Statement of the Hon. Steve Israel, a Representative in Congress from the State of New York

Good morning, Madam Chairwoman, Congressman Stark, and my distinguished colleagues.  I would like to thank you for allowing me to speak to you this morning regarding the Medicare+Choice program and the bipartisan bill that I have introduced with Congressman Grucci of New York to help stabilize the Medicare+Choice program.

This fall, hundreds of thousands of seniors and other Medicare+Choice beneficiaries have been informed that their managed care health plans have left their communities because of inadequate payments, and that they will have to find new coverage and possibly spend more out of their limited incomes for the health care services that they need.  I would like to bring to light the plight of millions of America’s seniors and other Medicare+Choice beneficiaries who have been forced back into fee-for-service Medicare because of the exit of their health plan including thousands in my own district. In large part, the problems generated by this underfunding can be seen as unintended consequences of the Balanced Budget Act of 1997 (BBA).

The BBA created a new program called Medicare+Choice.   At the time, the BBA placed a strong emphasis on controlling future Medicare spending, in private health plans as well as in fee-for-service Medicare, as part of a broader effort to balance the federal government’s budget.   One of the key goals of the BBA was to increase Medicare beneficiaries’ access to private health plans through Medicare+Choice – the idea being that America’s seniors deserved the choices and expanded benefits that only health plans would deliver.  While the BBA clearly achieved its objective of limiting spending throughout the entire Medicare program, this accomplishment has had the unintended consequence of reducing beneficiaries’ access to health plans because of underfunding.  Thus the BBA has diminished health care choices for Medicare beneficiaries in certain areas of the country in recent years.

Over the past three years, there has been a building consensus in Congress that the unintended consequences of the Balanced Budget Act (BBA) of 1997 have put severe pressure on the Medicare market as a whole, and Medicare+Choice health plans in particular.  Payment levels in some parts of the country are so inadequate that health plans cannot meet the cost of health care services in those markets, and, they are having to drastically alter their benefit packages or leave these markets altogether.  As you may know, there is bipartisan support for stabilizing the Medicare+Choice program and, in each of the past three years, there have been numerous bills introduced in Congress to deal with the issue of underfunding. The recognition of this larger problem led Congress to enact the Balanced Budget Refinement Act of 1999 as well as the Benefits Improvement and Protection Act of 2000 in a much-needed effort to stabilize the Medicare+Choice Program.

However, the Medicare+Choice program continues to be significantly underfunded in those areas of the country with the highest concentration of health plan members – these are the markets where payments to health plans for next year will increase by only two percent.  These are also the large urban and suburban areas where the cost of medical services and inflation have been rising at up to ten percent per year.  Close to 70 percent of Medicare+Choice beneficiaries are enrolled in these “two percent” counties.  These are the people who need our help immediately so that they may continue to have access to the comprehensive benefits packages offered by health plans.

The instability of the program is especially troubling for enrollees who will have to either change their health plan or return to the Medicare fee-for service program next year because inadequate funding has forced their health plans to withdraw from the program.  In January 2002, more than 530,000 seniors and other beneficiaries will have to change their health coverage as a result of these inadequate payments.  This is in addition to the more than 1.6 million beneficiaries that have been adversely affected since 1998.  Many other beneficiaries will face higher premiums or less comprehensive benefits packages for next year.  Although more than 60 percent of beneficiaries enrolled in managed care plans receive some level of drug benefit this year, that number could also continue to fall because of inadequate funding.    As a point of comparison, one need only look at 1999, when 84 percent of Medicare+Choice beneficiaries had access to some type of drug benefit.  Those beneficiaries who have prescription drug coverage, today, are seeing tighter caps on their benefits.  The percentage of Medicare+Choice enrollees who have an annual cap of $500 or less on their prescription drug coverage has increased from 11 percent in 1999 to 27 percent in 2001.   The erosion of this much-needed benefit is one of the most glaring results of the underfunding of Medicare+Choice.

Many of the beneficiaries affected by plan withdrawals have been able to enroll in another Medicare+Choice plan in their area.  However, a significant number have been left with only one option—enrolling in the Medicare fee-for-service program, which offers less comprehensive coverage and requires higher out-of-pocket costs than the typical Medicare+Choice plan.  Millions more have experienced a reduction in benefits or an increase in out-of-pocket costs, including premiums, even though they were able to keep their Medicare+Choice plans.

Further evidence of the underfunding of Medicare+Choice plans is not too hard to find.  A simple comparison of the government’s payments to other parts of Medicare is the clearest reminder of the inadequacy of payment – Medicare+Choice plans in counties with almost 70 percent of total enrollment received a three percent increase in funding this year, a figure that pales in comparison to the increase in the Medicare fee-for-service rate nationwide over the same time period.  The Centers for Medicaid and Medicare Services (CMS) has projected that Medicare fee-for-service spending, when measured on a per capita basis, increased by 9.6 percent in 2001.  As a continuing comparison to other sectors within health care - a survey by the Kaiser Family Foundation, based on responses from more than 1,900 employers, indicates that premiums for employer-sponsored health coverage increased by an average of 11 percent from spring 2000 to spring 2001. Any serious effort to stabilize the Medicare+Choice program must directly address these concerns by committing a significant level of additional funds to support the health benefits of Medicare+Choice enrollees.

New York state has almost 400,000 beneficiaries enrolled in Medicare+Choice plans, a majority of whom live in counties where plans have been limited to a two percent annual update since the BBA of 1997. In September of 1999, 12 HMOs offered seniors health plans in Suffolk County. Now only two remain.

This year, CMS reports that 65 Medicare HMOs did not renew their contracts, leaving an additional 160,000 senior citizens in America with no Medicare HMO option. Since 1998, more than 46,500 seniors and other Medicare+Choice beneficiaries have been affected in Suffolk County alone. 

This is intolerable. Most seniors enroll in HMOs for coverage not provided by Medicare, but HMOs across the country are unable to renew their contracts with the federal government, leaving seniors without access to a prescription drug plan.  In January 2002, 16,000 more Medicare+Choice enrollees throughout the state of New York will be adversely affected because of these chronic problems of underfunding.

Moving forward, I urge this Committee and all Members of Congress to seriously consider the following remedy to the immediate funding inadequacies in Medicare+Choice –

As you may know, I have introduced a bill that will help to prevent further disruptions for Medicare beneficiaries in the coming year.  The “Medicare+Choice Equity and Access Act” (H.R. 2836) is a bipartisan bill introduced with my co-sponsor, Felix Grucci, Republican of the First District of New York.  You also may know that a bipartisan bill was also introduced in the Senate by Senators Schumer of New York and Santorum of Pennsylvania who are also committed to stabilizing the Medicare+Choice program.  The Israel-Grucci bill will work to bolster payments to the Medicare+Choice program, particularly in those areas that have not been targeted for relief by the Balanced Budget Refinement Act of 1999 (BBRA) and Benefits Improvement and Protection Act of 2000 (BIPA). 

• H.R. 2836 adds a new element to the Medicare+Choice payment formula to allow plans to receive payments equal to 100 percent of local fee-for-service rates.  Medicare+Choice plans in many areas have received payment updates of only two or three percent every year since the Balanced Budget Act of 1997 (BBA) was enacted.  Adding a new payment element – equal to 100 percent of local fee-for-service rates- would provide more equitable payments to plans that have received only the minimum annual payment update in recent years when their costs have been increasing at two or three times that rate.
• H.R. 2836 eliminates the BBA’s budget neutrality requirement to allow the “blend” component of the Medicare+Choice payment formula to be implemented.  The BBA established the “blend” in an effort to provide for a more equitable distribution of resources in response to concerns that Medicare managed care payments varied unfairly across geographic regions under the old payment system.  However, the BBA’s budget neutrality requirement has resulted in the Medicare+Choice payment “blend” being funded in only one year since the BBA was enacted.  Eliminating this requirement would allow Medicare+Choice plans to receive the higher “blended” payments that Congress originally intended.

By targeting assistance to areas that have received little or no assistance under BBRA or BIPA, we have managed to develop a solution that has the potential to complete the job of  stabilizing the Medicare+Choice program.  An opportunity still exists, if we act promptly, to save the Medicare+Choice program and ensure that Medicare beneficiaries continue to have access to the wide range of high-quality, affordable health care choices they deserve.  I would like to remind my colleagues again that the future of Medicare rests with this Congress, and the first step in that future would be to deliver on the promises made by this body to America’s seniors and disabled beneficiaries – we have to maintain a viable Medicare+Choice program to ensure that we can build on it when considering future avenues in Medicare reform. 

Thank you for your time and the opportunity to testify before this Committee.