy matter, AARP strongly concurs with the MedPAC 
recommendation of payment neutrality for all Medicare coverage options. 
To rectify the situation excess payments can be reduced gradually 
without undermining beneficiaries' confidence in MA, and without 
causing plans to precipitously withdraw from Medicare or dislocating or 
inconveniencing beneficiaries.
    In summary, AARP continues to support plan choices that include MA 
plans. However, we are convinced that it is fair and reasonable for 
these plans--particularly PFFS plans--to demonstrate that they bring 
real value to Medicare by demonstrating measurable advantages in the 
form of high quality and cost-effective and efficient care. We look 
forward to working with you and your colleagues on both sides of the 
aisle on policies that improve the options offered to Medicare 


    Chairman STARK. Thank you, Doctor.
    Mr. Mattes?

                  HOSPITAL, LA GRANDE, OREGON

    Mr. MATTES. Good morning, Mr. Chairman and members of the 
subcommittee. Thank you for inviting me here today to tell the 
story of our hospital's experience with Medicare Advantage 
    Grande Ronde Hospital is a community-owned, not-for-profit, 
25-bed critical access hospital. We are located in the 
beautiful Blue Mountains of northeast Oregon in remote, rural, 
and isolated Union County.
    The closest tertiary facilities are located over mountain 
passes in Boise, Idaho, 177 miles to the east, and Portland, 
Oregon, 259 miles to the west. The three closest hospitals are 
an hour or more away, providing the weather is good. Travel 
during the winter months is treacherous, and a normal winter 
storm can shut down the highways for hours.
    My priority first concern is for the people we care for in 
our hospital. A large number of seniors who have enrolled in 
Medicare Advantage plans, about one-quarter by our count, do 
not realize they have opted out of traditional Medicare. The 
senior citizens and providers of Union County are overwhelmed 
with 21 Medicare Advantage plans. We routinely counsel and 
assist confused and frustrated beneficiaries, many of whom 
thought they were signing up for a Medicare supplement, drug 
benefits, or some other supplemental coverage.
    Our experience with beneficiaries also shows that Medicare 
Advantage plans are unresponsive when it comes to resolving 
problems or answering routine questions about coverage. Poor 
customer service by multiple plans leaves my staff picking up 
the slack in helping seniors to resolve claim and coverage 
issues. This means my hospital is effectively helping foot the 
bill for these plans, while at the same time they are being 
paid more than traditional fee-for-service Medicare.
    Also, some senior citizens end up subsidizing Medicare 
Advantage plans. Several of our sickest and poorest patients, 
who require frequent care, end up paying more out of their own 
pockets because of daily hospital and home health co-payments. 
You can imagine how upset a patient can be when on top of the 
trauma and anxiety that an illness or injury can cause, they 
must pay more out of pocket than they had anticipated.
    The consumer advisory unit of the Oregon Insurance Division 
recently issued a consumer alert advising seniors that some 
unscrupulous insurance agents are preying on seniors by using 
misleading tactics. Many of the abuses are occurring in the 
marketing and selling of Medicare Advantage plans.
    One example of such abuse in Union County is a churning of 
Medicare plans sold to seniors. Observations on the part of my 
billing staff suggest that the majority of Medicare Advantage 
enrollees are sold a new plan every year.
    Beneficiaries also are swept into problems created by 
Medicare Advantage plans. These plans have unusually high error 
rates, which delay the payment of claims and frustrate 
beneficiaries and providers.
    In a recent routine compliance audit, our facility randomly 
sampled Medicare Advantage payments and found the insurance 
carrier payment error rate exceeded 38 percent. Our hospital 
staff must review every claim for accuracy, and often must 
spend weeks or even months making phone calls and writing 
letters to straighten out a patient's account.
    When they do finally decide to pay a claim, they do not pay 
us electronically even though the claim was made 
electronically. Compared to traditional Medicare, it takes 
roughly three times as long to receive payment, which 
compromises provider cash flow.
    Mr. Chairman, I want to take a step back for a minute and 
look at the impact of Medicare Advantage on providers, and then 
I will close. The capitated rates paid to Medicare Advantage 
carriers in many rural communities are well above costs. With 
the mission of maximizing profits, Medicare Advantage insurance 
carriers have a strong incentive to focus their marketing 
efforts on the most profitable regions of the country, which 
may explain the extraordinary levels of enrollment in Union 
County, Oregon.
    As enrollment grows in the Medicare Advantage, I am 
concerned these carriers will use market leverage to force 
discounts in provider payments, which will hurt small and rural 
hospitals and, ultimately, the patients who depend on us for 
medical care.
    Mr. Chairman, I conclude by saying, quite simply, America's 
elderly and disabled deserve better. Medicare Advantage plans 
confuse and frustrate them, and poor communications and poor 
support leave them feeling abandoned. In many cases, they are 
unable to make an informed decision. Beneficiaries often end up 
bearing risk without an adequate understanding of whether or 
not they may be better off financially if they stayed with 
traditional Medicare.
    Rural hospitals and physicians also deserve better. The 
unchecked growth of Medicare Advantage plans and their rapid 
displacement of traditional Medicare is disrupting the 
healthcare mission of hospitals and physicians. Medicare 
Advantage plans underpay critical access hospitals in defiance 
of congressional intent. For Grande Ronde Hospital, this could 
soon exceed one million dollars per year.
    To sum up, these plans are hurting rather than helping some 
seniors and hospitals, and they are increasing the cost of care 
for everyone. Thank you.
    [The statement of James A. Mattes follows:]
              Statement of Jim Mattes, President and CEO,
                Grande Ronde Hospital, La Grande, Oregon

    Chairman Stark and distinguished members of the Committee, thank 
you for inviting me here today to share with you Union County, Oregon's 
experience with Medicare Advantage plans. I am Jim Mattes, President 
and Chief Executive Officer of Grande Ronde Hospital in La Grande, 
Oregon, where I have served for the past 24 years.
    My testimony draws on my community's experience and my hospital's 
experience with Medicare Advantage plans in Union County, Oregon. It is 
my hope that by sharing our experiences you will be able to see the 
adverse impact and long term consequences Medicare Advantage plans will 
have on beneficiaries, Critical Access Hospitals, and the healthcare 
Union County, Oregon (2000 U.S. Census)
    Union County, Oregon has a population of approximately 24,530 
people, dispersed over 2,039 square miles. Per capita income in Union 
County is $16,907. About 13.8% of the population is below the poverty 
line, including 9.5% of the population age 65 and over.
    The County seat is La Grande, a small community of 12,327 people. 
We reside in the Blue Mountains of Northeast Oregon, a remote rural 
part of the State, with 4,000+ foot elevation mountain passes in every 
direction. Travel during the winter months is treacherous, with winter 
storms sometimes closing our highways and making it impossible for 
people to leave the community.
Grande Ronde Hospital
    Grande Ronde Hospital is a community owned, not-for-profit, 25-bed 
Critical Access Hospital (CAH). The closest tertiary facilities are 
located over mountain passes in Boise, Idaho (177 miles to the East) 
and Portland, Oregon (259 miles to the West). The closest hospitals are 
St. Elizabeth (42 miles to the East), St. Anthony (50 miles to the 
West), and Wallowa Memorial (68 miles to the North). Patients requiring 
transfer to a larger medical facility must travel two to four hours by 
ground ambulance.
    In order to sustain access to local medical services, our hospital 
has recruited and employed 12 primary care providers (i.e. ten 
physicians and two nurse practitioners) who practice in three provider-
based clinics which are fully integrated with the hospital. 
Accordingly, our hospital's experience with Medicare Advantage plans is 
amplified by the fact that our provider-based clinic revenue is 
integrated with hospital revenue, and our hospital-owned clinics 
currently care for the majority of Medicare patients in our community.
Medicare Demographics in Union County, Oregon (2000 U.S. Census)
    Union County's age 65 and older population of 3,949 makes up 16.1% 
of the County's total population. Insurance agents in La Grande claim 
to have enrolled approximately 1,500 of these seniors into Medicare 
Advantage plans. This currently represents 38% of the County's Medicare 
population. Based on the rapid growth in Medicare Advantage enrollment 
in Union County we project that within two years Medicare Advantage 
enrollment could be 2,500 or 63% of our Medicare population. [See 
EXHIBIT 1: Medicare Enrollee Estimates]
Medicare Advantage Plans are Hurting Union County Seniors
    A large number of seniors who have enrolled in Medicare Advantage 
plans in Union County do not realize they have opted out of traditional 
Medicare--a frequent problem that we estimate occurs with one out of 
every four Medicare Advantage enrollees. At Grande Ronde Hospital, we 
routinely counsel and assist confused and frustrated beneficiaries. It 
is not uncommon to encounter patients who do not realize they have 
joined a Medicare Advantage plan. They simply thought they were signing 
up for a Medicare supplement, Medicare drug benefits or some other form 
of additional coverage. Beneficiaries are often upset to learn that 
they no longer have traditional Medicare coverage and that the ``low 
cost'' plan they opted for could potentially cost them more out of 
pocket than traditional Medicare.
Illustration #1: Mr. Johnson (not his real name) pays more out of 
    Mr. Johnson signed up for the Advantra Freedom Medicare Advantage 
plan, believing he had purchased a Medicare supplement and that he 
still has traditional Medicare. On December 1st he was admitted to our 
hospital for 8 days and was discharged on December 9th. On December 
15th Mr. Johnson was re-admitted to our hospital for 5 days and was 
discharged on December 20th.

    Mr. Johnson's out of pocket expenses are analyzed below.

    Cost under Medicare Advantage Plan (Advantra Freedom 5)

      $900.00 First Stay ($180/day 1-5 days)
      $900.00 Second Stay ($180/day 1-5 days)
      $55.00 Monthly Advantage plan premium
      $96.40 Medicare Part B Monthly Premium (paid in addition 
to Medicare Advantage Plan premium)

        TOTAL OUT OF POCKET: $1,951.40

    Cost under Traditional Medicare:

      $1,024.00 Part A Deductible ($1,024.00 every 60 days)
      $96.40 Part B monthly premium
      $120.00 (20% Part B co-pay, since Part B charges total 
$600.00 for both stays).

        TOTAL OUT OF POCKET: $1,240.40

    As the information above illustrates, Mr. Johnson paid an 
additional $711.00 out of pocket with his Medicare Advantage plan 
coverage than he would have under traditional Medicare coverage.
    There are eight Medicare Advantage insurance carriers and 21 
different plans in Union County for which our hospital and clinics have 
treated patients, and there are reportedly others being sold. [See 
EXHIBIT 2: Medicare Advantage Plan Growth; and EXHIBIT 3: Medicare 
Advantage Plan Options] Too many carriers, too many plans and too many 
benefit variables make due diligence comparison difficult and 
confusing, especially for the elderly--a setting that is vulnerable to 
abuse. The Consumer Advocacy Unit of the Oregon Insurance Division 
issued a ``Consumer Alert'' advising seniors to beware of abusive 
Medicare insurance sales practices, and included the following 
statement in their brochure for seniors: '' . . . some unscrupulous 
insurance agents are preying on seniors by using tactics that are 
confusing and misleading. Many of the abuses are occurring in the 
marketing and selling of Medicare Advantage plans . . . '' One such 
apparent abuse in Union County is the annual ``churning'' of Medicare 
Advantage plans sold to seniors. Our hospital billing staff estimates 
that the majority (more than 50%) of Medicare Advantage enrollees are 
sold a new plan each year by insurance agents reportedly going door-to-
door. The churning of plans adds to the confusion and frustration of 
beneficiaries as they struggle with knowing which carrier is 
responsible for which claim.
Anecdotal Story #2: Mr. Jones (not his real name) is unhappy
    Mr. Jones comes to the hospital ER admitting for medical treatment 
and presents both his Medicare and Medicare Advantage insurance cards. 
He insists that the Medicare Advantage plan is his secondary insurance. 
In an effort to avoid a dispute over coverage, the admitting clerk 
enters both plans into the system.
    When the billing department receives the patient's insurance 
information they realize that the patient cannot have both traditional 
Medicare and Medicare Advantage coverage, so the patient account 
representative calls the patient.
    Mr. Jones insists that he has both plans--despite all efforts to 
convince him otherwise. Eventually the patient account representative 
assures a very upset Mr. Jones that she will determine which insurance 
was in effect at the time the services were rendered and that she will 
call the patient back. Mr. Jones leaves the hospital very fearful that 
he may have lost his traditional Medicare coverage and simply does not 
understand what is going on.
    The patient account representative calls the insurance carrier. 
After spending 20 minutes on hold, the call is answered by an 
individual who struggles with English. With some difficulty, the 
patient account representative manages to confirm that the patient had 
Medicare Advantage coverage at the time the services were rendered. The 
patient account representative subsequently calls Medicare to verify 
that they have a record of the patient's Medicare Advantage plan 
coverage. Medicare has no record of any other coverage, and reminds the 
patient account representative that CMS requires that only 
beneficiaries may update their records via phone, and the account 
representative is not permitted to act on their behalf. Since the 
patient is not present to put on the phone, the patient account 
representative is unable to verify coverage information.
    The patient account representative next contacts the patient and 
explains the situation to him, at which point Mr. Jones becomes very 
upset that he has lost his Medicare coverage and decides that he wants 
to terminate his Advantage plan membership.
    After several frustrating calls to the Advantage plan without 
results, Mr. Jones brings all his paperwork to the hospital billing 
department and asks the patient account representative for help with 
terminating his Advantage plan coverage. Several phone calls and 45 
minutes later the patient's Advantage plan coverage was successfully 
terminated and he is again covered by traditional Medicare.
    The hospital billing department may now submit the ER bill to the 
Medicare Advantage plan for payment. Bills for any services rendered 
after the date on which the Medicare Advantage plan is terminated will 
be billed to traditional Medicare.
    As previously noted, Union County is a poor county with 9.5% of its 
senior population below the poverty line. Because of this demographic, 
Medicare Advantage plans with reduced deductibles appeal to seniors in 
our market. Unlike traditional Medicare, some Medicare Advantage plans 
impose daily hospital copayments and daily copayments for home health 
visits. Sadly, some of our sickest beneficiaries who require frequent 
care end up paying more out of pocket cost than traditional Medicare.
    Medicare Advantage plans also do a poor job of handling enrollee 
problems with claim and coverage questions. Insurance agents are not 
always available to beneficiaries to answer questions and resolve 
problems after a sale is finalized, and most of the Medicare Advantage 
plans operating in Union County have outsourced their customer service 
departments to foreign countries. When beneficiaries have a problem 
with a claim or want to discontinue their plan, they often have 
difficulty connecting with customer service personnel and routinely 
experience communication problems, including difficult language and 
accent barriers. Poor customer service, as illustrated in story #2 
above, often results in our hospital and clinic employees being called 
upon to help seniors resolve claim and coverage issues. In doing so, we 
are effectively subsidizing these Medicare Advantage plans.
Medicare Advantage Plans are Hurting Providers in Union County, Oregon
    While the focus of my comments relate to beneficiaries, I do want 
to mention several issues that our medical community is now facing with 
the explosion of Medicare Advantage plans in our area.
    There are two types of Medicare Advantage plans, Preferred Provider 
Organization (PPO) plans and Private Fee-for-Service plans. Both types 
of plans appear to have unfair leverage against rural providers. The 
capitated rates paid to Medicare Advantage carriers in some areas of 
the country, particularly in the rural western United States, are well 
above costs. With the mission of maximizing profits, Medicare Advantage 
insurance carriers have a strong financial incentive to focus their 
marketing efforts on the most profitable regions of the country, 
resulting in a disproportionate enrollment of rural Medicare 
beneficiaries. This may help explain the extraordinary levels of 
enrollment in Union County, Oregon.
    Medicare Advantage PPO plans pursue contractual relationships with 
providers, hoping to make them members of a PPO network. Grande Ronde 
Hospital has only one Medicare Advantage PPO contract, with negotiated 
payment rates which are nearly identical to the rates paid by Private 
Fee-for-Service plans in Union County. As with other commercial PPOs 
with a significant market presence, Grande Ronde Hospital is concerned 
that as enrollment grows, Medicare Advantage PPO carriers will use 
market leverage to force discounts in payment rates. Discounted payment 
rates for services provided to Medicare beneficiaries, hurt small and 
rural hospitals and undermine the Critical Access Hospital safety net 
intended by Congress.
    The other seven Medicare Advantage insurance carriers operating in 
Union County all sell Private Fee-for-Service plans. These carriers 
have forced Grande Ronde Hospital into becoming what is called a 
``deemed'' provider. This means that without signing a contract, our 
hospital has agreed to accept the plan's terms and conditions for a 
particular plan enrollee for a particular visit or admission, simply by 
treating a patient covered by one of these plans. Provider choices with 
Private Fee-for-Service plans are limited as follows: (1) provide the 
care these patients need and by doing so become a deemed provider or 
(2) refuse to provide treatment, but still comply with Emergency 
Medical Treatment and Active Labor Act (EMTALA) law. If Grande Ronde 
Hospital were to refuse to provide treatment, then these patients would 
be forced to leave town for their medical care. For the sake of our 
patients, the financial welfare of our hospital, and the good of our 
community we truly have no choice but to care for these patients. In 
our isolated rural setting with travel in and out of the community 
periodically shut down due to winter storms, a refusal to provide 
treatment could have serious consequences.
    Medicare Advantage Private Fee-for-Service plans sold in Union 
County are permitted to operate without a contracted network of 
providers. These plans are suppose to pay providers what Medicare would 
have otherwise have paid if the patient were a traditional Medicare 
patient. However, for CAH providers whose payments are ``cost-based'' 
under traditional Medicare, Medicare Advantage insurers are paying us 
the Medicare interim payment rate (i.e. the prior year cost-to-charge 
ratio plus 1%). Medicare Advantage insurers do not provide an inflation 
adjustment or a settlement process to reconcile actual costs against 
the interim rate, such as is proposed by Representative Ron Kind in the 
Rural Health Services Preservation Act. [H.R. 2159: ``. . . Although 
this CAH reimbursement system was enacted by Congress to preserve 
access to hospital services for our rural seniors, many CAHs do not 
receive payments at these levels today for providing care to 
beneficiaries enrolled in the Medicare Advantage program. H.R. 2159 
would ensure that CAHs are reimbursed at the same levels by private 
Medicare Advantage plans as they receive under the traditional Medicare 
program for inpatient, swing-bed, and outpatient hospital services.''] 
Traditional Medicare retrospectively reimburses CAH providers based on 
``actual costs'' following the conclusion of each fiscal year, with the 
actual cost-to-charge ratio becoming the new interim rate for the 
subsequent fiscal year. Medicare Advantage plans do not provide an 
adjustment for inflation and there is no look-back (i.e. reconciliation 
of actual costs against the interim rate) which can capture any 
increase in the actual cost-to-charge ratio.
    Grande Ronde Hospital's cost-to-charge ratios have been increasing 
in each of the past several years, including a 3.8% increase (i.e. 
66.14% to 69.94%) from FY2007 to FY2008. This means Medicare Advantage 
plans have underpaid us by an amount equal to 3.8% of patient charges, 
because there is no inflation adjustment or retrospective cost 
settlement process. [See EXHIBIT 4: Ratio of Cost to Charges] Many CAH 
providers have cost-to-charge ratios that are increasing, which 
typically occurs when net operating margins are declining. Grande Ronde 
Hospital's 3.8% jump in its cost-to-charge ratio from FY2007 to FY2008 
illustrates the significant financial impact which underpayment by 
Medicare Advantage plans can have on CAH providers. [See EXHIBIT 5: 
Medicare Advantage Plan Revenue; and EXHIBIT 6: Medicare Advantage Plan 
Underpayment Estimates] To this point in time, Grande Ronde Hospital 
has been able to absorb these underpayments, but in the future that may 
not be true for us or other CAH providers who are impacted by such 
cuts. It is well publicized that Medicare Advantage insurance carriers 
are making big profits because of the disparity between capitation 
payments and actual costs. However, few people know and understand that 
Medicare Advantage carriers are also making profits on the backs of 
small and rural hospitals as they force payment rates on providers 
which are below traditional Medicare payment rates. Even my hospital 
was caught off guard. It was my preparation for this hearing, over the 
past two weeks, that fully brought to light the magnitude of the 
shocking rise in Medicare Advantage enrollment in Union County and the 
impact that Medicare Advantage underpayment is having on my hospital.
    Another problem with Medicare Advantage plans is their very high 
payment error rates, which adversely impact provider productivity and 
increase healthcare costs. In a recent routine compliance audit we 
randomly sampled Medicare Advantage payments and found the insurance 
carrier payment error rate was 38.46%. Our hospital staff must review 
every claim for accuracy and often must literally spend weeks or even 
months of manual follow-up via multiple letters and phone calls to 
receive accurate payment for services rendered to beneficiaries.
    Poorly developed Medicare Advantage electronic or manual billing 
and claims processing systems also adversely impact hospital 
productivity and increase healthcare costs. All eight of the Medicare 
Advantage plans in Union County accept electronic billing, but none of 
them pay electronically, which appears to be an intentional method of 
improving Medicare Advantage carrier cash flow at the expense of 
providers. At my facility, Medicare Advantage claims are paid on 
average within 45 days of submission of a clean claim, compared to 
traditional Medicare where a clean claim is often paid within 14 days 
of submission. This has caused a 6.65% increase (i.e. $292,417) in 
Medicare accounts receivable, and it has compromised our cash flow.
Anecdotal Story #3: Hospital billing problems with Mr. Smith (not his 
        real name)
    Mr. Smith is admitted to the hospital on December 25, and is an 
inpatient until January 4th. When Mr. Smith presented to the admitting 
department he provided his ``Secure Horizons'' Medicare Advantage card.
    After discharge the hospital billing department submitted Mr. 
Smith's bill to Secure Horizons. Forty-five (45) days after claim 
submission, a denial is received via U.S. mail. The denial states 
``beneficiary not covered on these dates of service''.
    The patient account representative phones the patient and notifies 
him of the denial and questions his coverage dates. The patient 
explains that effective January 1 he has a new Medicare Advantage plan 
with ``Today's Options''. The hospital biller must now ``split bill'' 
this service, sending the bill for the first portion of the patient's 
stay to Secure Horizons, and the bill for dates of service after 
January 1 to the Today's Options. Each of the bills are subsequently 
paid 45 days after submission, a total of 90 days in accounts 
receivable from date of discharge to final payment.
    Had the Medicare Advantage plan been subject to the same electronic 
payment rules as Medicare, the original claim denial would have been 
received 14 days after claim submission, and both claims would have 
been paid in full (provided there were no other errors) roughly 28 days 
after the first claim submission. [Total days for payment: Medicare 
Advantage vs. Traditional Medicare (90 days vs. 28 days).]
    Inefficiencies and increased workload caused by Medicare Advantage 
plans has required significant additional man hours from billing and 
collection staff, accounting and administration. Our costs have 
increased in response to all of the following: assisting the elderly 
with their complaints, plans, benefits and claims; managing 21 plans in 
addition to traditional Medicare, which sometimes require split 
billing; resolving frequent payment errors; and managing their slow 
payment practices. You may be surprised to learn that the additional 
payroll expense caused by Medicare Advantage plans are allowable costs 
on the traditional Medicare cost report for CAH hospitals, which means 
that Medicare is unwittingly subsidizing Medicare Advantage plans 
through the back door. Unfortunately for us, Medicare only reimburses 
each hospital based on the ratio of Medicare volume to total volume and 
the majority of these added costs must be shifted to other carriers or 
subtracted from the hospital's bottom line.
    Senior citizens deserve better. They are confused and frustrated by 
the many benefit packages offered by Medicare Advantage plans; the 
elderly are often unable to resolve problems and make informed 
decisions because of poor plan communications and plan support; and 
some Medicare beneficiaries would be better off financially if they 
stayed with traditional Medicare. Medicare Advantage plans are 
structured so that enrollees are taking risk, but without an adequate 
understanding of the risk they are taking. Congress needs to assure 
that seniors are well-informed, decision making is made simple, and 
risks are mitigated.
    Rural hospitals and physicians also deserve better. The frightening 
growth of Medicare Advantage plans and their rapid displacement of 
traditional Medicare are having an adverse impact on our local 
healthcare system. Medicare Advantage plans appear to have unfair 
leverage against small and rural communities where costs are well below 
capitation rates, and they underpay CAH providers. The very high 
payment error rates, the delay in payments to providers, and the 
increased workload these plans impose on providers are collectively 
undermining the integrity of the Medicare program and increasing the 
cost of healthcare.
    Congress passed legislation to protect CAH providers and ensure 
access to care in rural communities. Somehow, it would appear, the 
Medicare Advantage program has been allowed to circumvent congressional 


    Chairman STARK. Thank you.
    Mr. Lipschutz?


    Mr. LIPSCHUTZ. Chairman Stark, Ranking Member Camp, 
distinguished committee members, thank you for the opportunity 
to testify today. My name is David Lipschutz, and I am interim 
president, CEO, and staff attorney of California Health 
Advocates, an independent nonprofit organization dedicated to 
education and advocacy efforts on behalf of Medicare 
beneficiaries in California.
    Our experience with Medicare is based in large part on our 
close work with California's State health insurance program 
known in our State as HICAP, which is on the front line 
assisting Medicare beneficiaries. Of the various options within 
the Medicare program to access benefits, we recognize that some 
Medicare Advantage plans can work for some individuals.
    Other Medicare beneficiaries, however, can be disadvantaged 
by joining MA plans for a variety of reasons, including 
restriction of access to providers, high out-of-pocket 
expenses, and other barriers to care such as utilization 
    My testimony will briefly focus on general issues faced by 
MA plan enrollees, new insurance products being sold to fill in 
the gaps of MA plans, and the experience of dual eligibles who 
enroll in MA plans.
    The staggering rise in the number, type, and variation of 
MA plans over the last two years, coupled with aggressive and 
misleading marketing, has greatly hindered the ability of 
Medicare beneficiaries to make informed decisions about how 
they want to access their Medicare benefits.
    Many beneficiaries are lured by MA plans with zero or low 
monthly premiums, corresponding offsets of their Part D 
premium, and extra benefits of often limited value. Once 
enrolled and in need of services, however, many find they are 
liable for cost-sharing on a par with or even greater than 
original Medicare.
    Since MA cost-sharing is commonly downplayed during sales, 
those with chronic conditions can face catastrophic costs they 
hadn't anticipated, and realize too late that they would have 
been better off financially by purchasing a Medigap policy.
    For example, a HICAP counselor in southern California, who 
has extensive experience working with individuals with cancer, 
reports that most MA plans she deals with are charging at least 
20 percent in cost-sharing for chemotherapy and radiation. 
Enrollees in these plans who receive cancer treatment often 
have thousands of dollars in monthly out-of-pocket expenses.
    Most cancer patients in this situation report that when 
they signed up with their MA plan, they thought that the co-
payments for chemo would be between $35 and $50. Many tell the 
counselor that they would rather die than leave their families 
without money.
    Some who join MA plans are surprised to learn that 
providers who they had seen for years are not members of the 
plan's network or, particularly in the case of private fee-for-
service plans, refuse to accept the plan's terms and 
conditions, leading to problems finding doctors who will treat 
    Over the last year, much attention has been focused on 
appalling abuses surrounding the sale of Medicare Advantage 
plans. Despite this attention, though, we believe that far too 
little action has been taken by CMS, and as a result, such 
abuse appears to continue unabated.
    Despite industry claims that MA products are a good value 
for all beneficiaries, significant fissures in MA plan coverage 
have led to the emergence of a new insurance product aimed at 
filling those gaps. This product, sometimes called Advantage 
Plus, is designed to fill in the gaps in MA plans, including 
high out-of-pocket expenses for vital services such as 
inpatient hospital care, skilled nursing facility stays, 
durable medical equipment, and drugs covered under Medicare 
Part B.
    We believe that the existence of these products is a 
symptom of a more widespread disease afflicting the Medicare 
Advantage program, and underscores how far too many MA plans 
impose high cost-sharing while providing inadequate benefits.
    Individuals who are dually eligible for Medicare and 
Medicaid are entitled to a broad range of benefits provided by 
both programs. Enrollment in Medicare Advantage plans, though, 
can create problems for dual eligibles such as access to care 
issues and greater out-of-pocket expenses.
    Medicare Advantage special needs plans, or SNPs, are in 
theory designed to address the needs of duals and other 
designated populations. Without formal requirements mandating 
that they provide care coordination, integration with Medicaid, 
and targeted case management, often SNPs remain special in name 
    Unfortunately, many duals who were automatically enrolled 
in SNPs over the last two years have experienced significant 
problems with accessing care and coordinating coverage and 
payment with State Medicaid programs.
    Other MA plans, notably private fee-for-service plans, are 
generally ill-suited to address the complex needs of dual 
eligibles and often cause harm to this vulnerable population. 
Dual eligibles are targeted by some PFFS plan sponsors and 
agents without regard to the suitability of such plans, 
including meaningful comparison with Medicaid benefits already 
available to them and access to providers who accept both 
Medicare and Medicaid.
    Instead, duals are being targeted and convinced to enroll 
in PFFS plans based upon extra benefits that agents and plans 
say will save them money. Once enrolled, however, duals often 
find that their doctors won't take their plan, and they are 
charged cost-sharing for services and items they did not 
previously have to pay for.
    We recognize and appreciate that the CHAMP Act would have 
addressed some of these problems, and we are disappointed it 
did not become law.
    For our specific recommendations on improving the MA 
program, we refer you to our written testimony and the various 
documents cited therein. Thank you.
    [The statement of David Lipschutz follows:]
        Statement of David Lipschutz, Interim President and CEO,
          California Health Advocates, Los Angeles, California

    California Health Advocates (CHA) is an independent, non-profit 
organization dedicated to education and advocacy efforts on behalf of 
Medicare beneficiaries in California. Separate and apart from the State 
Health Insurance Program (SHIP), we do this in part by providing 
support, including technical assistance and training, to the network of 
California's Health Insurance Counseling and Advocacy Programs (HICAPs) 
which offer SHIP services in California. CHA also provides statewide 
technical training and support to social and legal services agencies 
and other professionals helping Californians with questions about 
Medicare. Our experience with Medicare is based in large part on our 
close work with the HICAPs and other consumer assistance programs that 
are on the front line assisting Medicare beneficiaries.
    Of the various options within the Medicare program to access 
benefits, we recognize that Medicare Advantage (MA) plans can work for 
some individuals. Other Medicare beneficiaries, however, are often 
disadvantaged by joining MA plans for a variety of reasons, including 
restriction of access to providers (including specialists), out-of-
pocket expenses (sometimes greater than Original Medicare), and other 
barriers to care such as utilization management. Payments to MA plan 
sponsors and corresponding commissions and bonuses paid to agents 
combine to foster an epidemic of marketing misconduct; all too often, 
the best plan for the agent is sold rather than the best plan for the 
    MA plans are, in theory, supposed to ``fill in the gaps'' of 
Original Medicare as well as provide additional benefits. Many plans, 
however, fail to provide protection against out-of-pocket expenses 
resulting in a new product--the MA gap plan--that is being sold to fill 
in expensive gaps in MA plans. In addition, certain beneficiaries can 
be harmed by joining MA plans--in particular, individuals dually 
eligible for Medicare and Medicaid--as well as other beneficiaries who 
are faced with unaffordable out-of-pocket expenses as a result of 
joining such plans.
    It is not our purpose to disparage all MA plans, but to call into 
question the value we are getting out of MA plans collectively, 
particularly given the amounts MA plan sponsors are paid over and above 
the costs to Original Medicare of providing care to similarly-situated 
beneficiaries. We also question whether informed decision-making is 
impaired by lack of standardization, and the sheer number of plans 
combined with countless variations in benefits and cost-sharing that 
compete for beneficiary attention--particularly PFFS plans--and whether 
these plans are meeting the needs of all, or even a subset, of 
    This written testimony will focus on four areas:

      general issues faced by MA plan enrollees, including plan 
benefits, cost-sharing, access to providers, trends in retiree 
coverage, and marketing misconduct;
      new insurance products being sold to fill in the gaps of 
MA plans;
      the experience of dual eligibles in MA plans; and
      recommendations to address shortcomings of the MA 

    Choosing the appropriate Medicare coverage for an individual's 
particular circumstances has become tremendously complicated for most 
Medicare beneficiaries since the enactment of the Medicare 
Modernization Act of 2003 (MMA). Increased payment to insurance 
companies has led to a staggering increase in the numbers and types of 
Medicare Advantage plans. Across the country, Medicare beneficiaries 
face an unprecedented array of MA products, each with complex benefit 
variations, and differences in premiums and cost-sharing requirements. 
These variations tend to confound prospective enrollees, and often 
obscure the potential for out-of-pocket costs, making it difficult for 
consumers to compare costs and benefits both between plans and with 
Original Medicare.
    While some individuals do benefit from enrollment in Medicare 
Advantage plans, it largely depends on an individual's plan and his/her 
individual needs. Conversely, others are significantly harmed by 
enrolling in MA plans. Not only do some people who join MA plans lose 
and have difficulty re-acquiring their Medigap and retiree plans, but 
the benefits of MA plans can quickly be erased if healthcare needs 
change, and people need care that is more expensive than under Original 
MA Plan Benefit Packages and Cost-Sharing
    Through analysis of the Medicare Advantage marketplace, along with 
the collective experience of those who counsel Medicare beneficiaries, 
it is clear that there are serious deficiencies in the benefit packages 
of many Medicare private health plans. As discussed in a September 2007 
report by California Health Advocates and the Medicare Rights Center, 
MA plan shortcomings include:

      consumers with chronic illness can unknowingly incur 
widely varying levels of cost-sharing under different plans;
      many MA plans do not provide a limit on enrollees' annual 
out-of-pocket expenses for medical services, or they exempt certain 
services (such as chemotherapy) from such limits; and
      many plans charge the same or higher cost-sharing than 
Original Medicare for specific, costly services, such as inpatient 
hospital care, nursing home stays, durable medical equipment and home 
    \1\ See California Health Advocates and Medicare Rights Center 
report ``Informed Choice: The Case for Standardizing and Simplifying 
Medicare Private Health Plans (September 2007), available at: http://

    Using the great flexibility afforded by Medicare law and 
regulations, and under the guise of marketplace ``innovation,'' many 
plan sponsors design their benefits in such a way that front-loads 
cost-sharing for the most expensive items, (e.g., hospitalization, 
skilled nursing facility stays, Part B drugs)--services for which 
beneficiaries do not have a choice to forego, and are not susceptible 
to incentives to try other providers (e.g., to see primary care 
providers rather than specialists) or other treatment options.
    Despite these significant shortcomings in plan benefits, many 
beneficiaries are lured by plans with zero monthly premiums and/or 
``extra benefits,'' only to find that once enrolled and in need of 
services, out-of-pocket expenses can equal or exceed Original Medicare. 
Cost-sharing for services is too often not made apparent when plans are 
sold, and those with chronic conditions often face catastrophic costs 
and are often better off financially by purchasing a Medigap policy.
    Example: A HICAP counselor in Southern California who has extensive 
experience working with individuals with cancer, reports that most MA 
plans she deals with are charging at least 20% in cost-sharing for 
chemotherapy and radiation. Enrollees in these plans who receive cancer 
treatment often have thousands of dollars in monthly out-of-pocket 
expenses. Most cancer patients in this situation report that when they 
signed up with their MA plan they thought the copayments for chemo 
would be $35-$50. Many tell the counselor that they would rather die 
than leave their families without any money.\2\
    \2\ Also see an article in California Health Advocates' August 2006 
online newsletter re: chemo copays for cancer patients and the trend in 
MA plans towards charging full Part B cost-sharing vs. flat copays at: 
    Many individuals who seek or already have Medigap policies enroll 
in Medicare Advantage plans because they are led to believe that MA 
plans either function just as Medigap plans do, or even better (some in 
fact enroll in MA plans believing them to be actual Medigap policies). 
Conned by slick marketing, new MA plan enrollees often do not 
understand that they no longer have the same out-of-pocket spending 
protections that they had in their Medigap policies, are astonished to 
find that they can no longer see their regular doctors and are hit with 
high medical bills. Also, unlike Medigap plans, which cannot change 
benefits year-to-year and are guaranteed renewable, every year MA plan 
sponsors can change benefits, cost-sharing and premiums, forcing 
enrollees to reanalyze their benefits annually.
    It is well documented that Medicare Advantage plans are paid more 
than Original Medicare rates, and, as partial justification, plan 
sponsors often tout ``extra benefits'' that are being provided to their 
enrollees. Many of the same plans that charge the same or higher cost-
sharing than Original Medicare downplay those costs but heavily promote 
additional benefits of lesser value, ranging from eyeglasses, hearing 
aids, gym membership, to a monthly allotment of over the counter 
pharmacy supplies. From an individual beneficiary's standpoint, these 
``extras'' can provide limited value when compared with high out-of-
pocket costs and problems accessing providers that accompany many 
plans. From a broader perspective, luring enrollees with ``extra 
benefits'' provided now, given that current payment rates are 
unsustainable, is setting enrollees up for a bait-and-switch scenario 
down the road if plan benefits are cut (or even the following year, as 
plans can fundamentally change their benefits annually).
Access to Providers
    Unlike Original Medicare, coordinated care plans limit access to 
designated provider networks. Some who join MA plans are surprised to 
learn that providers who they had seen for years are not members of the 
plan's network, or refuse to accept the plan's benefits, forcing them 
to find new providers or get out of the plan when they are able to do 
    The greatest risk of not being able to find a provider, 
paradoxically, seems to occur with MA Private Fee-for-Service (PFFS) 
plans that were created, in part, to allow enrollees to access a wide 
range of providers. Although enrollees can seek care from any provider 
willing to accept the plan's terms and conditions, providers who do not 
have a contract with the plan can decide whether to continue to accept 
the plan with each visit or treatment. In many cases, PFFS plan 
enrollees struggle to find providers willing to accept the plan's terms 
and conditions. For example, the California Medical Association reports 
low participation by its members in PFFS plans, and expresses concern 
that PFFS plan networks are inadequate, particularly for specialty 
    \3\ Correspondence between California Health Advocates and the 
California Medical Association, February 2008.
    Example: Ms. P., an 86-year old dual eligible from Central 
California, was enrolled in a PFFS plan without her knowledge by an 
insurance agent who knew she was a dual eligible. She was scheduled to 
have surgery at a local hospital to treat breathing problems and 
difficulty swallowing food due to a growth in her throat, but the 
hospital refused to accept the PFFS plan she was enrolled in.
Retiree Coverage
    In addition to individuals who give up a Medigap plan in order to 
enroll in a Medicare Advantage plan, and have difficulty getting their 
Medigap plan back, some beneficiaries who have pre-existing retiree 
coverage are often in danger of losing such coverage when they enroll 
in a Medicare Advantage plan that does not contract with their retiree 
    Example: Mr. S., a Northern Californian who is 86 years old, had 
Medicare, Medi-Cal (Medicaid) and a retiree plan. After several calls 
from an insurance agent, Mr. S. gave in and allowed the agent into his 
home. Although the agent was aware that Mr. S. had retiree coverage, 
she pressured him to enroll in an MA PFFS plan anyway. As a result, he 
lost his retiree coverage. The local HICAP program is working to try to 
help him get his retiree plan back.
    In contrast with retiree plans that do not coordinate with Medicare 
Advantage, other employers are increasingly looking to push their 
retirees into Medicare Advantage plans, leading to access to care 
issues, as well as strains on the financial viability of the Medicare 
program for all beneficiaries, not just those in MA plans. There is a 
growing trend of State and local governments, organizations and 
corporations attempting to save money by shifting their healthcare 
costs to the Federal government and enrolling retirees in Medicare 
Advantage products, particularly Private Fee-for-Service (PFFS) 
plans.\4\ This trend exacerbates the strain on Medicare's finances 
already imposed by Medicare Advantage overpayments. The same problems 
encountered by other PFFS enrollees also confront retirees. Although 
plan sponsors market PFFS products as ``nationwide'' because they are 
not required to use a network, David Fillman of AFSCME notes that this 
claim is ``false''; PFFS plans ``limit access to care and choice 
because significant numbers of doctors and hospitals have refused to 
accept [the patients enrolled in these plans], especially out-of-
state.'' \5\
    \4\ See, e.g., ``Medicare Trend Raises Eyebrows'' by Ricardo 
Alonso-Zaldivar, Los Angeles Times, 2/11/08.
    \5\ Testimony of David Fillman, AFSCME, before the Senate Finance 
Committee on 1/30/08, available at: http://finance.senate.gov/hearings/
    Example: The Center for Medicare Advocacy reports recently hearing 
from a Michigan retiree who is now living in Orlando, Florida, and 
can't find a doctor or hospital that is willing to accept the PFFS plan 
his former employer forced him into. He reports that his Blue Cross 
Blue Shield plan is working on the problem, but in the meantime he 
can't go to a doctor or hospital.
Marketing Misconduct
    Consumer advocates, State insurance regulators, Congress and the 
media have all focused attention on appalling abuses surrounding the 
sale of Medicare Advantage plans over the last two years that have 
resulted in substantial harm to the victims of such abuse and financial 
gain to insurance companies and agents.\6\ While much attention has 
been paid to these abuses, in our view, far too little action has been 
taken by CMS, which, under the MMA, retains the sole jurisdiction over 
almost all regulatory issues concerning MA plans. Unfortunately, SHIP 
programs across the country report that marketing misconduct continues 
    \6\ See, e.g. issue briefs written by California Health Advocates 
and the Medicare Rights Center entitled ``After the Gold Rush: The 
Marketing of Medicare Advantage and Part D Plans'' (January 2007) and 
``The Reluctant Regulator: Centers for Medicare and Medicaid Services' 
Response to Marketing Misconduct by Medicare Advantage Plans'' (July 
2007); also see California Health Advocates' testimony before this 
Subcommittee on May 22, 2007 and before the House Energy & Commerce 
Subcommittee on Oversight & Investigations on June 26, 2007. All of 
these documents are available at: http://www.cahealthadvocates.org/
    We refer the Subcommittee to the resources cited above which 
address marketing misconduct surrounding the sale of MA plans, 
including incentives pushing such activity. The following, though, 
serves as a typical example of marketing misconduct, this one impacting 
a member of the HICAP family in California earlier this month. Although 
this example is lengthy, it is illustrative in that it includes a 
number of the common lies, deceptions and distortions that agents still 
widely use to con people into joining Medicare Advantage plans.
    Example: Ms. T., a dual eligible with limited English proficiency 
living in California's Central Valley, received a call from an 
insurance agent claiming to be from the ``health department'' and said 
she wanted to come by and ``check up'' on her. Ms. T. asked her 
daughter, who works for a local HICAP program, to be present when the 
agent visited her home in early February 2008. The agent arrived 
wearing a badge that appeared very similar to a Medicare card, with the 
agent's name handwritten on it, and declared that she was ``from 
Medicare.'' The agent lied that she was not an agent, and was not there 
to sell anything, but simply wanted to go over Medicare issues. The 
agent explained that Ms. T. has Medicare Parts A, B, and D, so now she 
needed to enroll in Part C. She stated that Part C ``works with 
Medicare together'' and she would have no copays. She stated that when 
``you go to the doctor, you show your Medicare and Medi-Cal card, but 
when you go to a doctor that doesn't accept Medi-Cal, you would show 
your Medicare Advantage card--all 3 cards work together.'' She added 
that ``you do know that Medicare and Medi-Cal won't cover nursing 
homes, so you need to enroll in Part C right away--you shouldn't be 
long, you shouldn't be without coverage.'' When the agent pulled out an 
MA application, Ms. T's daughter declined, but asked the agent to leave 
information. The agent refused to leave marketing material, stating 
that she only had one copy, but left her business card, indicating that 
she was indeed a broker selling MA products. Since Ms. T.'s daughter 
works for a local HICAP, she realized that just about everything said 
by the agent was a lie or deception at best, and prevented her mother's 
enrollment in this plan. The vast majority of Medicare beneficiaries do 
not have such accessible help when targeted by unscrupulous agents.
    Despite the claims of the insurance industry, this is not a matter 
of ``rogue agents'' or a ``few bad apples''--we are convinced that the 
payment incentives to plans, and, in turn, the commissions and bonuses 
paid to agents, drive this type of abuse. While states retain 
jurisdiction over agents selling Medicare plans, they lack authority to 
punish the plans for a range of misbehavior, including actions 
performed by agents selling their products. While a few MA plans have 
received nominal fines, enrollment suspensions and other more severe 
punitive measures are rarely meted out by CMS. As discussed below, in 
our experience, the most severe and prevalent marketing abuses continue 
to concern the sale of Private Fee-for-Service plans to dual eligibles.
    The insurance industry and CMS insist that Medicare Advantage 
products are a good value for all beneficiaries, in terms of ``extra'' 
benefits offered and out-of-pocket savings when compared with the 
Original Medicare program. Despite these assurances, however, 
significant fissures in MA plans have led to the emergence of a new 
insurance product aimed at ``filling'' those gaps. This product, 
sometimes called ``Advantage Plus'', is being marketed by plan sponsors 
to insurance agents as a ``wrap-around plan'' that is ``designed to 
fill in the gaps in Medicare Advantage Plans.'' \7\
    \7\ See a recent issue brief on this topic written by California 
Health Advocates entitled ``There's a Hole in the Bucket: New ``Gap'' 
Product Being Sold to Fill-in Medicare Advantage Deficiencies'' 
(November 2007), available at: http://www.cahealthadvocates.org/
    These limited-benefit plans bundle a collection of insurance 
products, such as hospital indemnity plans and other piecemeal 
coverage, and pay cash benefits directly to enrollees of MA plans to 
cover out-of-pocket costs imposed by their MA plan. They are designed 
specifically to address high out-of-pocket expenses charged by many MA 
plans for vital services such as inpatient hospital care, skilled 
nursing facility stays, durable medical equipment and cancer/
chemotherapy drugs covered under Medicare Part B.
    Companies offering these products encourage insurance agents to 
sell these ``gap'' plans alongside Medicare Advantage products. For 
example, one flyer directed towards agents boasts: ``If selling 
Medicare Advantage Plans, be sure to check out our Wrap Around product 
section. Easily add an additional 50% in commissions to each Medicare 
Advantage Sale. Plan can be sold all year long!'' Anecdotally, we have 
heard of agents encouraging MA enrollees who get a Part B premium 
rebate through their plan to apply those savings towards purchasing one 
of these gap products.
    The sale and promotion of these products exacerbates the confusion 
in the Medicare marketplace generated by enormous numbers of MA and 
Part D plans with multiple and complex plan designs. Further, we 
believe that the existence of these plans is a symptom of a more 
widespread disease afflicting the Medicare Advantage program, and 
underscores how far too many MA plans impose high cost-sharing while 
providing inadequate benefits. Part of the promise of allowing private 
insurance companies to offer plans within the Medicare program was that 
they could provide better benefits, more efficiently, for less money to 
both beneficiaries and the Medicare program. These gap products, 
though, that are sold to fill in gaps in coverage that MA plans are 
failing to fill themselves, starkly highlight the failures of the MA 
program to achieve these goals.
    Individuals who are dually eligible for Medicare and Medicaid are 
entitled to a broad range of benefits provided by both programs. This 
population, many of whom have significant and complex health needs and 
generally a lower level of health literacy, rely on overlapping 
coverage and payment through the Original Medicare program as primary 
payer and Medicaid as additional coverage. Many MA plans find dual 
eligibles to be attractive targets due to their right to enroll in and 
disenroll from plans on a monthly basis, allowing plans to ``poach'' 
enrollees from one another, and also because capitated payments to 
plans are generally higher for dual eligibles.
    Enrollment into a Medicare Advantage plan, though, can create 
problems for dual eligibles not encountered in the Original Medicare 
program, such as access to care (due to problems accessing providers 
and utilization management techniques) and greater out-of-pocket 
expenses. The issue of whether a State Medicaid program is obligated to 
pay the Medicare cost-sharing for dual eligibles enrolled in MA plans 
is a complicated one, and includes factors such as a ``dual eligible's 
coverage category, the type of cost-sharing, the options elected by the 
State, and payment limitations specified in the State Plan.'' \8\ In 
short, practically speaking, it appears that many States do not pay MA 
cost-sharing for duals in their State, and, as a result, dual eligibles 
are often charged these amounts. In addition to MA cost-sharing, some 
duals have to pay premiums for MA plans for coverage that is no 
different and sometimes worse than under Medicaid.
    \8\ June 11, 2007 Memorandum from CMS, Center for Medicaid and 
State Operations, Disabled and Elderly Health Programs Group to All 
Associate Regional Administrators, Division of Medicaid and Children's 
Health re: Medicaid Obligations for Cost-Sharing in Medicare Part C 
Plans; also see Center for Medicare Advocacy's May 31, 2007 Weekly 
Alert entitled ``Medicare Cost-Sharing in Medicare Advantage Plans: Who 
Pays for Dual Eligibles?'' at: http://www.medicareadvocacy.org/
    Certain MA plans--Special Needs Plans (SNPs), are--in theory--
designed to address the needs of dual eligibles, although it 
questionable how well many SNPs perform in this regard. Other MA plans, 
notably Private Fee-for-Service (PFFS) plans, are generally ill-suited 
to address the complex needs of dual eligibles, and often cause 
significant harm to this vulnerable population.
Special Needs Plans (SNPs)
    The Medicare Modernization Act (MMA) authorized Medicare Advantage 
Special Needs Plans (SNPs) that can be designed to provide coverage for 
certain designated populations: dual eligibles; individuals who are 
institutionalized; and individuals with chronic and disabling 
conditions. Since 2006, enrollment in SNPs has increased exponentially, 
however many dual eligibles--most of whom did not seek out a SNP on 
their own but were automatically enrolled into one--have experienced 
significant problems with accessing care and coordinating coverage and 
payment with State Medicaid programs.
    While SNPs present the opportunity for better care coordination, 
integration and targeted care management, there are no formal 
requirements set out in law, regulation or CMS guidance that SNPs 
actually deliver these goals. In the words of one advocate with 
significant experience assisting dual eligible clients who encounter 
problems with their SNPs, ``absent minimum standards for meeting the 
special needs of the populations they serve, labeling these plans as 
specially designed to do so is misleading.'' \9\
    \9\ Alissa E. Halperin, Managing Attorney, Pennsylvania Health Law 
Project, author of a paper for the Center for Medicare Advocacy 
entitled ``Medicare Advantage Special Needs Plans: A Beneficiary 
Perspective'' (October 2007); also see, generally, Center for Medicare 
Advocacy's Special Needs Plan Conference materials (October 2007), 
available at: http://www.medicareadvocacy.org/SNP%20Conference/
Private Fee-for-Service (PFFS) Plans
    While SNPs are designed to address the needs of dual eligibles (at 
least in theory), other Medicare Advantage plans enroll dual eligibles 
and even seek them out, even though enrollment in many plans appears to 
offer little tangible benefit, if any, and often leads to significant 
problems. Over the last two years, we continue to see a disturbing 
trend of PFFS plan sponsors and their contracting agents marketing PFFS 
plans to dual eligibles. In many cases, dual eligibles have been left 
worse off due to access to care issues (including loss of access to 
providers) and increased out-of-pocket costs.\10\
    \10\ See, e.g., CHA's prior testimony before this Subcommittee on 
May 22, 2007 re: PFFS
plans, available at: http://www.cahealthadvocates.org/advocacy/2007/
    In our experience, some of the worst and most widespread marketing 
violations have involved dual eligibles who are sold PFFS plans. 
Information about the suitability of MA plans for dual eligibles, 
including meaningful comparisons with Medicaid benefits already 
available to them, is not made available by the plans or is misleading, 
and, at best, glossed over during sales pitches.
    Example: Mr. C., age 74, is a California dual eligible who is very 
ill and dependent on oxygen. He was visited by an insurance agent 
recently who pushed him to enroll in an MA PFFS plan. The agent touted 
it as a plan ``just for people on Medi-Cal.'' As a result of his 
enrollment, Mr. C. is now being billed for services he did not 
previously have to pay for, including about $4,000 from a durable 
medical equipment provider who was not paid by the plan. The local 
HICAP is assisting him with his enrollment and billing issues.
    Dual eligibles are being targeted and convinced to enroll in PFFS 
plans based upon ``extra'' benefits that agents and plans say will save 
them money. Duals are often enticed by $20 over the counter benefits, 
and ``extra'' hearing, vision and dental coverage, without regard to 
individual states' actual Medicaid benefits that they might already be 
entitled to.
    Once enrolled, however, duals often find that their doctors won't 
take their PFFS plan. If their primary doctor does take the plan many 
still find that they are charged for doctors' visit copays, 
wheelchairs, walkers and other services and items they did not 
previously have to pay for. A large portion of duals encounter 
difficulty finding specialists who will agree to accept their plan. 
When HICAP programs try to help dual eligibles get out of plans that 
are not appropriate for them and untangle resulting complex billing 
issues, some beneficiaries are subject to harassing calls from agents 
upset that they are losing out on their commissions.
    At least one PFFS plan sponsor acknowledges that this plan type is 
not appropriate for dual eligibles. During a Congressional hearing 
wherein his company was criticized for the conduct of an agent selling 
his PFFS plan to dual eligibles, Coventry Vice President Francis 
Soistman admitted that'' . . . PFFS plans may not be suitable for dual 
eligibles.'' \11\
    \11\ Testimony of Francis S. Soistman, Jr., Executive Vice 
President, Coventry Health Care, Inc., before House Energy & Commerce 
Subcommittee on Oversight & Investigations, June 2007, available at: 
    Other plans, however, hold themselves out as specially catering to 
duals--notably WellCare Duet PFFS plans. When asked about the 
appropriateness of PFFS plans targeting dual eligibles for enrollment, 
a CMS official replied at a hearing before this Subcommittee that 
Medicare Advantage ``is a market-based program and dual-eligibles, like 
everyone else, have the option of choosing how they wish to obtain 
services and where they wish to be enrolled.'' \12\
    \12\ Testimony of Abby Block, Director of Division of Beneficiary 
Choices, CMS, May 22nd, 2007.
    California Health Advocates, as well as a number of other 
beneficiary advocacy groups, has offered several recommendations for 
curing some of the current problems faced by Medicare Advantage 
enrollees.\13\ We recognize--and appreciate--that the Children's Health 
and Medicare Protection (CHAMP) Act of 2007, passed by the House last 
August, addressed a number of these issues, and we are disappointed 
that it did not become law. Our recommendations range from broad 
changes to the structure and financing of Medicare Advantage, to 
specific proposals that can be implemented by CMS as the Federal 
regulator of these plans. In short, these recommendations include:
    \13\ See, e.g., documents cited in footnotes 1 and 6, infra, as 
well as CHA's testimony before the National Association of Insurance 
Commissioners (NAIC) Senior Issues Task Force--Medicare Private Plans 
Subgroup, Public Hearing on Regulation of Medicare Private Plans 
(September 11, 2007), available on the NAIC website.

      Create standard benefit packages for Medicare Advantage 
and Part D plans, including:

          Establish no more than two annual limits for out-of-
        pocket costs
          Prohibit separate cost-sharing for individual Part B 
          Require that MA plans charge no more cost-sharing for 
        services than what is charged under Original Medicare
          Limit the number of plans offered in a given 
        geographic area

      Apply the standardization and simplification requirements 
of the National Association of Insurance Regulators (NAIC) Medigap 
Model Act and Regulation to all Medicare Advantage (and Part D) plans

          These requirements should include loss ratio 
        standards, guaranteed renewability requirements, suitability 
        requirements and other consumer protections
          Rescind the statutory preemption that prevents states 
        from enforcing State laws on consumer protections and the 
        marketing of insurance products
          Neutralize payment between Original Medicare and the 
        MA program (see, e.g., recommendations from MedPAC) and use the 
        current excess payments to strengthen access to benefits in 
        other areas of Medicare, such as expanding eligibility for the 
        Medicare Savings Programs and the Part D Low-Income Subsidy
          Ban the sale of PFFS and other MA products to dual 
        eligibles unless plans can prove they offer meaningfully better 
        and more comprehensive benefits than those available through 
        State Medicaid programs, and that enrollees will not face 
        diminished access to providers and/or new out-of-pocket 

      Authorize NAIC to develop nationwide marketing 
guidelines, including:

          Provisions that hold plans more accountable for the 
        actions of agents selling their plan
          Prohibit plans from offering differential commissions 
        based on what type of plan is selected by the enrollee
          Prohibit agents from selling unrelated products
          Develop more comprehensive disclosure documents with 
        clear explanations about how certain choices can impact access 
        to providers and other types of insurance coverage (e.g., 
        retiree, Medigap, Medicaid)

      Exclude plan sponsors culpable of egregious marketing and 
other violations from participating in the Medicare program for at 
least two years (similar to rules that apply to certain providers)

    While some Medicare Advantage plans do provide value for enrollees, 
we need to question the value provided by all MA plans--considering the 
sheer number of plans, variation in benefits and cost-sharing and the 
fact that the majority of Medicare beneficiaries in the Original 
Medicare program are subsidizing the extra payments meant to enrich the 
minority of beneficiaries enrolled in MA plans. Medicare Advantage is 
not the panacea for perceived shortcomings of Original Medicare, and, 
in many cases, can be to the detriment of enrollees, particularly the 
most vulnerable among us. At a time when MA plans are overpaid but many 
are providing inadequate coverage, Congress should carefully scrutinize 
the MA program that threatens the stability and integrity of the entire 
Medicare program.
    Thank you for the opportunity to provide these comments.


    Chairman STARK. Thank you very much.
    Dr. Lyons?


    Dr. LYONS. Thank you, Mr. Chairman, Ranking Member Camp, 
and members of the committee. My name is Daniel Lyons, M.D., 
and I am senior vice president of government programs for 
Independence Blue Cross, and I do appreciate the opportunity to 
testify about the Medicare Advantage program.
    Independence Blue Cross is strongly committed to the long-
term success of the Medicare Advantage program. We are proud to 
sponsor plans that offer many services and innovations that are 
not included in the Medicare fee-for-service program. 
Approximately 240,000 Medicare beneficiaries in Philadelphia 
and southeastern Pennsylvania are enrolled in the plans we 
    Our Medicare Advantage plans serve a critical role in 
providing comprehensive, coordinated benefits for many seniors 
and disabled Americans. The fundamental difference between 
Medicare Advantage plans and the Medicare fee-for-service 
program is that our private plans have established an 
infrastructure for improving healthcare quality on an ongoing 
    At Independence Blue Cross, our plans focus on identifying 
members with important clinical needs, including those not 
receiving preventive care, those who are frail, and those with 
chronic illness. Because Medicare Advantage plans do have an 
infrastructure to coordinate and improve the care for these 
members, we have a proven track record of making a positive 
difference in the lives of Medicare beneficiaries.
    Many Medicare beneficiaries do suffer from multiple chronic 
conditions such as diabetes, heart disease, cancer, asthma, 
depression. One recent study suggested that over 80 percent of 
beneficiaries have at least one of these chronic conditions.
    Medicare Advantage plans are playing a leadership role in 
developing strategies and programs to improve patient care for 
beneficiaries with multiple chronic conditions. We are focused 
not only on ensuring that patients with chronic conditions live 
longer, but we are also helping them live healthier lives with 
fewer symptoms so they can fully participate in the activities 
they enjoy.
    Our Medicare Advantage members benefit from a variety of 
programs we have developed over the years to improve their 
care, including the promotion of prevention and wellness. For 
example, our Connections Health Management program is designed 
to help our Medicare Advantage members by making them more 
informed about their health conditions, assisting them in 
making difficult treatment decisions, helping them and their 
physicians improve the management of chronic conditions, and 
assisting members, their physicians, and their caregivers with 
the coordination of care.
    Through this program, we use sophisticated predictive 
modeling tools to identify those members who are at highest 
risk for future health events, and identify specific gaps in 
care and to fill those gaps. Specially trained health coaches, 
typically RNs, are available 24/7/365. They do telephonic 
outreach to these members to address their care gaps, help them 
understand their physician's treatment plan, and improve self-
management of their chronic conditions.
    The results of this program are very impressive. In 2007, 
our member satisfaction survey showed that 94 percent of 
members were satisfied with their health coach assistance, 90 
percent were satisfied with their overall program experience, 
and 94 percent said they would recommend the program to other 
    Moreover, 97 percent of members with chronic conditions 
indicated they were able to follow their health coach's advice, 
nearly 80 percent reported an improved ability to communicate 
with their physician, and nearly 60 percent said that speaking 
with a health coach actually improved the quality of care they 
received from their healthcare provider.
    Medicare Advantage members have also enthusiastically 
embraced our wellness programs. More than 9,000 seniors are 
enrolled in fitness programs we have designed to encourage and 
promote healthy, active lifestyles. Almost 60 percent of these 
seniors complete the program target of 120 visits a year, which 
is twice the rate of non-Medicare members.
    Another problem we implemented for Medicare Advantage 
members is our physician home visit program. Under this 
program, a physician conducts a proactive home visit to assess 
members who are homebound and then provides follow-up care as 
needed, and also coordinates care with the member's primary 
care and specialty physicians. This program is designed to 
improve the control of chronic illnesses and reduce the use of 
emergency services for medically frail members.
    We also work on an ongoing basis to provide Medicare 
Advantage members with access to care coordination throughout 
their healthcare experience. For example, when a member is 
scheduled for an elective admission such as a total knee 
replacement, we reach out, identify their anticipated post-
hospital needs, coordinate with their surgeon, begin to make 
arrangements for post-hospital care such as rehabilitation, 
long before the member ever goes to the hospital.
    This sort of care coordination, like our wellness disease 
management programs, are not currently available in traditional 
Medicare, and not readily created without considerable planning 
and investment. In fact, when you consider the array of health 
infrastructure investments and improvements we have implemented 
over the past decade--credentialing a system of quality checks 
on physicians and providers that includes checks on medical 
records and office adequacy, physician performance monitoring 
and quality incentives, coverage and promotion of preventive 
medicine, fitness, smoking cessation, weight management and 
related programs, health education, nurse counseling, disease 
condition management, medication and therapy management, case 
management, home visits, et cetera--you can begin to understand 
the extent of the planning and investment required to bring 
these kinds of advancements to the entire Medicare program.
    Thank you for this opportunity to testify on the Medicare 
Advantage program. We appreciate the opportunity, and urge the 
committee to continue to support adequate funding for the 
system of competition, choice, and innovation that is 
delivering savings and value to nearly nine million Medicare 
Advantage members.
    [The statement of Daniel C. Lyons follows:]

    Chairman STARK. Thank you.
    Dr. Lyons, were you guys in business in 1997?
    Dr. LYONS. Yes, sir.
    Chairman STARK. You were offering those same services to 
your members in 1997?
    Dr. LYONS. Some. Not all.
    Chairman STARK. But you offered them? You offered the same 
kind of a program that you just outlined?
    Dr. LYONS. We did not have our comprehensive Connections 
program at that time, Mr. Chairman. No.
    Chairman STARK. How about in 2003?
    Dr. LYONS. It was not as robust as it is today, no.
    Chairman STARK. All right. Let me just run down the line. 
And I know you don't like to cheer for your competitors, but--
and they are not really your competitors--but Pilgrim in 
Boston, Puget Sound in Seattle, Kaiser in California, Ford in 
Michigan, Marshfield Clinic in Wisconsin, would you say they 
are all similar to the kind of a plan you just outlined?
    Dr. LYONS. I think they do. They are well-known for their 
quality, sir.
    Chairman STARK. No. But they have the same general disease 
management and all of these things that----
    Dr. LYONS. Many of them do. NCQA now certifies these kinds 
of programs and organizations. We all submit data to them.
    Chairman STARK. And they were all chugging along in 1997, 
fat and happy at 95 percent of the AAPCC. And many of them, I 
am aware, operate at less than 100 percent of AAPCC. Why should 
we pay them any more?
    Dr. LYONS. The investments that have been made in systems 
that aren't tied to delivery systems, systems that are more 
open or substantially more, it is much harder, actually, to 
engage physicians who aren't on your payroll, who actually 
aren't part of your delivery----
    Chairman STARK. Well, not all of these guys have docs on 
their payroll. Kaiser does; it is a staff model. But not all of 
them do. Many of them operate as managed care plans, and they--
well, I have trouble.
    Are you familiar with what is referred to as boutique 
medicine, as provided generally by primary care docs?
    Dr. LYONS. Is that where physicians opt out of the Medicare 
system and take----
    Chairman STARK. Or if they are not in the Medicare system, 
they charge you maybe 1500 bucks and you get 24/7. You get 
their home phone and----
    Dr. LYONS. You know, that sort of arose a few years ago. I 
haven't heard a lot of it recently.
    Chairman STARK. Well, it could be done. When I go into 
Medicare, it will cost you taxpayers nine, ten grand a year. 
And so for 15 percent over, I could get a boutique and have a 
full-time--you know, just like the President or somebody else, 
or a movie star, have a full-time physician, basically. And I 
think that is great.
    I just guess I have trouble figuring out why we would pay 
for it. And I would ask Dr. Thames. United Health Care 
basically is the insurer with whom you contract. Is that 
    Dr. THAMES. Yes, sir.
    Chairman STARK. And they sell a Medicare Advantage--they 
provide you the Medicare Advantage policy, and you put your 
name on it. And if I buy a membership, I can get it through 
you, but it is basically operated by United Health Care. Is 
    Dr. THAMES. You get it directly from them. We don't sell 
any policy.
    Chairman STARK. And they don't offer the private fee-for-
service plan, do they?
    Dr. THAMES. That is absolutely correct, sir. It is against 
our policy to support private fee-for-service plans.
    Chairman STARK. And I think that I recall in this 
conversation some time back that Mr. Novelli, your chief 
executive officer, said to me--and I don't think I am quoting 
him out of context or incorrectly; if I am, you should let me 
know and I will set the record straight--but that he felt that 
they should provide these plans at no more than 100 percent of 
fee-for-service costs.
    Dr. THAMES. That is correct, Mr. Chairman.
    Chairman STARK. So I think you are to be commended for 
that, and I am sure that--is Independence Blue Cross going 
private? Are you going to become for-profit?
    Dr. LYONS. No, sir.
    Chairman STARK. No?
    Dr. LYONS. No. We are merging with Highmark Blue Cross.
    Chairman STARK. And are they not-for-profit?
    Dr. LYONS. They are also a hospital charter organization, 
just like we are.
    Chairman STARK. You are going to stay nonprofit?
    Dr. LYONS. Yes, sir.
    Chairman STARK. Good for you.
    Mr. Mattes, in your hospital, how many physicians have 
privileges there?
    Mr. MATTES. We have 43 on our active medical staff.
    Chairman STARK. Have you got a lot more in the community 
than that?
    Mr. MATTES. No. That is the entire county.
    Chairman STARK. That is kind of interesting. You have got 
43 doctors and 21 plans.
    Mr. MATTES. And only 25 beds in the entire county.
    Chairman STARK. Do you need one plan for every two doctors?
    Mr. MATTES. Well, I was thinking the same thing. Actually, 
we believe there will be more plans. We are aware of some that 
are being sold in addition to the 21 that have actually hit our 
    Chairman STARK. As I say, does it really offer a lot more 
choice in your what we will refer to as a rural community 
without demeaning you, I am sure----
    Mr. MATTES. Well, there is choice in plans but not choice 
in providers, in reality, because we live in an isolated part 
of the State where they have to travel over a mountain pass.
    Chairman STARK. I understand that. Does every plan let you 
have every doctor?
    Mr. MATTES. Yes.
    Chairman STARK. So if I signed up with any one of the 21 
plans, I wouldn't be denied the opportunity to see any one of 
the 43 doctors?
    Mr. MATTES. Well, I will take that back. One of our plans 
is a PPO plan. So that one has to have members signed up for--
participating members in the plan. And I don't know whether all 
of them are signed up for that one or not.
    Chairman STARK. I guess I wanted to ask Mr. Lipschutz, in 
California I know that we have attempted over time to deal with 
marketing. And I don't know what the restrictions on these 
types of policies--I don't know what you would call them, like 
AFLAC, where you get sick, you get 50 bucks a day. And those 
are the types of plans you are referring to that are sold under 
the guise of being Medigap. Is that----
    Mr. LIPSCHUTZ. These Medicare Advantage gap plans that we 
learned about are essentially limited benefit plans that are 
bundled together, such as hospital indemnity plans, plans that 
will pay out----
    Chairman STARK. But just help me here a minute. They don't 
offer anything but a fixed amount per day, regardless of what 
triggers it. Otherwise, it would seem to me they would come 
under the Medigap rules.
    Mr. LIPSCHUTZ. Correct. It is our understanding that the 
current anti-duplication provisions in Federal law apparently 
allow the sale of these types of products----
    Chairman STARK. Because all they offer is so many dollars a 
    Mr. LIPSCHUTZ. Pay a cash benefit, yes.
    Chairman STARK. Pardon?
    Mr. LIPSCHUTZ. They pay out a cash benefit when people 
incur expenses.
    Chairman STARK. That is it. And then you can then spend the 
money any way you want. They don't send it right to the doctor 
or the hospital; they just send you a check for X bucks a day.
    Mr. LIPSCHUTZ. Correct.
    Chairman STARK. But I think what your testimony was saying, 
they are thinly disguised or suggested in the marketing 
approach that they are Medigap, as people remember buying it 
from AARP or Blue Cross or whomever. Is that a fair assessment?
    Mr. LIPSCHUTZ. Based on what we have found in advertising, 
it looks like to beneficiaries it is pitched as just limited 
benefit plans that will pay out cash benefits when you need 
services. But to agents selling the plans, it is clearly 
pitched as a plan meant to fill in the gaps of Medicare 
Advantage and meant to be sold along with Medicare Advantage 
plans in order to fill in those gaps.
    Chairman STARK. You are familiar with the California 
Insurance Commissioner's office?
    Mr. LIPSCHUTZ. Yes.
    Chairman STARK. And you have been doing what you have been 
doing under both Republican and Democratic administrations, 
when John Garamendi was insurance commissioner? I don't know 
who it is now, but----
    Mr. LIPSCHUTZ. Steve Poizner.
    Chairman STARK [continuing]. Do you find them to be pretty 
even-handed, pretty effective, pretty good at governing 
insurance agents and practices?
    Mr. LIPSCHUTZ. As far as we can tell, yes. However, in the 
Medicare Advantage context----
    Chairman STARK. Keep going.
    Mr. LIPSCHUTZ. All right. I was going to say----
    Chairman STARK. Let me ask the question. It sounded like--I 
have figured it out. But you go ahead. I know what you are--go 
    Mr. LIPSCHUTZ. Thank you. In the Medicare Advantage 
context, the jurisdiction of State departments of insurance is, 
by and large, limited to the regulation of insurance agents 
selling Medicare Advantage products, and the individual State 
departments of insurance have very little jurisdiction over the 
actual Medicare Advantage plans themselves and Part D plans.
    Chairman STARK. Let me say it another way because Mr. 
Pomeroy would say the same thing and I think it is an important 
distinction here. CMS can regulate the plans, and CMS federally 
can fine Dr. Lyons' plan or United Health. But CMS can't--if 
Dr. Lyons company were to employ a broker, an independent 
agent--I don't know. Do you do that? I would presume----
    Dr. LYONS. No. We have our own staff.
    Chairman STARK. You sell all direct?
    Dr. LYONS. Our employees----
    Chairman STARK. You don't allow insurance brokers to sell?
    Dr. LYONS. Yes. Within our market area, we only have our 
own staff.
    Chairman STARK. Other Blues do, though. Other Blues allow 
brokers. And what I am trying to get at is the Federal 
Government has not ability--they can punish Dr. Lyons' plan, 
but they can't punish or regulate the individual independent 
brokers or agents.
    And it is often the plans who have great intentions, but 
then they pay a commission to any sales person operating under 
State licensure who are very aggressive, probably good at what 
they do, but sometimes they may cut a few corners on explaining 
benefits and selling in the best interests of the consumer.
    And I just wanted to see if you would agree that that would 
help us in California if somehow we could let the State 
commissioners who--at least in California, I think, and I am 
sure in Pennsylvania they do as well--regulate sales practices. 
And would that--it couldn't affect your plan. Correct? I mean, 
because you do it directly anyway.
    Would it affect your plan, Dr. Thames, if the States in 
which you operate----
    Dr. THAMES. Mr. Chairman, it could affect it in Florida. On 
the other hand, we don't allow all agents of United to sell 
AARP products. We have special requirements of the agents that 
sell those products. They are required to do outbound follow-up 
calls after sales----
    Chairman STARK. Would it trouble you if the various State 
insurance commissioners were----
    Dr. THAMES. No, sir. It would not trouble us at all.
    Chairman STARK. I guess that is the point I was trying to 
get at----
    Dr. THAMES. Yes, sir.
    Chairman STARK [continuing]. Is that the companies can have 
the best intentions but can't often control the independent 
agents, certainly as you do. And that might be an advantage.
    Thank you for your testimony. Mr. Camp, would you like to 
    Mr. CAMP. Yes. Thank you. I would agree that Mr. Pomeroy 
has a good point, and I spoke to him informally after he made 
his comments.
    Dr. Lyons, you were beginning to sort of talk about the 
costs of engaging doctors not on your payroll. Could you just 
elaborate on that a little bit? I don't know that we got the 
complete thought there.
    *Dr. Lyons. Thank you, sir. In order to set up systems of 
care, particularly systems that monitor quality of care and 
promote continuity of care, you either have to, A, have 
physicians who are aligned in a system because of contract 
economic incentives, or B, you have to put an infrastructure in 
yourself. And we have done the latter, and that is what many 
plans have done over the past five to six years, put in 
extensive infrastructures of quality management and care 
improvement, to act as sort of an overlay to the system to 
promote quality.
    And if I may just briefly continue, there is no question 
that there is good evidence that this does work. We see 
sequential and statistically significant improvements across a 
wide variety of care outcomes. There is very limited 
opportunity to compare our care outcomes with fee-for-service, 
but when those comparisons have been made, for example in the 
well-cited study by Stephen Jencks in 2003. There was no 
question that Medicare Advantage plans in general produced 
better clinical outcomes than were extant in the fee-for-
service system.
    Mr. CAMP. All right. Thank you.
    Mr. Mattes, you mentioned, I guess in response Mr. Stark's 
inquiry, that because there are 21 plans and they cover all 
your doctors, that they don't really negotiate much in terms of 
discounts. Yet in your testimony, you said Medicare Advantage 
carriers will use market leverage to force discounts in payment 
rates. And then you go on to say that those are provided to 
beneficiaries, but that hurts small hospitals such as yours.
    But clearly, are they negotiating discounts and leveraging 
or are they not?
    Mr. MATTES. Representative Camp, the comments in my 
testimony were prospective. We are not negotiating with any of 
those plans other than we have one PPO contract. However, it is 
my understanding that fee-for-service plans can, when they 
aggregate enough volume, initiate negotiations with providers. 
And our fear is that they will attempt to leverage us in those 
    Mr. CAMP. So you are concerned that this is in the future. 
If this plan is allowed to continue, they will actually 
negotiate discounts for their beneficiaries in some fashion.
    Dr. Lyons, can you briefly also explain in a little more 
detail some of the benefits your plan offers that traditional 
Medicare does not, and efforts in terms of coordinating care 
and wellness? If you could just comment on those, I would 
appreciate it.
    Dr. LYONS. Yes. You are welcome, sir. I would sort of put 
them in three categories. At the front end are prevention and 
wellness services that are not provided to fee-for-service 
beneficiaries. This would be coverage for services that are 
needed to prevent disease, reminders and promotion of those 
services, and then a fairly broad array now of what we would 
call lifestyle modification programs--smoking cessation, 
fitness. Probably our most popular benefit is our fitness 
program, free gym membership to seniors; and of course, obesity 
and weight management, currently the biggest epidemic.
    And in the middle is a series of programs that are largely 
educational in nature, a fairly broad base. But they also allow 
members who do have specific conditions--we currently have 
developed clinical modules for 21 clinical conditions that 
actually have very intensive education and coaching, more 
serious events such as prostate cancer, breast cancer, and so 
forth and so on.
    And at the third level, for folks who are actually engaged 
in a chronic illness and are significantly ill or disabled, we 
have much more extensive problems with extensive literature, 
one-on-one coaching, and so forth.
    So that is kind of at the core. More recently, as we have 
tried to work with our delivery system and fill in the holes 
and gaps that we see, particularly around frail, elderly care 
are our homebound physician program.
    Mr. CAMP. Thank you. And I don't mean to interrupt, but I 
am running out of time. But this comprehensive approach, is 
that successful in keeping patients healthy and out of the 
hospital? And if so, has that reduced cost?
    Dr. LYONS. Yes. Both. It both improves clinical outcomes--
we measure them regularly, we report them regularly, and we do 
have data that shows that there have been statistically 
significant reductions in both in- and outpatient care for the 
managed population compared to the non-managed population in 
each of the three and a half years since we launched our robust 
    Mr. CAMP. And is traditional Medicare capable of offering 
programs like that?
    Dr. LYONS. No. I don't see how the program could. I am 
privileged to serve on the Advisory Panel for Medicare 
Education, and I actually have chaired the panel the past two 
years. So I have a wonderful window seat to see all of the 
wonderful innovations that the fee-for-service program is 
bringing. But to get to that level would take substantially 
more investment, time, and a different approach.
    Mr. CAMP. All right. Thank you. Thank you, Mr. Chairman.
    Chairman STARK. Ms. Schwartz, would you like to inquire?
    Ms. SCHWARTZ. Thank you, Mr. Chairman. I appreciate it. And 
I thank all of the panelists. And I did want to start with, I 
guess, my own home-grown--not a constituent, I don't think, 
necessarily, Dr. Lyons, but----
    Dr. LYONS. Almost. I am just over the line.
    Ms. SCHWARTZ [continuing]. But I certainly wanted to talk 
about some of the things that you have talked about, and 
hopefully be able to talk a bit more about some of the private 
fee-for-service plans, which I know you are not talking about.
    But I was interested in the fact that--I wonder if you 
could give us more information about some of the successes. I 
mean, you really talked--and many of us here, the only real 
statistics we end up hearing about the success of more managed 
programs and more prevention are really patient satisfaction, 
which is a piece.
    That is fine. But really, I think one of the things we 
ought to be really concerned about is actually have we really 
improved outcomes? Are people--their health status improved, 
actually? And are we doing it in a more cost-efficient way? 
That would be helpful to know. Do you actually have hard data 
on that and--well, why don't you answer that first. And then I 
wanted to know how much more it costs.
    Dr. LYONS. Yes. Yes, ma'am, we do. We have data about all 
three of those arenas. So when it comes to--do the systems we 
use to promote prevention, do they work? And I would say the 
two major pieces of that are we actually measure and monitor 
and reward primary care physicians for superior performance in 
preventive care. So that would be programmatically what we do, 
number one.
    And then number two, we have extensive outreach campaigns 
with members to promote the use. And we use a scientific 
survey. We report the data publicly. And there has been 
significant improvement from the times that we started the 
    Also, if we do plateau, we gather clinicians and just, as 
an example, some years ago it was very clear that there just 
wasn't enough interest in the radiology community to provide 
basic mammography any longer. It just wasn't something they 
were--so we brought them together, brainstormed, and improved 
some access issues.
    And so, yes, we can show you how that over time----
    Ms. SCHWARTZ. I would be interested to see some of that 
hard data because otherwise really it's so much--you are not 
required, though, to give that to CMS or to the government?
    Dr. LYONS. Well, actually, yes. We do report all of our 
clinical outcome studies via NCQA to CMS, and also via annual--
including utilization data. I know that came up earlier. But we 
do provide utilization.
    Ms. SCHWARTZ. There is a lot of utilization data we don't 
actually get. But again, utilization is different than 
outcomes. And that is something that we are really interested 
    Can you tell us how much more you get paid under the 
Medicare Advantage?
    Dr. LYONS. Well, I am not an actuary, Congresswoman. But 
what I would say is that----
    Ms. SCHWARTZ. Well, we know on average that nationally we 
are paying 12 percent more. Are we paying you 12 percent more 
for Medicare Advantage?
    Dr. LYONS. We don't think so. No, no, we do not think so. 
Our actuaries do not think that the overpayment in our market 
basket, the five counties of Philadelphia, even approaches that 
much. And what we really focus on, because we are a legacy plan 
who have been out there for a long time, is really what happens 
year over year.
    For example, in 2007, our payment increase from CMS was 
zero. It was flat. We got nothing, at a time when healthcare 
cost inflation in Philadelphia--which as you know is medically 
rich; it is really----
    Ms. SCHWARTZ. Yes. We have great assets.
    Dr. LYONS. We have great assets and high use of great 
assets. And so our----
    Ms. SCHWARTZ. But you are saying you don't know how much 
more you get paid for Medicare Advantage than----
    Dr. LYONS. No. As I say, our own studies think that it is a 
trivial difference, that the difference between Medicare fee-
for-service, given a lot of the complexities and nuances about 
our payment stream, is very little different from fee-for-
service beneficiaries.
    And what we do know is that medical inflation in 
Philadelphia typically runs anywhere from 6 to 8 percent. And 
when that gap intrudes itself, we have nowhere to go with----
    Ms. SCHWARTZ. Yes. But I am sorry. That is not the question 
I am asking.
    Dr. LYONS. Yes.
    Ms. SCHWARTZ. We actually have a President's budget that is 
not acknowledging any medical inflation at all. So inflation, 
medical costs, they are either flat funding or cuts. So that is 
really barely on the table. I mean, we are actually raising 
that as to whether that is reasonable.
    But my real question is that you are providing these 
additional services--well, you actually didn't really say they 
were--well, some of them are services. But how much more does 
that cost you to do that? You can't tell us that, or you don't 
know it?
    Dr. LYONS. I know what our administrative costs are. I do 
know that. As to the question of how our payment rates relate 
to the fee-for-service system, I don't have a specific answer. 
But I could certainly find out.
    Ms. SCHWARTZ. One of the things we are obviously concerned 
about and interested in is that if we are paying--the public 
taxpayer is paying more money to get services to Medicare 
beneficiaries, to just some, about 20 percent of our 
beneficiaries, we want to make sure that we are using those 
dollars well--right?
    Dr. LYONS. Very reasonable.
    Ms. SCHWARTZ. And if in fact it is really very wonderful 
and working, then why doesn't everybody get advantage of this? 
And most of the Medicare managed plans--I am assuming you have 
said yours as well--is that you can do more for the same amount 
of money by managing it better, by being smarter, by being more 
efficient, by doing prevention. Right? And then they come back 
and say, we still need more money.
    So it is kind of inconsistent. We are trying to figure out 
if there is a way to actually say if you really are saving 
lives and keeping people healthier, having better outcomes, 
then you are saving some dollars. So why do we actually have to 
pay you extra for that?
    Dr. LYONS. I think, again, these are complicated questions. 
There are no simple answers to them. But my own perspective is 
that the system itself is very badly flawed. In other words, 
the overall healthcare delivery system--we are just a part of 
    But we operate with a much larger system, with all sorts of 
incentives that are not particularly well aligned with quality 
and accountability, all of which is very well documented in 
Institute of Medicine and other reports. So we are a bit 
swimming upstream doing the best we can.
    Ms. SCHWARTZ. Well, I understand. Actually, I think you are 
being incredibly modest. For those who don't know, Independence 
Blue Cross has a huge percent of the marketplace in 
southeastern Pennsylvania and is a very big player in 
potentially making big differences in the creating incentives 
and the way we do things. So I appreciate your modesty, but I'm 
not sure that it isn't true that you actually have a very big 
player in the field here and could actually be very much of a 
    Just one other question. You really talked a lot about 
prevention. You know, we have been trying to incentivize 
through Medicare, traditional Medicare, more prevention, more 
primary care, and creating those same kind of incentives. We 
have actually had a real push-back from the administration 
about that and from the other side of the aisle as potentially 
not being a useful thing to do.
    Would any of you think that that is not a smart thing, to 
actually be putting greater emphasis, more resources, on 
prevention and primary care?
    Dr. LYONS. Congresswoman, I would put on my advisory panel 
hat for just a moment. I don't know, candidly, the 
administration's posture. I know at the panel meetings, we 
panelists have regularly heard from CMS staff about all the 
things they are doing to promote prevention, including systems 
that would actually somewhat mirror what we do, which is 
getting out at least reminders and so forth to folks, allowing 
you to set up sort of web-based personal health registries and 
so forth.
    So I think they are making progress. It isn't anything such 
as what we have and are developing, but still I think important 
steps are being made.
    Ms. SCHWARTZ. All right. I have many other questions, but I 
think my time is up. And I yield back.
    Chairman STARK. Mr. Becerra, would you like to inquire?
    Mr. BECERRA. Thank you, Mr. Chairman. And thank you to the 
witnesses for your patience and indulgence. We appreciate your 
being here.
    Let me begin with Dr. Thames. It is Thames?
    Dr. THAMES. Thames, yes.
    Mr. BECERRA. Dr. Thames, thank you for being here. Private 
fee-for-service plans, I think you have heard a little bit of 
discussion about the private fee-for-service plans. I know 
there is a great amount of concern about the private fee-for-
service plans, not only because of a lack of oversight, but 
because they seem to be providing a lot of offers but less in 
actual services and value for service.
    And so I am wondering if you can--and if you have already 
answered this, I apologize--but does the AARP's plan that it 
uses with some of its private insurance company providers work 
with them to provide a private fee-for-service plan to its AARP 
    Dr. THAMES. Absolutely not. We have a policy, AARP 
presently and for a number of years, which is not expected to 
change, that says we do not support private fee-for-service 
plans. And we don't plan with our present provider to offer any 
such plans under Medicare Advantage or otherwise.
    Mr. BECERRA. Now, and if you can do this briefly, give me 
an explanation. Because I think most seniors who are listening 
who may understand the difference between a fee-for-service 
traditional Medicare program, which they are accustomed to if 
they have been on it for a while, as opposed to a health 
insurance company product, Medicare Advantage, called private 
fee-for-service, they might think they are getting the best of 
both worlds. They are getting fee-for-service but in a private 
    And can you give a brief explanation of why you avoid using 
private fee-for-service plans?
    Dr. THAMES. Yes, sir. I will try to keep it very brief. 
First, they are the highest paid of the policies, and again, 
our policy is for equity in payment, as MedPAC and others have 
recommended. So that is the first thing that would not qualify 
    Mr. BECERRA. And when you say paid, meaning government 
payments through Medicare for the insurance carrier?
    Dr. THAMES. Eighteen percent more than they do for 
traditional Medicare. Secondly, they are not required to belong 
to quality improvement organizations, and we believe that that 
should be part--as it is for the other Medicare Advantage 
programs--a requirement.
    Third, they are not required to do coordinated care, and we 
feel that is very important both in better medicine and 
lowering costs for medicine as a whole. And last--or perhaps 
one of the other reasons, at least; it may not be last--but at 
least one of the other ones is from what we have seen, most of 
the complaints that come in that we have looked at come from 
problems that are with private fee-for-service plans.
    And again, another reason is we don't believe in balanced 
billing for people on Medicare programs.
    Mr. BECERRA. So I thank you for outlining the Medicare 
Advantage problems with their private fee-for-service plans. 
Let me ask you this: As a doctor, if I needed to get a hearing 
aid, what is the average cost or what am I looking at in terms 
of a cost for a hearing aid?
    Dr. THAMES. Well, you are looking at--and it is of interest 
that we are looking at hearing aids because so many of our 
people want those--you are looking at from something like 
Miracle Ear or something along that line for just a couple of 
hundred dollars to the best digital hearing aids that may cost 
you $2500 an ear for those, so that that is definitely a very 
high cost item.
    Mr. BECERRA. And so we are hearing more and more about some 
of these Medicare Advantage plans that are offering these 
wraparound packages or saying that they are offering a great 
deal of benefits if these seniors were to switch over from 
regular, traditional fee-for-service to the Medicare Advantage 
    And I have information here about a program in Michigan, a 
Medicare Advantage plan in Michigan, that lists for those who 
are thinking of switching over to their plan that it provides 
dental, hearing, and vision benefits in their plan. They say 
that in their plan summary, that they provide those benefits in 
dental, hearing, and vision, and that there are no co-payments.
    Obviously, any senior hearing that--no co-payments; I go 
in, I don't have to fork over any money for going in for that 
visit or for that particular product. But then at the end of 
the explanation of benefits, at the very end, you read the 
following: ``Dental, vision, and hearing benefits are part of 
the basket benefit. The basket benefit is capped at $700 
annually for all of these services.''
    And so in essence, what they are saying is that we offer 
you these benefits. You don't have to pay anything up front. 
But if you don't finish reading this whole paragraph or this 
whole page, you won't notice that you only get $700 worth of 
this. And so if you try to get a couple of hearing aids, you 
get the cheapest ones, you have already used up $500 of your 
$700 benefit. Forget about vision and contact lenses and 
dental, that who knows how much it will cost.
    But is that the way that you allow any of the Medicare 
Advantage plans that you work with to market to your seniors?
    Dr. THAMES. No, sir. As I indicated a little earlier, we 
have--the only agents for United who can offer our products are 
people who have had special training on selling those products 
and being completely honest, and fully disclosing to them, and 
have to take tests and pass those.
    Secondly, they have to sign a code of ethics. And last, we 
do secret shoppers from AARP--not from our carrier, but from 
us--to ask our people and listen in to the sales pitch and see 
if they are really doing what they say they are supposed to do 
and what they have signed up to do.
    And then, as I indicated earlier, after the calls, we have 
the outbound follow-up calls that we also require. So we have a 
limited number of agents within that company who do that, and 
we hope that we are going to have the highest quality standards 
in the business.
    Mr. BECERRA. Mr. Chairman, I know my time is expired. If I 
could just ask Mr. Lipschutz one question, and that is: You 
have heard what Dr. Thames from AARP has said, that they 
undertake to do some oversight of these Medicare Advantage 
plans. Do all Medicare Advantage plans do that type of 
    Mr. LIPSCHUTZ. It is my understanding that no, most of them 
don't. And looking at the United Health plan that AARP has lent 
or sold its name to, other products under that umbrella have 
been a source of significant complaints in the field of 
marketing. For example, Secure Horizons products in California, 
they do sell private fee-for-service plans, and they are 
targeting dual eligibles in some areas that has resulted in 
significant harm to beneficiaries.
    Mr. BECERRA. I appreciate it. Thank you, Mr. Chairman.
    Chairman STARK. Welcome. I acknowledge the presence of our 
distinguished gentleman from Texas, Mr. Johnson. Would you like 
to add some wisdom to this, Mr. Johnson?
    Mr. JOHNSON. Thank you, Mr. Chairman. I appreciate that. I 
don't know about the wisdom part.
    Dr. Lyons, Independence Blue Cross provides physicians with 
information that compares their practice's ability to manage 
chronic disease against performance of their peers. Do you find 
that information useful, and do you believe other physicians 
can learn from those comparisons?
    Dr. LYONS. Yes. Yes, sir, I absolutely do. We developed 
those reports with their input, and so we try to make sure at 
the front end, sir, that this is going to be useful 
information, that it won't be inflammatory, that it will be 
helpful to them, and actually help them give better care.
    I don't practice any more. I did for many years. I 
practiced in a very rural community. And candidly, I would have 
loved to have gotten more information about care gaps so that I 
would have known better exactly who was getting what and what 
they needed at the time of their care.
    Mr. JOHNSON. Yes. That is good. Thank you very much. I am 
going to yield to Mr. Camp, if I may, some of my time.
    Chairman STARK. Without objection.
    Mr. CAMP. Thank you. Thank you very much.
    Dr. Thames, do you have information that you can make 
available to this committee about any concerns you have 
received from Medicare beneficiaries on any marketing and sales 
tactics used by AARP's Medicare Advantage plans? Have you got 
that information?
    Dr. THAMES. I don't personally have it, Mr. Camp. I will 
certainly--and my staff people are here from AARP--go back and 
see, since we only began to have these programs since January. 
But I will be happy to provide any material that we have to the 
    Mr. CAMP. And also, to help us evaluate the effectiveness 
of these plans and the satisfaction people have with these 
    Dr. THAMES. Yes, sir.
    Mr. CAMP [continuing]. If you have those sorts of 
complaints or any concerns about people that are in AARP's 
Medicare Advantage plan that maybe didn't realize they were in 
it or any of that nature. I think we are very interested in 
sort of the sales and marketing side of this as well.
    Dr. THAMES. Yes, sir.
    Mr. CAMP. And I think that is something we want to try to 
move forward with together.
    I guess I would just say I appreciate all of your 
testimony. Thank you very much. Thank you, Mr. Chairman.
    Mr. JOHNSON. Thank you, Mr. Chairman.
    Chairman STARK. Well, I want to thank you. I wanted to 
explain to the witnesses that for a variety of procedural 
reasons, the House has finished, perhaps an hour ago, its 
deliberations, formal deliberations, for today, I guess for the 
rest of the week. And so many of our colleagues headed home to 
escape this wonderful weather. And I want to suggest to you 
that your testimony is appreciated. The efforts in getting here 
and your patience is appreciated.
    And I hope, although each of you have some different 
approaches, that just to summarize, I think we could say to Dr. 
Lyons that all of us appreciate the many advantages that are 
possible under a coordinated, multi-discipline practice. And we 
appreciate groups that have the huge resources like AARP, as 
well as rural communities that wish they had more resources, 
and through modern technology and digital imaging may get the 
advantages of group practice over the internet and in other 
    And then the consumer advocates like Mr. Lipschutz, who 
just offer tremendous help to congressional offices, who often 
hear these complaints or hear the bewilderment of seniors 
wondering what they now have and why they can't see the doctor 
they saw before, or why Kaiser is raising their rates so much. 
I don't suppose that Blue Cross does that, but you hear it.
    And so what we are trying to do is figure out--on the one 
hand, we are hearing the clarion call that Medicare is going to 
go broke. And we have got to figure out how best to reimburse 
all the professionals who work hard to get the best quality we 
can. And your contributions to enlightening us in that 
direction are very much appreciated. I want to thank each of 
you for taking the trouble to be here and helping us.
    And with that, the hearing is adjourned.
    [Whereupon, at 1:04 p.m., the subcommittee was adjourned.]
    [Submissions for Record follow:]
        Statement of Association for Community Affiliated Plans

    Chairman Stark, Ranking Member Camp, and Members of the 
Subcommittee, the Association for Community Affiliated Plans is pleased 
to submit a statement for the record to the Subcommittee on Health of 
the House Ways and Means Committee as you examine the cost and value of 
Medicare Advantage plans.
    ACAP is a national trade organization representing 37 non-profit 
safety net health plans that serve more than 4.5 million Americans in 
Medicare, Medicaid, and other public health programs. Nineteen of our 
ACAP plans operate Special Needs Plans (SNPs) as an integral part of 
their mission. SNPs can assure continuity of care to dual eligibles who 
may be served by the plan through a Medicaid contract with the State or 
who were enrolled with the plan immediately prior to their Medicare 
    We have watched as your committee addresses the very compelling 
issues of cost, benefits and marketing practices within the Medicare 
Advantage program. We wish to call your attention to a report, Medicare 
Advantage Special Needs Plans/Six Plans' Experience with Targeted Care 
Models to Improve Dual Eligible Beneficiaries' Health and Outcomes 
commissioned by Association for Community Affiliated Plans and prepared 
by Avalere Health.
    The executive summary is attached to this testimony
    Avalere studied six not-for-profit Medicare managed care health 
plans across the country that entered the SNP insurance market over the 
last two years. The report consists of case studies of six not-for-
profit, community-based SNPs and documents the variety of ways in which 
these plans use highly tailored strategies and focused care models to 
provide benefits that go beyond traditional models of insurance for 
dual eligible beneficiaries. SNPs in the study include Affinity Health 
Plan, CareOregon, Community Health Plan of Washington, Denver Medical 
Health Plan, Mercy Care, and Neighborhood Health Plan of Rhode Island.
    Some of the innovative services provided by these health plans 

      Assignment of patient navigators who are dedicated to 
helping coordinate the complexities of Medicare and Medicaid benefits,
      Deployment of intensive, high-touch medical case 
management programs for those at highest clinical risk,
      Links to community services that address homelessness, 
hunger, and other non-medical stressors that can often lead to poor 
health outcomes and increased healthcare costs if left unaddressed, and
      Enhanced benefit designs that help cover dental care or 
other services that neither Medicaid nor Medicare cover but can 
contribute to decreased health.

    The report demonstrates that the SNP designation served as a 
catalyst for these non-profit, Medicaid-focused plans to develop 
coordinated benefit models for dual eligible beneficiaries already 
served by Community Affiliated Plans for their Medicaid benefits. These 
plans are uniquely situated to integrate care under the Medicare and 
Medicaid programs.
    You have heard from people appearing before your committee that 
what works for enrollees is when the right plan with the right 
incentives is available. We believe that mission focused plans with 
strong experience in serving low income beneficiaries can be that 
``right plan''.
    We would be happy to answer any of your questions about how we 
serve Medicare dual eligibles or have a member plan present to the 
ACAP Member Plans with Special Needs Plans

    Affinity Health Plan (NY)
    Alameda Alliance (CA)
    CalOptima (CA)
    CareOregon (OR)
    Care Source (OH)
    Colorado Access (CO)
    Commonwealth Care Alliance (MA)
    Community Health Plan (WA)
    Contra Costa Health Plan (CA)
    Denver Health Medical Plan (CO)
    Health Plan of San Mateo (CA)
    Horizon NJ Health (NJ)
    LA Care (CA)
    Neighborhood Health Plan of Rhode Island (RI)
    Santa Clara Family Health Plan (CA)
    Virginia Premier (VA)
    University Family Care (AZ)
    UPMC For You (PA)
Executive Summary
    Congress authorized Special Needs Plans (SNPs) through the Medicare 
Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) to 
encourage health plans to develop targeted programs to more effectively 
care for high-risk beneficiaries. Plans have the statutory authority to 
limit enrollment to one of three special needs populations: 
beneficiaries dually eligible for Medicare and Medicaid, institutional 
beneficiaries, and those suffering from severe or disabling chronic 
conditions. Since the program's inception, the number of SNP plans and 
the aggregate SNP enrollment has grown dramatically, to over 477 plans 
with more than 1 million enrollees. This growth has attracted the 
attention of policymakers and raises questions about the value of the 
program and the ability of these plans to design and deliver programs 
that meet the unique needs of special needs individuals.
    SNPs serving beneficiaries eligible for both Medicare and Medicaid 
(dual eligibles) have attracted particular attention, as these plans 
make up the majority of SNPs and have the highest aggregate enrollment. 
The characteristics of this population demonstrate that it is a 
population with special needs. Compared to the non-dual Medicare 
population, dual eligible beneficiaries are sicker, report lower health 
status, have lower functional status, and are more likely to be 
disabled. Medicare spending on a per capita basis is considerably 
higher for dual eligible beneficiaries ($10,884) than Medicare spending 
for non-dual eligible beneficiaries ($5,975).
    This report focuses on how six not-for-profit, Medicaid managed 
care health plans are using the SNP authorization to serve dual 
eligible members through focused programs that are tailored to meet 
their needs. The case study plans are diverse and vary by geography, 
plan size, and relationship to Medicaid programs. Despite this 
variation, all of the plans invest across four key dimensions that they 
deem as critical to serving this population, including:

      Coordination of the Medicare and Medicaid Benefit. All 
plans coordinate the Medicare and Medicaid benefit and have staff 
dedicated to helping members navigate Medicare, Medicaid, social 
services, and the health system. These plan staff, often called patient 
navigators or Medicare advocates, serve as a single point of contact 
for members and assist with Medicare and Medicaid eligibility, Medicaid 
waiver eligibility and applications, obtaining medical appointments, 
securing transportation, and other member needs. While not all plans 
are in states that have dual eligibles enrolled in Medicaid managed 
care, all plans perform this coordination function, relying on their 
Medicaid plan experiences and relationships to do so.
      Intensive medical case management programs. Both the 
composition of the care teams and the method of interaction with 
members are tailored towards the special needs of this population. Case 
managers and/or care teams may include social workers, pharmacists, and 
other disciplines as well as registered nurses (RNs). The health plans 
rely on a high-touch model, which provides frequent contact between 
plan staff and members to educate patients on their condition, address 
member concerns, monitor health status, and identify healthcare needs.
      Links to Community Social Services. The six case study 
plans also link members to key community and social resources to 
address the non-medical stressors caused by poverty that often lead to 
poor health outcomes and increased healthcare costs if left 
unaddressed. Plans believe that linking members with essential social 
service supports that address needs such as homelessness, hunger, and 
lack of heating is critical to members' ability to participate in their 
own healthcare. The plans leverage their experiences with low-income 
populations and community social service providers to understand member 
needs and connect them with appropriate social service networks.
      Benefit Design Plans use their Medicare supplemental 
dollars to fund enhanced care coordination services to help members 
navigate the healthcare system. In addition, they use these 
supplemental dollars to eliminate coverage gaps, such as dental care, 
that neither Medicaid nor Medicare may cover.

    The six health SNPs profiled in this report are employing new 
models of care to better identify, treat, and manage the healthcare 
needs of persons dually eligible for both Medicare and Medicaid. As 
Congress and the Centers for Medicare & Medicaid Services (CMS) look to 
promote innovative models to serve high-risk populations such as dual 
eligibles, these case studies suggest that SNPs that have programs to 
meet the social and healthcare needs of the population hold promise of 
improved access, quality, and reduced costs.
    Currently, Congress and other policymakers are examining the SNP 
program, and they are considering additional requirements to ensure 
these plans are truly meeting the needs of special needs individuals. 
Stronger requirements and criteria may contribute to greater consensus 
around the role of SNPs in providing tailored services to these 
populations. The SNP designation provides an administrative vehicle for 
policymakers to set and expect high standards for plans serving special 
needs individuals. Such standards can also serve to inform the current 
CMS and National Committee for Quality Assurance initiative to develop 
quality measures for SNPs that reflect the population and measure 
plans' success at improving access and quality and reducing costs.

                       Statement of Cathy Roberts

    My name is Cathy Roberts and I am a senior paralegal here at Empire 
Justice, a statewide non-profit law firm focusing on poverty law 
issues. I work in our Medicare Part D (prescription drug) advocacy 
project, which provides backup training and support on Part D and 
related issues to advocates assisting dual eligible Medicare 
beneficiaries in upstate New York and on Long Island, including local 
SHIP (State health insurance program) counselors and legal services 
offices. We have been conducting an ongoing assessment of available 
services and unmet needs on Part D issues in communities throughout New 
York State.
    Our message to the Committee is that that Medicare Advantage plans 
are particularly problematic for our dual eligible population in New 
York State. We will focus on two specific areas of special concern--
marketing abuses and cost-sharing for dual eligibles.
Marketing abuses
    One issue that keeps coming up among our advocacy network is 
continued marketing abuses of Medicare Advantage (MA) plans, especially 
among Private Fee For Service (PFFS) plans. Despite heightened 
enforcement and outreach on the Federal and State levels, as well as an 
aggressive public education campaign by State and local government 
agencies, illegal MA marketing practices continue to victimize seniors 
in New York State.
    For example, our SHIP in Broome County has worked with dozens of 
seniors in Binghamton and surrounding areas who received ``cold call'' 
visits from an insurance agent selling MA PFFS plans during the fall of 
2006 and early 2007.
    Many of these seniors were pressured into purchasing MA PFFS 
policies because of misleading sales tactics on the part of the 
insurance agent. The SHIP filed a series of complaints with the State 
Insurance Department and in January 2008, the Insurance Department 
revoked this agent's license. The Insurance Department also issued a 
press release warning seniors to be particularly cautious of high-
pressure or misleading sales practices during the MA open enrollment 
    We were hopeful that this publicity would have halted or 
significantly reduced the incidences of improper MA PFFS marketing 
practices in Broome County. Unfortunately, the local SHIP has continued 
to receive a steady stream of calls from seniors who have been misled 
by other insurance agents into purchasing MA PFFS plans. During the 
most recent influx of calls, the SHIP learned that seniors signed up 
for MA PFFS plans after being erroneously told by an insurance agent 
that ``if you have Parts A, B & D of Medicare, but not Part C, you 
don't have a complete Medicare package.'' The agent(s) had not made 
clear that enrolling in Part C meant losing their original Medicare 
coverage under Parts A & B. Once the seniors understood the full 
implications of enrolling in the MA plan, they wanted to disenroll. The 
Broome County SHIP office has been helping these folks disenroll and 
get back into original Medicare.
    During discussions with the Broome County SHIP, the SHIP stressed 
that while there are many MA plans who provide good customer service 
and strive to abide by CMS' marketing rules, the damage done by the 
``bad apples''--agents/brokers conducting improper home visits to 
market MA PFFS plans--is considerable. Seniors on limited incomes are 
pressured into obtaining MA coverage they don't want or need; the 
coerced MA enrollment results in a disruption of medical care or 
payment for services (because many times seniors learn after the fact 
that their doctors do not participate in the MA PFFS plan); and it 
takes significant time and energy to help these seniors straighten 
things out.
    Unfortunately, improper MA marketing practices are not limited to 
Broome County. We have learned of these practices occurring throughout 
upstate New York--including Jefferson and Niagara counties--and in New 
York City, and some of the victims have been dual eligibles. Dual 
eligibles are particularly vulnerable to MA marketing abuses since 
their Low Income Subsidy status allows them to enroll in, drop or 
switch MA plans on a monthly basis, not just during the annual open 
enrollment period.
    While the steps taken by CMS to crack down on MA PFFS marketing 
abuses have been helpful, the problem is so pervasive that a more 
sweeping solution is needed.
Cost-sharing issues for dual eligibles
    Some dual eligibles enrolled in MA plans are being improperly 
charged for co-pays that should be picked up by their Medicare Savings 
Program or by Medicaid. We have only recently started to hear about 
this problem, probably because more dual eligibles are enrolling in MA 
plans. It is an extremely complicated and time-consuming issue to 
address on an individual case basis there are different cost-sharing 
responsibilities among the various categories of dual eligibles. So for 
an individual beneficiary you must:

      figure out the beneficiary's dual eligible status (are 
they QMB, SLIMB, QI-1? Do they also have Medicaid?) ;
      assess the State's cost-sharing liability using the CMS 
cost-sharing matrix;
      if the State is responsible, go back to the plan and the 
person's medical providers and advocate to get them to follow the 
proper billing procedures, which may require the filing of an appeal or 
grievance on the client's behalf and/or require CMS intervention.

    These are steps that require fairly extensive knowledge of Medicare 
and Medicaid as well as considerable advocacy skills. How do we expect 
our disabled and elderly beneficiaries to be able to navigate through 
all this?
    The dual eligibles with the lowest income--QMBs (with or without 
Medicaid)--are not supposed to have any cost-sharing liability in 
Medicare Advantage plans. However, the reality is that some of the 
poorest dual eligibles are being charged for services provided through 
an MA plan when they shouldn't be--at the same time that the MA plan is 
being reimbursed at a higher rate than original Medicare.
    Medicare Advantage participation poses unique challenges for our 
dual eligibles, and the improper marketing abuses of MA PFFS plans and 
the inappropriate billing of dual eligibles cause significant harm to 
this very vulnerable population.

                Statement of Representative Kathy Castor
    I would like to thank Chairman Stark and members of the Ways and 
Means Subcommittee on Health for the opportunity to submit my testimony 
on Medicare Advantage for the record. It is no secret that Medicare 
Advantage marketing abuses have affected many seniors both in my 
district and the country as a whole. Reports from the Government 
Accountability Office highlighting the failure of the Bush 
Administration to adequately audit Medicare Advantage providers show 
that the time has come for legislative action. New standardized 
regulations are required or these forms of abuse will continue.
    Too often we find that Medicare beneficiaries choose to participate 
in private Medicare Advantage plans without fully understanding their 
choice and its potential consequences. Often, beneficiaries are not 
made aware that the decision to choose Medicare Advantage is a decision 
to give up traditional Medicare. We have heard of instances when 
beneficiaries continue to send in their Medicare supplement premium for 
several months after they've signed up for a Medicare Advantage plan, 
never having been told that they are no longer responsible for that 
    Seniors also transition to Medicare Advantage without warning that 
they may no longer have access to their current doctor. It is common 
for patients to inadvertently sign up for private Medicare Advantage 
plans that cost more in out-of-pocket expenses after being mislead 
about which doctors accept the plans. In many cases, there may be just 
a few if any doctors that accept such plans. Other stories include 
signing up seniors with dementia or using scare tactics such as 
``Medicare is going private,'' and they will lose Medicare or Medicaid 
if they do not sign up.
    Many seniors are also not aware of their rights or ability to leave 
Medicare Advantage. Those who are aware and make the decision to return 
to traditional Medicare are forced to enter a complicated lengthy 
process that can adversely affect the delivery of health services and 
leave them without Part D coverage.
    My home State of Florida has a large population of seniors. The 
marketing practices and abuses by private Medicare Advantage insurers 
are acute in Florida. Individuals in my own district have suffered 
marketing abuses under Medicare Advantage. Charleen Edge was enrolled 
in a private HMO that she neither requested nor desired. She tried in 
vain several times to switch back to regular Medicare. After breaking 
her pelvis last April neither Medicare nor the HMO would pay her bills. 
As a result, she is burdened with $30,000 in debt. William 
DiPietrantonio, 73, of Tarpon Springs, signed up for the Universal 
Health Care plan called, `Any, Any, Any' with the belief he would be 
able to see any doctor or go to hospital he wanted. When he learned 
that he could not, he attempted to switch back to traditional Medicare. 
An entire month passed before he was finally reenrolled in traditional 
Medicare. During this month, he accumulated $15,000 in hospital bills 
for his chemotherapy treatments for lymphoma.
    Without regulation, seniors will continue to suffer. My recently 
introduced legislation, H.R. 4790, the Accountability and Transparency 
in Medicare Marketing Act of 2007, will hold Medicare Advantage 
providers liable for their abuses and will make such abuses publicly 
known. This legislation requires the National Association of Insurance 
Commissioners (NAIC) to develop standardized marketing practices. It 
prohibits certain activities such as cross-selling of products. Under 
this legislation, the NAIC must establish a committee to study and make 
recommendations to the Secretary of HHS and Congress on the 
establishment of standardized benefit packages and their regulation. As 
CMS has largely abdicated its oversight responsibility, it is now 
imperative for Congress to protect America's seniors.
    I would like to again thank Chairman Stark for this opportunity. I 
commend the Committee on Ways and Means and the Subcommittee on Health 
for holding hearings on Medicare Advantage. It is with great 
anticipation that I look forward to future hearings and opportunities 
to address this vital issue.


    On behalf of the approximately 1.2 million members of The Senior 
Citizens League (TSCL), a proud affiliate of The Retired Enlisted 
Association (TREA), thank you for the opportunity to submit a statement 
regarding the need for accountability and oversight of marketing and 
sales by Medicare private plans. TSCL consists of active senior 
citizens, many of whom are low income, concerned about the protection 
of their Social Security, Medicare, and veteran or military retiree 
    While TSCL fully understands the need to address the looming 
Medicare Trust Fund exhaustion, we are also concerned with the 
complexity and plethora of private Medicare plans. It has been widely 
reported that many seniors have been misled and in some cases 
fraudulently signed up for a plan by insurance representatives. TSCL 
has been encouraged that the 2009 Budget proposal by the President's 
Administration included improved program integrity that could 
strengthen the Medicare entitlement program.
    Unfortunately, TSCL has received a number of emails and comments 
from many seniors who have wound up in private health plans only to 
belatedly discover unexpectedly high costs. Often, they did not 
understand that they were leaving the traditional Medicare when they 
signed up.
    Senate investigators have learned that insurance agents in at least 
39 States used illegal or unethical tactics to sell private Medicare 
health plans, known as Medicare Advantage plans. Some insurers signed 
up unwitting consumers by using ``bait and switch'' tactics, forging 
signatures, using personal information stolen from Federal records, and 
even by submitting applications for deceased individuals. The New York 
Times reported that Albuquerque cancer specialist, Dr. Barbara L. 
McAney, said that many of her patients who signed up for such plans 
``suddenly found that they had huge new co-payments $1,250 every three 
weeks for a combination of five intravenous chemotherapy drugs.''
    Agents of the private plans have worked out of booths in discount 
stores or tables set up in front of grocery or drug stores. Seniors 
might have thought they were signing up to get drug coverage or just 
more information. Then, if they required hospitalization or other 
costly services later, they might learn that there were higher co-
payments than normally would be charged under traditional Medicare.
    Enrollment in Medicare Advantage plans has exploded in the past 
year with one out of five Medicare beneficiaries enrolled. According to 
the Medicare Payment Advisory Commission, however, the government pays 
the private plans 12% to 19% more than it would cost Medicare to serve 
the same people. The non-partisan Congressional Budget Office estimates 
that the cost for these extra payments will amount to $65 billion over 
the next five years. These extra payments are passed on to the nearly 
80% of Medicare beneficiaries not enrolled in a Medicare Advantage plan 
in the form of higher Part B premiums and who receive none of the 
promised additional benefits provided by the plans.
    Also many advocates are worried that the plans tend to siphon off 
younger and healthier seniors. TSCL's Medicare policy analyst found 
that this appears to be true based on the plans she evaluated during 
last November/December's Open Enrollment. Those plans were set up in a 
way that would have most benefited those who were young and healthy, 
and would have been cost-prohibitive for older seniors who might need a 
prolonged hospital stay. Because the plans receive higher payments than 
traditional Medicare and the young and healthy individuals are less 
likely to need to use many services under their plans, it contributes 
to raising the cost of Part B for everyone.
    The Medicare Rights Center (MRC) has reported that there are common 
problems people have in Medicare Advantage plans. Unfortunately, many 
people discover these flaws after they have joined the plan and cannot 
switch until the following year. Problems can include:

      Care that costs more than it would under traditional 
      Difficulties in getting emergency or urgent care and care 
away from home.
      Choice of doctor, hospital and other providers is 
      Promised extra benefits can be very limited.

    TSCL is also highly concerned that the Centers for Medicare and 
Medicaid Services (CMS) have not been providing strong oversight of the 
private plans as required by law. Last fall, the Government 
Accountability Office (GAO) said that private insurance companies 
participating in Medicare have kept millions of dollars in Federal 
subsidies that should have gone to seniors to help lower premiums and 
co-insurance costs. The GAO also reported that CMS did not properly 
audit the companies or try to recover the money. Under Federal law, 
Medicare officials are supposed to audit the financial records of at 
least one-third of private Medicare Advantage insurers annually. The 
GAO said that CMS had never met the ``statutory requirement.''
    At the same time, however, CMS was vigorously pursuing money that 
it says was owed to insurance companies by Medicare beneficiaries. In 
most cases, the premiums were supposed to have been withheld from 
monthly Social Security checks, but the government withheld the wrong 
amounts or nothing at all.
    Although we are pleased that Congress is addressing the growing 
problem of private plan marketing abuse and while we do not have a 
perfect solution, there are some simple actions that could be taken in 
the meantime.
    Tougher enforcement and increased transparency will save Medicare 
billions of dollars annually. A significant portion of expenditures 
comes from fraud and abuse that hurts the solvency of important 
entitlement programs like Medicare for current and even future 
retirees. When Medicare has had the investigative staff and tools 
required to combat fraud, about ten dollars for every one dollar 
invested has been saved in the past.
    TSCL also supports lowering payments to the Medicare Advantage 
plans thereby making them equal to traditional Medicare plans. 
Preventing door-to-door sales of Medicare Advantage plans, stopping 
marketing abuses, and encouraging all Medicare participants to seek 
assistance from an unbiased, Medicare benefits counselor are seemingly 
simple steps that can be taken to protect beneficiaries and the future 
of Medicare.
    Regardless of which solution Members of Congress believe is best, 
The Senior Citizens League sincerely hopes that the Medicare and Social 
Security Trust Funds are protected and strengthened for future 
    Thank you.