Statement of Catherine Schmitt, Vice President, Federal Government Programs, Blue Cross Blue Shield of Michigan, Detroit, Michigan

Testimony Before the Subcommittee on Health
of the House Committee on Ways and Means

May 22, 2007

Mr. Chairman, Representative Camp, and members of the committee, my name is Catherine Schmitt and I am Vice President of Federal Programs at Blue Cross and Blue Shield of Michigan.  I appreciate this opportunity to testify on the Private Fee-for-Service option in the Medicare Advantage program.

Blue Cross and Blue Shield of Michigan (BCBSM) is a non-profit health plan that serves nearly five million members, of which 440,000 are enrolled in government contracted Medicare programs.  Nearly 70 years ago, Blue Cross Blue Shield of Michigan started with a purpose to provide people with the security of knowing they have health care when they need it. Today, that nonprofit mission is the same and we’re accomplishing it in many ways, including offering access to health care coverage for everyone, regardless of circumstances as the insurer of last resort. 

Blue Cross Blue Shield of Michigan is committed to offering Medicare products that meet the needs of the individual members, employers and unions that we serve.  We offer a range of plans to Medicare beneficiaries in every county of the state of Michigan, including Medicare Advantage (MA) Private Fee-For-Service (PFFS) plans, Medicare Part D coverage, and supplemental coverage. The BCBSM enterprise also offers a MA HMO product in counties where an adequate network could be developed.   Our Medicare Advantage plans play an important role in providing comprehensive, coordinated benefits for seniors and disabled members who might not otherwise have affordable alternatives for supplemental benefits in Michigan.

In my testimony today, I will focus primarily on the importance of the PFFS plan in meeting the needs of Medicare eligible beneficiaries who are retirees of employers and unions in the state of Michigan.  We believe that it is critical to preserve the PFFS option because it is the only product available today for bringing integrated health benefits to the retirees of major employers and unions nationwide under the Medicare Advantage program. 

II.  Why did BCBSM offer a Private Fee-For-Service Plan?

BCBSM has traditionally served the Medicare population through Medicare supplemental plans, or Medigap.  However, with the passage of the Medicare Modernization Act (MMA), which addressed inadequate payment levels in Michigan that had made Medicare+Choice plans unsustainable, we saw an opportunity to make comprehensive coverage through Medicare Advantage and Part D plans available to our customers.

We chose the private fee-for-service plan for a number of reasons.  In the individual market, we needed a less costly alternative to Medigap, which had become too expensive for many of our customers.  Even with a dedicated contracting team, broad based network health plans take years to develop as the health care providers will not contract initially for the Medicare allowable amounts. They want much higher payments and re-contracting would have taken considerable lead time.  So, we found ourselves with many Medicare members who have been with Blue Cross and Blue Shield their whole life and we wanted to be able to continue to serve them if they were interested in enrolling in a Medicare Advantage plan.

At the same time, employers were asking for alternatives to their current arrangements which supplement Medicare but do not coordinate care or focus on health improvement.  Our employer and union customers needed a solution for serving retirees all over the country and using a state-wide PPO would leave no choices for the group with retirees residing in different parts of the country like Arizona, California, Florida and New Mexico.  Due to a combination of regulations that prevent PPOs and HMOs from offering coverage to retirees outside of their state and the lack of nationwide acceptance by providers to participate in networks for Medicare Advantage products, PFFS is the only option available for serving these members.

So we did our business analysis and decided that private fee-for-service would allow our employers to provide retiree health care plans identical to the benefit programs they offer active and non-Medicare eligible retirees nationwide incorporating the same care management features such as care coordination and disease management programs through a single Plan eliminating the need to stitch together multiple HMO or PPOs that would cover only a portion of their retirees nationwide.  

I would like to share with you an example of our largest group account enrolled in PFFS and explain why this coverage is so valuable to them.  The Michigan Public School Employees Retirement System (MPSERS) implemented a Medicare Part D Prescription Drug Plan in 2006 and a Medicare Advantage private fee-for-service plan in 2007 in order to lower health care costs and improve health care management and outcomes for their Medicare eligible retirees. 

There are more than 115,000 MPSERS members in the Medicare Advantage private fee-for-service plan.  Many include lower-income retired clerical staff, bus drivers, janitors and cafeteria workers. Medicare Advantage provided MPSERS with an opportunity to reduce the System’s cost and integrate coordinated medical and drug management programs.  This option also allows them to manage health care costs without reducing school programs for the students.

III.  The Importance of Maintaining the PFFS Option

In addition to the fact that PFFS is the only option available to employers and unions on a national basis, which was the major reason that we offered this product in the group market, I would like to stress three reasons why it is important to preserve this product:  opportunities for care coordination, providing rural beneficiaries with access to an MA option, and providing enhanced benefits and protection from the high out-of-pocket costs of traditional Medicare.

Care Coordination

There is a common misperception that PFFS plans cannot provide any advantages with regard to improving member health over traditional Medicare.  In fact, as I mentioned, employers are turning to our PFFS product in large part because they cannot provide the same care management programs that are available to their active and non-Medicare eligible retirees.  

Medicare Advantage plans meet a critical need by offering care coordination and management for diseases that commonly afflict the elderly through an integrated benefit package and this happens in our PFFS plan as well.  The importance of the integrated benefits available under Medicare Advantage plans cannot be understated.  With a Medicare supplemental plan, inadequate and untimely claim information does not allow for any meaningful care management.  By the time information is received, it may be too long after a major event to reach out to a member, their family or providers. 

Our Medicare Advantage members benefit from a variety of voluntary, patient-centered programs designed to improve their health through our BlueHealthConnection® program.  BlueHealthConnection provides a spectrum of wellness, disease and symptom management, and case management opportunities for Private Fee-for-Service (PFFS) Medicare Advantage beneficiaries to take an active role in improving their health. 

For example, we provide access to personal health care coaches to address a full range of health care decision needs, including management of chronic conditions, such as asthma, diabetes, coronary artery disease, congestive heart failure, chronic obstructive pulmonary disorder, cancer, benign uterine conditions, and back pain.  The program is focused on building self-reliance, and seeks to inform members by providing a range of information, transferring skills, building confidence, and enabling members to take action.

We also provide access to a case management program that focuses on high-cost members who are impacted by multiple co-morbidities, those who are the most difficult and costly to care for.  These initiatives provide telephonic and face-to-face assessments, develop collaborative care plans with both physicians and members, and use evidence-based guidelines to measure success.  Through this program, we also provide telemonitoring devices to assist health care professionals in the management of complex conditions, such as congestive heart failure.

We believe that programs offered by the Plan  a member has selected  such as BCBSM and is familiar with, will be far more successful than efforts by companies contracted by CMS where the beneficiary does not know or trust the party contacting them about  their health care needs. 

Access for Rural Beneficiaries

Historically, the existence of private plan options in rural America has been virtually non-existent with the benefits of private plans only available to beneficiaries in urban cities.  Network-based products are difficult to construct in rural areas with sparse populations and limited provider availability.  In rural areas of the country, where traditional Medicare rates are very low, providers often refuse to join a plan's network unless reimbursement from the plan far exceeds what the Medicare rate would be.  Unless plans can meet the network adequacy requirements of CMS at the time of application when enrollment is highly speculative, they will not be approved to participate in the MA program.  

Due to the availability of PFFS plans in 2007, for the first time all Medicare beneficiaries in the country have the choice of a private Medicare plan options: a significant increase from 2004 when one-quarter of beneficiaries did not have that option.  Between 2005 and 2006, enrollment in PFFS plans by rural beneficiaries accounted for 39 percent of total MA enrollment growth.

Enhanced Benefits

Our PFFS plans offer members benefits that are more generous than Medicare alone, especially in the group market.  We estimate that the value of benefits offered among our plans is 21-33 percent more generous than original Medicare. This is because our employer and union accounts generally want to offer their retirees the same benefits they provide to their active workers and are willing to subsidize the group product. We also offer individual products with an actuarial value of up to 27 percent more than traditional Medicare.

Our lowest cost plan (with premiums of $0-$61 per month depending on one’s area) offers a number of additional benefits not available in traditional Medicare.  This plan has an annual out-of-pocket limit of $5,000 that offers the peace of mind that an unexpected illness won't result in bankruptcy.  This is a benefit that is not available in traditional Medicare.  Our plan has a $20 copay for doctor visits instead of the 20% coinsurance in FFS Medicare.  In order to foster good preventive care, our plan has no cost-sharing for services such as home health visits, diagnostic tests, mammograms, prostate and colorectal cancer screenings and immunizations. 

All of our individual plans are comprehensive MA-PD plans and groups can select either an MA-PD plan or an MA plan with the Retiree Drug Subsidy.  In either case we can provide comprehensive, fully integrated programs. Additionally, members like the fact that as Medicare Advantage members they can continue to carry a single Blue card for their Medicare A and B benefits, supplemental and drug coverage.

If Congress cuts MA funding, plans will be forced to increase cost-sharing for these services, cut benefits, or increase their premiums which will most affect those seniors who are living on lower-to-modest incomes.

IV.  Responding to Issues Raised regarding the PFFS Product

Over the past couple of weeks, a number of criticisms have been leveled against PFFS plans.  Some of these concerns involve legitimate issues that industry and regulators are working to address to ensure confidence in this product.  My message today is this:  let’s stop vilifying plans that offer the PFFS option and instead focus on correcting the abuses and improving the program. I would like to address some of these criticisms and point out a few areas where I would support improvements:

·Sales Issues:  The most disconcerting concerns leveled against PFFS plans involve instances of unscrupulous and even fraudulent sales tactics involving sales of individual PFFS plans.  I agree that some of the incidents were appalling and should never have happened.  While the rapid growth of this relatively new product – which enrolled 1.3 million people in a very short time – is likely a contributing factor, the industry must do better.  

We support the marketing guidelines that CMS has put in place for this product and their efforts to strengthen enforcement of these requirements for 2008, including post-enrollment calls to verify that new individual enrollees understand the product.  We continue to strengthen our agent training requirements and have a zero tolerance policy for agents that do not follow the rules. Our complaint ratio regarding agents is less than 1 for every 2,000 enrollees.

BCBSM and the Blue Cross and Blue Shield Association stand ready to work with CMS, the States and Congress to assure that the problems that occurred during the rapid growth of this option are addressed and no longer tarnish the program.  

It is important to note that these sales problems simply are not an issue with employer and union accounts.  Group PFFS products do not involve the use of agents or brokers for individual sales to their members.  Employers and unions work with us to ensure that retirees understand these products. And, as I mentioned earlier, our group customers have a strategy of mirroring the benefits that retirees already have, which improves acceptance.

·Exemptions from Requirements that Apply to Other MA plans.  Some have questioned the value of PFFS plans, given the exemptions that they have from certain requirements that apply to Medicare HMOs and PPOs.  Some of the current PFFS exemptions continue to make sense, given the very different nature of PFFS plans as compared to HMO and PPO plans.  However, we recommend ending two exemptions to inject more accountability and provide increased value to beneficiaries.
 

As I mentioned earlier in my testimony, employers are demanding that PFFS plans work to improve the health of their members and be accountable for quality.  To this end, the general exemption of PFFS plans from the quality improvement provisions should be lifted with respect to the following two requirements, providing for standards appropriate to PFFS plans:  
 

o       Reporting of Quality Data.  Currently, PFFS plans are encouraged to report HEDIS® quality measures voluntarily.   CMS indicated in its 2008 call letter to Medicare Advantage organizations that it intends to use HEDIS measures in developing its MA plan comparisons starting in 2007.  Including PFFS plans in this requirement will make more meaningful performance information available to Medicare beneficiaries, and help better inform their health plan choices. 

o       Chronic Care.   MA plans must establish a chronic care improvement program that monitors and identifies enrollees with multiple or severe chronic conditions.  PFFS plans are exempt from these requirements.  Requiring PFFS plans to establish chronic care improvement programs recognizes the importance of addressing chronic care in this population.  These programs should remain voluntary on the part of members.

·Provider Acceptance.   The PFFS product is unique in that it does not require use of a defined network of providers like a PPO or HMO.  While this enables us to serve retirees in every area of the country, it also means that there is no guarantee that a given provider will see a patient. Our rate of provider acceptance is very high and our group customers have been more satisfied with the success we have been able to achieve for their retirees.  We respond to these incidents by working to educate providers on the benefits of participation, including having the ability to receive a single payment from the health plan for all services.  We have found that physician offices we contact often decide to accept our PFFS patients once they understand our products. When a provider still refuses to participate we make every effort to locate an alternative provider for the member.   Despite our success, this is one area where CMS can help educate providers about these plans to ensure greater acceptance for the entire industry.

·Payment levels.   Another concern leveled at PFFS plans is that their average payments are 19% more than claims costs under traditional Medicare compared to 12% more for all MA plans, according to MedPAC.   BCBSM actuaries have found that the government payments for our employer and union PFFS products are not higher than MedPAC’s estimate for the national average for all MA plans.  This may be because when we offer a product to an employer, we do not target specific counties, but rather we enroll all of the company’s retirees nationwide, regardless of where they live. 

Congress should reject further cuts in funding for this program.  There is tremendous variation around the nation in FFS Medicare payments to providers, which are substantially below payments to doctors and hospitals under commercial plans in most parts of the country.  Congress improved payments under the Medicare Modernization Act to ensure broader access to health plan options in rural areas and to stabilize the program.  Congress has already cut MA base funding by $6.5 billion in the Deficit Reduction Act (cuts that will be phased in through 2010).  This is having an impact on our payments in Michigan, which are rising at a rate that is below growth in medical costs, which over time will result in increased year-to-year costs or reduced benefits for our members.  This is exactly what happened in the years prior to the MMA, when Medicare+Choice became unsustainable in many counties after years of medical cost increases outstripped growth in plan payments.  The result was widespread loss of coverage for Medicare beneficiaries.

If Congress adopts MedPAC’s recommendations for cutting MA funding, the PFFS product is unlikely to be viable in many states.   The result may well be that most, if not all, of the 1.3 million enrollees in this product will lose access to the enhanced benefits and opportunities for care coordination that come with these products.   According to a study by Professors Ken Thorpe and Adam Atherly at Emory University, equalizing payments could result in 3 million people losing their MA coverage, including more than 180,000 in Michigan.

What would the loss of the PFFS option mean for Michigan?  It will mean that many Medicare beneficiaries who make too much to qualify for Medicaid, but cannot afford a Medigap policy, will be left without an option for obtaining affordable supplemental coverage.  It will mean the loss of care coordination and health improvement opportunities.  It will mean that employers and unions struggling to maintain retiree benefits in light of new accounting rules will be forced to make hard choices about reducing retiree benefits.  It will mean more confusion for beneficiaries who will lose trust in Congress, CMS and plan sponsors. 

V.      Conclusion

Thank you for considering my perspectives on the Medicare Advantage program.  I appreciate this opportunity to testify about the importance of the private fee-for-service product.  Medicare beneficiaries need stable options for supplemental benefits and PFFS plans are a major source of that coverage in many areas of the country.  We urge the committee to ensure the continued viability of this product and to support adequate funding for Medicare Advantage plans.