Statement of Citizens Against Government Waste

Citizens Against Government Waste (CAGW) appreciates the opportunity to provide testimony to the House Ways and Means Subcommittee on Health on reforming Medicare. CAGW is a non-profit, non-partisan 501(c)3 organization that accepts no funds from the government. The organization has more than one million members nationwide. CAGW was founded in 1984 by J. Peter Grace and nationally syndicated columnist Jack Anderson to build public support for implementing the Grace Commission recommendations and other waste-cutting proposals, and has long been interested in making Medicare more efficient and responsive to its beneficiaries.

For several years, one of the major policy issues in Washington and across the country is how to provide Medicare beneficiaries with an outpatient prescription drug benefit. Prescription drugs have become a major component of modern health care and are routinely covered in private plans. Medicare, unfortunately for seniors, is not a modern healthcare plan. It is still based on how private health insurance was structured and delivered in the 1960's. At that time, there were few innovative drugs and health insurance focused mostly on hospital stays and expensive surgery. Simply put, Medicare has not kept pace with the advances in modern healthcare technology.

Medicare must be placed on sound financial footing and seniors should have access to a prescription drug benefit. CAGW is not in favor of simply throwing additional money to Medicare Part A and adding a prescription drug benefit, such as creating a Part D as in Senator's Daschle's plan (S. 10), to the current Medicare structure. Not only is Medicare in desperate need of modernization, it is financially unstable. It would be unwise to allow the Health Care Financing Administration (HCFA) to directly manage and control a drug benefit. CAGW agrees with the comments of Senator John Breaux (D-LA) at the last meeting of the Bipartisan Commission on the Future of Medicare:

"As I've said before, I think putting surplus dollars into the Part A Trust Fund doesn't fix Medicare's underlying program. I've likened it to putting more gas in an old car - it still runs like an old car and doesn't have any of the features of a new car."

Medicare must be converted into a modern healthcare system that can provide innovative and up-to-date healthcare for our seniors. CAGW believes that the solution to modernizing Medicare is what a majority of members on the Bipartisan Commission on the Future of Medicare recommended to fix the program. Medicare should be restructured to resemble the Federal Employees Health Benefit Program (FEHBP) that provides healthcare to members of Congress and nine million federal employees, including the president. FEHBP offers about 245 privately run healthcare plans nationwide. All the plans provide drug coverage and the program uses customer choice to keep prices down and quality up.

Under this FEHBP-styled plan, seniors would be given the financial and institutional assistance necessary - better known as premium support - to buy government-approved private health insurance of their own choice. Seniors in economic need would be given more assistance to purchase a plan. If this is not what they want, they could choose to stay in the current government-run system.

An FEHBP model for Medicare would provide a wide range of choices for our nation's seniors, from HMOs to PPOs to fee-for-service plans. Just as FEHBP allows federal employees to pick a new health plan each year, seniors would be allowed to pick a new one on an annual basis, as well.

Contrarily, Medicare uses price controls and rationing to control costs. Seniors cannot shop for a new health plan each year and must accept HCFA's choice on what will be covered or not. As a result, Medicare effectively denies seniors access to the most innovative technology. If supporters of a HCFA-run Medicare drug benefit have their way, it will not be too long before Congress and the agency begin to ration and reduce payments to control pharmaceutical costs and usage, just as has been done in prior years for other benefits and medical procedures.

If anyone doubts that Medicare would not deny coverage, ration or institute price controls for a pharmaceutical benefit, one only needs to look how HCFA covers medical devices.

Medical devices can cover a wide range of technology used in healthcare. They range from a simple test strip that is used to find how much glucose is in blood, to a coronary angioplasty catheter, to a hip implant, to a Computerized Axial Tomography (CAT) scan that is used to view the inner workings of the human body. Each has various degrees of complexity and vastly different functions.

Medical devices essentially go through two approval processes before they are marketed to seniors. First, they must receive approval from the Food and Drug Administration (FDA) before they can be marketed to the general public. Then they have to go through HCFA to win approval to be covered by Medicare.

One of the most important things for a medical device company to do is to obtain a Medicare billing code for their product. When a medical device is used, the associated code will determine how much will be paid by HCFA and their contractors for the procedure. If there is no appropriate code, reimbursement can be delayed and doctors will be less likely to use the product.

Unfortunately for seniors, the process of getting an innovative device covered and paid for is more complex and challenging in Medicare than in the private sector. It often takes months or even years to get a code for a FDA-approved product. Without a code, proper payments are either delayed or uncertain. When this happens, seniors often do not have access to the newest and best technologies.

It literally takes an act of Congress to get Medicare to cover some innovative technologies that are already used in the private sector insurance market. For example, in 1997, there was a concerted bipartisan effort to pass a law to require Medicare to cover:

• an annual screening mammography for women over age 39;

• triennial screening pap smear and screening pelvic exam for any woman (annually for a woman with cervical or vaginal cancer or other abnormality, or who is at high risk of developing such a cancer), while providing for a waiver or deductible;

• annual prostate cancer screening tests;

• colorectal cancer screening tests, subject to prescribed frequency and payment limits; and

• diabetes outpatient self-management training services, including blood-testing strips glucose monitors for individuals with diabetes

Fortunately, the bill was passed with bipartisan support, and signed into law by President Clinton in December 2000. Now seniors are provided coverage for these important diagnostic tools. But this should not be how Medicare is run or how seniors get access to important healthcare devices.

It is already a matter of life and death in that seniors must wait for HCFA's approval so that Medicare provides access to a medical device. If this same protracted process occurs regarding prescription drugs, this untenable scenario will be compounded.

According to the most recent report by the Medicare Trustees, the Medicare HI trust fund (Part A) it is estimated to go bankrupt in 2025. While this is much improved from prior estimates, the forecast is entirely dependent on future economic trends and healthcare cost trends. Furthermore, by 2010, it is expected there will be 3.6 workers for each HI beneficiary, and this will swiftly decline to 2.3 workers for every HI beneficiary by 2030 when the last baby boomer reaches 65.

The Bipartisan Commission found that their FEHBP model proposal for Medicare would be approximately budget neutral in its first five years (between 2000 and 2004 at the time the commission wrote the report.) Over the 10 years following years, the proposal would save approximately $100 billion. Over the longer term, the proposal would reduce the growth of Medicare spending by approximately 1 percent a year. The savings would accumulate slowly over time and by 2030 the annual budgetary savings would range from $500 to $700 billion.

Prescription drug coverage for seniors must be made available, but simply adding such coverage to the current Medicare system won't work in the long run. First, more needs to be done to make Medicare more efficient, agile, responsive and financially sound. CAGW believes the best way to save Medicare for the future and to give control and choice back to our nation's seniors is to modernize Medicare and make it work like the plan that provides healthcare to our nation's federal employees. After all, if FEHBP is good enough for Congress, it should be good enough for our nation's seniors.