Chairman JOHNSON.  I thank you.  I would like to recognize the Honorable Mr. Jindal.

STATEMENT OF THE HON. BOBBY JINDAL, ASSISTANT SECRETARY FOR PLANNING AND EVALUATION, U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES

Mr. JINDAL.  Thank you, Chairman Johnson, Representative Stark, Representative McCrery, Representative Crane, distinguished Subcommittee Members.

I do look forward to talking to you about the details that are in the fact sheet as well as in the testimony.  But I also want to first thank you for inviting me to discuss the important issue of Medicare supplemental insurance, commonly referred to as "Medigap," and to share with you the Administration's views about, and proposals to strengthen, this critical complement to the Medicare fee-for-service program.  We do have details.  We do have specific proposals.  And I look forward to talking about those, both in response to your questions, and also as part of my testimony.

Clearly, as the Chairman and others have indicated, because of the major gaps in the benefit package in the current fee-for-service program, Medigap is an essential part of the Medicare benefits coverage for millions of our nation's elderly and disabled.  The Administration, however, also shares your concern regarding the rapid increases in Medigap premiums in recent years.  Most seniors now pay more for Medigap than they pay in Medicare premiums.  We also agree that, working together, we can better design both Medicare and Medigap so that seniors and people with disabilities can get more affordable coverage and get the most of their health care dollars that they spend.

As you know, the President has put forward a detailed framework for strengthening Medicare that would address the many threats to its ability to give seniors the health security they need.  Medicare's lack of prescription drug coverage is only one example of the ways in which the programs lag behind.

The Administration also believes that Medicare should provide better coverage for preventive care and serious illness.  Medicare's statutory benefits have enormous gaps, and its cost-sharing requirements can add up quickly.  For example, beneficiaries who require $25,000 or more in care are typically responsible for about $5,000 in deductibles and co-payments.  Yet Medicare provides no stop-loss protection, and this is something the Administration believes should change.

As part of legislation to improve Medicare's existing coverage, it is also important to develop new Medigap options that better meet beneficiary needs and provide more affordable premiums.  Clearly, the existing set of options, which require beneficiaries to purchase first-dollar coverage for hospitalizations and even basic services like doctor's visits before they can obtain any drug coverage at all, has become outdated.

Yet giving seniors the option of a better benefit package, including prescription drugs, and more affordable Medigap plans to go along with it, will take years to implement.  So we have also proposed that two new Medigap plans be added to improve beneficiaries' options quickly.  These options would include valuable prescription drug coverage, protection against high out-of-pocket costs, and coverage of most of Medicare's cost sharing--all at a significantly lower price than the current Medigap options that already include prescription drugs.

While we are obviously willing to work with this Committee, with Congress, and with other interested parties, on the details of these initiatives, we believe that providing better short-term options for seniors to get more affordable drug coverage is a critical priority.  In addition, these options would also generate modest savings for Medicare, as well as savings for beneficiaries.

Before I provide these additional details about our proposals, I would like to briefly review the key features and the problems with Medigap coverage today.  As the Chair has already noted, one of the main reasons why seniors--nearly all seniors; over 90 percent of them--have some form of supplemental coverage is the fact that Medicare does not provide adequate protection against the cost of serious illness.  As you know, the deductible for each hospital spell now exceeds $800, and will grow rapidly.  And in addition to the hospital deductible and co-payment, eventually Medicare coverage can eventually run out altogether.  This stands in stark contrast to private plans like the Blue Cross/Blue Shield option that is offered to all Federal employees, which has a single annual deductible and modest coinsurance for out-patient care, and provides much better coverage for hospitalizations.

And of course, not all beneficiaries get their supplemental insurance through Medigap.  Those who are eligible often receive this coverage through Medicaid or their former employer.  Others are able to lower their cost-sharing through joining a Medicare+Choice plan.  It is important to recognize that, despite the changes in Medicare+Choice benefits, these plans still often provide a better deal for seniors than fee-for-service Medicare plus an increasingly costly Medigap policy.

Seniors face important problems in getting the coverage they need.  And the written testimony certainly has more details about the antiquated benefit design and about the facts of first-dollar coverage.  You have heard estimates not only from the actuary, but from GAO, from CBO, and others, that this increases utilization by at least 23 percent.  I think it is particularly interesting to note that when you compare it to the cost-sharing coverage enjoyed by those with employer coverage, even there you have got a significant increase in utilization and spending by those with first-dollar coverage.  According to the GAO and others, even modest changes in first-dollar coverage would lead to significantly lower Medicare costs, and in turn lower Medigap premiums.

And then finally, fourth, the issue of rising premiums:  And again, I think you will hear more later--and it is in the written testimony--about the rapid increase both in Medigap plans that offer prescription drugs, but also for Medigap plans that do not offer prescription drugs.

Clearly, addressing these problems requires a comprehensive approach.  That is why the President has outlined a comprehensive approach to strengthening Medicare which includes changes in cost sharing.  Again, I refer you to the testimony for more details about the President's plan.  I know that you have heard about that before.

Let me just close by briefly mentioning that what the President has proposed will immediately add two new Medigap options.  And again, the details are in your fact sheet.  They are also covered in the testimony.  One plan would cover 75 percent of current cost-sharing, without a drug benefit, similar to the ones that are offered today in Medigap.  The second plan would offer coverage for additional drug expenses, like that in Plan "J," but would also have a higher stop-loss limit, and would cover 50 percent of Medicare's cost-sharing.

Both of these options would be much more affordable than current Medigap policies.  Our actuaries said their premiums would be at least $500 lower.  They would also reduce cost-sharing for beneficiaries, and provide much better protection against high cost.

Let me close by noting that up to one and a half million beneficiaries would choose these policies, almost half of whom would not have had drug coverage right now.  So in addition to lowering costs for the program and providing better coverage and better options for seniors, we can also provide drug coverage to 700,000 seniors who do not have this coverage today.  And this estimate may be a conservative one, based on surveys done by other groups.

Let me close by saying we are open to working with this Committee, other Members, and key stakeholders, going forward on the details.  What is important to note is the current structure, with its emphasis on first-dollar coverage, does make prescription drug coverage much less affordable and much less accessible to seniors.  We look forward to working with you to increase the accessibility and affordability of drug coverage, first, in the short term, through Medigap reforms, but in the long term, through the President's framework for improving the overall Medicare program.  Thank you, Chairman, for letting me come and address the Committee.

[The prepared statement of Mr. Jindal follows:]

Chairman JOHNSON.  Thank you very much. Mr. Scanlon, a pleasure to have you before the Subcommittee again.

STATEMENT OF WILLIAM J. SCANLON, DIRECTOR, HEALTH CARE ISSUES, U.S. GENERAL ACCOUNTING OFFICE

Mr. SCANLON.  Thank you very much, Madam Chairwoman and Members of the Subcommittee.  I am very pleased to be here today as the Subcommittee considers the issue of Medicare supplemental benefits.  And I think there is a great deal of agreement between the facts that we have examined about these policies and what you have heard from Mr. Jindal and what was mentioned in your opening statements.

There is no issue that Medicare beneficiaries are in need of supplementary coverage, given the structure of the program.  We have heard a lot over the past several years about the lack of prescription drug coverage.  And that is certainly understandable, given the importance that pharmaceuticals have, the role that they play in terms of being effective treatments for a variety of conditions, and because of the rapid rise in drug costs.

I think it is also important that this Subcommittee last year brought a great deal of attention to the fact that Medicare is not a genuine insurance program; that you are not protected against catastrophe; there is no stop-loss coverage; that Medicare cost sharing can leave you vulnerable for considerable expenditures.  In fact, close to three and a half million beneficiaries in 1997 were liable for more than $2,000, and approximately 750,000 of them were liable for more than $5,000 that year.

Given that, it is not surprising that people turn to supplementary coverage.  And given that not all beneficiaries are eligible for either employer-based coverage, Medicare+Choice, or Medicaid, Medigap is a very popular option.  As you indicated, about 25 percent of beneficiaries have such policies.

But the policies we have today are problematic by themselves.  They are, as you have heard and have indicated, expensive.  The expense, while high at the national level, varies greatly by geography; so that people in certain areas spend much, much more than the national level for a policy, and spend even more depending upon the insurer that they choose.

Policies are expensive in part because they are marketed individually, as opposed to being sold to groups.  And one of the results of that is that about 20 percent of policy premiums go to administrative costs.  The policies are expensive also because of the design of those policies, which is dictated by Omnibus Budget Reconciliation Act of 1990 (OBRA '90).

In creating the 10 standardized packages, we have essentially eliminated most of Medicare cost sharing, as you have indicated.  And given that so many elderly use at least some medical care during the course of the year, policies essentially function like a pre-payment arrangement, rather than as insurance.  With insurance, you would expect that only a fraction of policy holders are likely to incur a loss and therefore receive a benefit, and premiums can be correspondingly lower.  However, when everybody is virtually going to receive a benefit, then premiums have to be much higher.

Medigap premiums are also higher because of that structure, in terms of eliminating the cost sharing, because it leads beneficiaries to use more services.  One study that we quoted in our testimony indicates that Medigap policy holders use 28 percent more services than beneficiaries without supplemental coverage.  Obviously, this does not only add to the cost of a Medigap policy; it adds to the cost of the Medicare program.

The other major drawback with Medigap policies is the inadequate prescription drug coverage.  With available coverage, beneficiaries must pay over half their drug expenses, and have significant limits that do not provide catastrophic protection for extreme drug costs.

There are likely benefits from creating these standardized packages, or standardized plans, in the OBRA '90, given the abuses that were reported in the Medigap market before then.  However, it does seem that it is now time to think about revisiting the design of these packages, and that new options would benefit both policy holders and the program.

The Administration's proposal seems to point in the right direction.  Having new options involving catastrophic protection, having drug coverage, and reducing the amount of first-dollar coverage, we think are positive.  Having not had the details before today, we could not look at them in detail, and would need to do so in order to comment on the merits of these proposals versus others.  But I think it is important that we start to move toward making Medigap policies more like employer-based insurance.  That is, to have some first-dollar cost sharing that encourages the prudent use of services; to structure cost sharing in a way that discretionary services have cost sharing, and less discretionary services may not; for instance, not to have cost sharing for hospitalizations which are rarely discretionary.  This type of policy is likely to moderate costs and to change use somewhat, but not too severely.

Studies have also shown that Medicare beneficiaries with employer-based insurance use 17 percent more services than beneficiaries without supplementary insurance.  That compares to the 28 percent that I noted earlier.

We would be happy to work with this Subcommittee as you consider these options.  And that completes my statement.  I will be happy to answer any questions that you have.

[The prepared statement of Mr. Scanlon follows:]

Chairman JOHNSON.  Thank you very much. Dr. Young, a pleasure to have you with us today, as well.

STATEMENT OF DONALD A. YOUNG, M.D., PRESIDENT, HEALTH INSURANCE ASSOCIATION OF AMERICA

Dr. YOUNG.  Thank you, Mrs. Johnson, distinguished Members of the Subcommittee.  I am Donald Young, M.D., President of the Health Insurance Association of America (HIAA).  The HIAA's nearly 300 members provide health, long-term care, dental, disability--

Chairman JOHNSON.  Don, could you get a little closer to the microphone, please?

Dr. YOUNG.  Dental, disability, and Medicare supplemental coverage to more than 100 million Americans.  We commend the President for his leadership, and this Committee for the efforts you are making to develop Medicare and Medigap policies that will better meet the needs and expectations of Medicare beneficiaries.  And we greatly appreciate the opportunity to join in today's discussion.

Plans to supplement Medicare fill important gaps in Medicare coverage.  About 20 million seniors have such supplemental coverage, either through an employer-sponsored retiree health plan, or through an individually purchased Medigap plan.  Many other seniors have supplemental coverage through Medicare+Choice or Medicaid.

Surveys done by government agencies and by private pollsters regularly confirm that Medigap policy holders are satisfied or very satisfied with their coverage, and consider the policies a good or excellent value.

However, making improvements to Medicare benefits, especially with respect to prescription drug coverage, also means that the design of Medicare supplemental products would need to be reexamined.  The President has devoted considerable attention to Medicare coverage gaps relating to prescription drugs, and recently proposed several mechanisms to help Medicare beneficiaries with these costs.

One of these mechanisms would involve the creation of two new Medigap plans.  These plans are intended to offer enhanced coverage for prescription drugs, protect beneficiaries against catastrophic illness, and provide for nominal beneficiary cost sharing.  And we heard more details about them just recently.

During 2000 and 2001, the National Association of Insurance Commissioners (NAIC) undertook a reexamination of the 10 standardized Medigap policies.  The NAIC working group conferred with consumer representatives, State and Federal regulators, Medicare supplement insurance carriers, and their trade associations, including HIAA.  Their final report contains a list of possible revisions for further consideration.

However, the report emphasizes that in the absence of overall Medicare reform, the implementation of incremental changes to Medigap may be ill advised, given the need for regulatory changes at the State level, the need for beneficiary education, and the potential for adverse selection.

I would like to offer a few recommendations about Medigap reform.  First, since the design of any new or revised Medigap plans would be heavily dependent upon the features of a modernized Medicare program, we believe that Congress should make final decisions about the Medicare program itself, and then proceed to address corresponding Medigap issues.

Second, changes affecting Medigap should be made at one time, and not in an incremental or piecemeal fashion.  Making Medigap changes in two or more rounds of reform would increase administrative costs and increase beneficiary confusion.

Third, we suggest that Congress allow a process similar to that used under the Omnibus Reconciliation Act of 1990 for any mandated redesign of Medigap benefits.  In 1990, the Congress did not specify in statute the contents of the 10 standardized Medigap plans we have today; but instead, called for the NAIC to bring together consumer representatives, State regulators, and insurers, to design Medigap benefit options.  We believe it would be in the best interests of consumers to follow the same approach at the proper time.

Finally, it is important to remember that when it comes to Medigap, Medicare beneficiaries are the customers.  They are free to buy, or to not buy, available products.  Whatever we do must be viewed as beneficial, not harmful, to the interests of the typical Medicare beneficiary, and result in Medigap products that provide value and are affordable.

I will end by emphasizing that in the context of broader Medicare benefit modernization, HIAA certainly understands the need to take a fresh look at Medigap.  We wish to bring the experience and views of our member companies to this Committee's efforts to reexamine the structure of Medigap benefits and related matters.

Thank you again for giving me this opportunity to appear before you today, and I would be happy to take any questions you may have.

[The prepared statement of Dr. Young follows:]

Chairman JOHNSON.  Thank you very much, Dr. Young. Jennifer Weiss, of the Medicare Rights Center in New York, nice to have you.

STATEMENT OF JENNIFER WEISS, DIRECTOR OF POLICY, MEDICARE RIGHTS CENTER, NEW YORK, NEW YORK

Ms. WEISS.  Thank you.  Good afternoon.  As Chairwoman Johnson said, my name is Jennifer Weiss, and I am the Director of Policy at the Medicare Rights Center.  The Medicare Rights Center is a national consumer services organization based in New York that is dedicated to ensuring that older and disabled Americans get good, affordable health care.  Every year we hear from more than 60,000 people with Medicare who have questions about their Medicare rights, benefits, and options.  I thank the Ways and Means Subcommittee on Health for giving me this opportunity to testify on Medicare supplemental insurance options.

For the older and disabled men and women we serve, there are three critical Medigap issues:  They want meaningful and understandable Medigap policies, a good Medigap benefit package, and affordable Medigap coverage.  To the extent Medigap reform proposals affect these key issues, on behalf of our clients, we ask that you tread carefully.

As you well know, changes often have unintended consequences.  Adding new Medigap plans that are not affordable, or that discourage access to needed care, will jeopardize the health of older and disabled Americans.  Changes designed to save money by dissuading people from seeking the care they need may end up costing Medicare more in the long run, through future hospitalizations and through providing other complex health services.

Any new Medigap option must be designed so that people can easily understand its risks and benefits.  For example, there is incontrovertible evidence that Medigap standardization has been successful in allowing consumers a meaningful basis to comparison shop--a good thing for consumers and for the market.

In an ideal world, there would be a simple answer to the question of how to design cost sharing in Medigap that strikes the right balance between ensuring that people who need care get care, and discouraging people from seeking unnecessary care.  Finding that delicate balance requires a fair and objective review of our learning on health care usage.

Based on our experience, we have two serious concerns that we raise here:  One, plans that do not provide first-dollar coverage might deter enrollees from getting needed care.  Two, plans that do not provide first-dollar coverage might draw a healthier pool of policy holders, which could lead Medigap insurers to raise rates on the less-healthy pool of policy holders who elect first-dollar coverage plans.

Moreover, plans with high deductibles are not likely to attract customers.  As you know, the two high-deductible plans currently available have few enrollees.  Today, many more people sign up for plans that cover their high deductibles and high cost sharing than for less expensive plans that do not.  In fact, most people even opt for plans that cost more but cover the modest Part B deductible.

Regardless of ideology, none of us wants a health care system that deters people from getting the care they need.  At the same time, limited public resources should not be diverted to pay for care that is unnecessary.  We need to understand clearly where the dividing line is.

The tragedy that we hear at the Medicare Rights Center day after day is from our elderly clients who report that they go without needed care because they cannot afford it.  As you well know, prescription drugs are the prime example of what we consider to be an inhumane and uncivilized deprivation in modern-day America.  Remember, the Medicare population is a group of Americans who have a median income below $24,000 a year.  Indeed, Members of the Committee, our neighbors are going without needed care as we meet here today.

Our client experiences also tell us that Medigap policies are the mechanism through which our clients budget for their health care each month, enabling them to predict many of the costs they will face.  Human beings, of course, are not clairvoyant and are hard-pressed to self-insure for unexpected high-cost health care needs.  While a high-deductible Medigap plan may mean a beneficial lower monthly Medigap premium, it may also mean a gamble about future health care needs and out-of-pocket health care costs.

As this Committee considers ways to offer people with Medicare meaningful health care choices, encourage access to needed care, and discourage unnecessary care, we would urge you to look at Medicare as a mechanism for offering supplemental options.  Adding supplemental coverage options to Medicare would allow the millions of people with disabilities under 65 the right to purchase coverage.  It could also spread risk more broadly, and help stabilize supplemental insurance premiums.  We wonder whether the CBO has ever scored this proposal to expand Medicare, and strongly recommend that you request further study of this option.

To conclude, we strongly urge that before pushing forward with changes to Medigap, that you ask the GAO and the CBO to study these proposed changes and their potential consequences.  Add to the current Administration proposals serious review of other options, such as a supplemental policy directly through Medicare.

No one expected that the Balanced Budget Act of 1997 would lead to 2.2 million Americans losing their health maintenance organization (HMO) coverage, and thousands struggling to secure a Medigap policy.  No one would want to offer a change to Medigap that impeded access to needed care.  That said, the greatest barrier to getting care right now is the lack of a Medicare prescription drug benefit.  Prescription drug coverage through Medigap has proven to be unworkable.  Now is the time for Congress to expand Medicare to include prescription drug coverage for everyone.  Thank you very much.

[The prepared statement of Ms. Weiss follows:]

Chairman JOHNSON.  Thank you very much, Ms. Weiss. Mr. McCrery.

Mr. MCCRERY.  Thank you, Madam Chair.

Ms. Weiss, your last statement was that, "Providing prescription drugs through Medigap policies has proven to be unworkable," I believe is what you said.

Ms. WEISS.  Yes.

Mr. MCCRERY.  Why do you think that is?

Ms. WEISS.  I would say that I believe that is the case because only between 8 and 10 percent of people who have Medigap have chosen the Medigap plans that offer prescription drug coverage.  The fact that they have only a 50-cents-on-the-dollar coverage and high deductibles means that people essentially have to spend over $6,000 to get $3,000 worth of coverage.  So my sense is that the Medigap plans that do offer prescription drug coverage are not a good value.  And we have seen that indicated by the few number of enrollees who have actually signed up for them.

Mr. MCCRERY.  Dr. Young, do you agree with that analysis?

Dr. YOUNG.  Yes.  That is the same that we hear back.  The Medicare beneficiaries look at that and say, "This is not a good deal for me, and I'll choose one of the other options."

Mr. MCCRERY.  And why is the price so high in relation to the benefit for those policies?

Dr. YOUNG.  That has to do with the problem of selection, of adverse selection.  And Medicare's beneficiaries with drug costs have a very good idea of what their drug costs are going to be; if they are going to be $500 or less, or if they are going to be $1,000 or $2,000.  So they can go through the arithmetic.  And if they are going to have high drug costs, then they are likely to pick that option, and they will be in that 8 or 9 percent.

That results, though, in the premiums going up, because everybody there has drug costs that are much higher than average.  You cannot spread the costs across a larger group and keep the premiums lower.

Mr. MCCRERY.  So Mr. Jindal, how do we solve that problem?  If we cannot provide prescription drugs effectively to the Medicare population, to the universe of Medicare beneficiaries, through Medigap policies, because of adverse selection, how do we solve that problem?

Mr. JINDAL.  Well, I also want to add that one of the concerns we have with the Medigap policies, in addition to what the previous two speakers said and what the Chair has said, is the problem being that you have to buy all of these other benefits before you get to the prescription drug coverage.  It is not possible to get the drug coverage unless you buy first-dollar coverage.

So I think a couple of principles the Administration is in support of is, first, no longer requiring beneficiaries to buy first-dollar coverage for other utilization before they get prescription drugs.  Secondly, we do believe that, if offered through risk-bearing, integrated plans, if you buy drug coverage that includes not a capped drug coverage, but also includes catastrophic coverage, you will get a better sharing of that risk.

So two changes would be, first, divorcing it from having to buy first-dollar coverage and, second, not making it a capped benefit, but rather making it a catastrophic benefit in an integrated, privately offered, risk-bearing plan, would be a way to get more affordable drug coverage to Medicare seniors.

Mr. MCCRERY.  Bottom line, though, if we are going to have effective and affordable prescription drug coverage, do we not have to pretty much spread that across the Medicare population?

Mr. JINDAL.  Yes.

Mr. MCCRERY.  Then that brings me to Mr. Stark's question, or his statement, that a Federal program would be 20 percent less expensive to provide than private programs.  That does not seem to be the way the Administration is going; and I doubt if that is the way Dr. Young would want to go.  So maybe you would like to comment on Mr. Stark's proposal.

Mr. JINDAL.  I would be happy to start.  I would like to follow up that the Administration certainly, in addition to supporting the President's call for drug coverage for Medicare seniors, also supports intermediate and short-term steps.  That is not to say we should not do anything.  And that is why we are proposing the two new plans while we are proposing the Pharmacy-Plus waiver program, the discount card, and the low-income plan as well.

In terms of the question of CMS administering the Medigap option, I would say a couple of things.  One, certainly, the Administration supports modernizing the fee-for-service cost-sharing structure, so that we may be able to even reduce the demand or need for supplemental coverage.

For example, we think that adding stop-loss coverage in a restructured cost-sharing package can be done in a way that may reduce the need to buy wrap-around coverage.  Currently, there are several gaps.  In addition to a lack of prescription drug coverage, you also have the lack of unlimited hospital days.  You have got a cap on the number of hospital days a senior can get in any given year.  You have increasing co-payments on both hospital days and nursing home care.  In other words, you do have some financial disincentives for those seniors that face the highest health care costs.  So one thing we are in agreement with is the need to re-look at the cost sharing in the government-run fee-for-service plan.

Secondly, we do have some concerns, however, about asking CMS, given all of their other responsibilities, to actually manage an additional set of responsibilities.  And I am sure Dr. Young can also point out the other benefits offered by Medigap providers, whether they are discount cards or other services.

So on one hand, we are very supportive and want to work with this Committee and Congress to look at changing the fee-for-service cost-sharing structure, especially the addition of catastrophic and stop-loss coverage.  But, on the other hand, we do have some concerns about asking CMS to take on those additional responsibilities.

Mr. MCCRERY.  Madam Chair, if Dr. Young could respond?

Dr. YOUNG.  Yes.  The figure that has been used, that was in the GAO testimony as well, Medicare's administrative cost--3 percent--is a very misleading figure.  Those are the direct costs at the Health Care Financing Administration and to contractors.  It does not include any of the costs of the tax system to collect premiums and to collect information.

Many of Medicare's costs in fact are passed on to its insurance carriers, through requirements for beneficiary education that the Medicare program does not carry out.  So there are many things built into the government overhead and cost that do not show up in that 3-percent figure.

In addition, the market does do things that the government does not do.  Bobby touched on a couple of them, in terms of education, in terms of drug discounts, in terms of services.  So it is apples and oranges.

There is a third factor in there, and we are not any happier about it than Mr. Stark.  But that is a 2- or 3-percent State premium tax that we have to pay in order to do business in every State.  And if you can help us out with that, we would be grateful.

Mr. MCCRERY.  Thank you.

Chairman JOHNSON.  Thank you, Mr. McCrery. Mr. Stark.

Mr. STARK.  Well, I am just going to raise a couple of issues here that I cannot quite make jibe, and I do not know if it is Mr. Jindal or Dr. Young who can answer them.  But in the President's budget he talks about that his plans will improve by offering a prescription drug benefit to protect against catastrophic illness, and at a lower premium cost than the most popular Medigap plans today.  Those are "C" and "F," I believe; and those average costs are about 1,100 and 1,200 bucks.  The drug benefit plans run 1,700, so somewhere in there, there is 600 bucks for drugs.  There may be some travel stuff, but I do not think that amounts to a hill of beans.

What I cannot get to is, unless you are really going to deny people a lot of coverage, when you say first dollar, if you are really going to say they have got to be a couple of thousand bucks out-of-pocket, which I do not think we want to do, I think there is evidence--and maybe Mr. Scanlon and Dr. Young and Ms. Weiss would agree--that you get as much reduction of utilization for a $10 co-pay as you do for a major 20-percent co-pay; that the minimal dollar amount--and I know that Kaiser has found this--is absolutely as effective as a higher-dollar one in keeping people from carelessly using medical services.  And I would hope we would keep that in mind.  There is no sense punishing them.  If we can get them to not abuse it for 10 bucks, let us leave it at that; rather than a higher amount.

But what I cannot get together here is how you are going to provide what, as I read your plan, is basically the same drug benefit that is currently in "J," and maybe in "A" and "I."  So either you have got to have a phenomenally high premium, or you are just wild about how much money you are going to save by cutting back first-dollar coverage.

And it would help if you, in cooperation perhaps with Dr. Young's group--because we will not be able to set the price for this.  This is whatever the insurance company is going to set.  And if nobody buys it--Because they are sure as hell not buying the drug benefits today.  Why would they buy a policy with no first-dollar coverage and no better drug benefit?  I cannot make that fit.

And I think that perhaps--and let me just throw out an idea, and then I will shut up--the possibility has occurred to me that I have no idea what this would cost.  But because I do not want to fight with the private insurers, because then we would not get anything passed, for now, what if we said:  Let us go back to the good old days of a catastrophic bill, a federally administered catastrophic bill that would be universal community rate.  Let us say we would pick up everything over two or three grand out-of-pocket.  That would cut the risk, the long-term risk, for Dr. Young's members dramatically.  Let them fuss about first-dollar coverage then.  And to show that we would let the private market help, we would let Dr. Young's companies, basically, sell that.  The Federal Government, in effect, would sell reinsurance.  So you could tack that into your policies.  We would underwrite it, as a reinsurer, as a Federal reinsurer, at whatever level we could afford.  And then all of the policies would have some kind of an out-of-pocket cap, and it would include drugs.

And then, even for the people who choose to go without insurance--and as Dr. Young and Mr. Scanlon have said, the seniors know quickly; they do the arithmetic--then it is a question of the actuaries figuring out how to sort out those risks and charge a reasonable amount.

I think we could redesign this system, if the health insurers would work with us.  And I do not think they are all jumping up and down to have that long-term liability, anyway.  And that might be a different way to get to solving this problem.  But I just do not think we can just move the pieces around on the chess board, because the costs are going to be the same, the instincts to purchase are going to be the same, the commissions are going to be the same.

I do not know how we get there from here.  Maybe Mr. Jindal can tell me what I am missing.  There cannot be that big a savings in the first-dollar coverage to pay for a major drug benefit.  I mean, maybe there is, but I do not think Mr. Scanlon or I would agree with you.  I would love to be convinced otherwise, but I do not see that.  Can you help me with that?

Mr. JINDAL.  Congressman, I thank you for the questions.  With the Chair's permission, I would like to answer both of your questions.

First, the Administration has provided a couple of examples.  We are obviously willing to work with you and the Members of the Committee on the details.  We have provided a couple of examples of what Plans "K" and "L" could look like.  And the independent actuaries at CMS, at the Department, have said that these would cost $500 less per year than current Medigap policies that cover drugs.  In other words, making them comparable to what other Medigap policies are today that do not currently cover--

Mr. STARK.  To "A" and "C."  To bring them down to "A" and "C," yes.

Mr. JINDAL.  That is correct.  So you would bring it down in that ball park.  And so you would be immediately offering a premium savings of $500 per year.  You would do that.  Not only would you save beneficiaries money, but also save the Medicare program money, by doing modest cost sharing.  We agree with you, it would not be a ridiculous amount of cost sharing.

Mr. STARK.  But would that savings not all come out of their first-dollar coverage?

Mr. JINDAL.  The premium reductions and the government savings would come down from the reduction of over-utilization.

Mr. STARK.  And that is out-of-pocket to the beneficiaries, then.  So I mean, it is pretty much--I mean, there may be some actuarial savings, but at the first-dollar level, I would guess that the premium reduction or increase is almost linear with the deductible for the first-dollar coverage.

Mr. JINDAL.  Well, I think we are only talking about a $100 deductible to generate the $500.

Mr. STARK.  But I am talking about the 20 percent and those.  But go ahead.  I am sorry.

Mr. JINDAL.  Well, no, but I think you will see the savings.  And I would certainly defer to the actuaries and others that would want to look at this.  I think you will see the savings will come through utilization decreases.  It would not be a cost shift.  And I think you can see that by comparing the cost of employer-provided supplemental coverage with Medigap first-dollar provided coverage, if you look at utilization between those two populations.

And I think that Mr. Scanlon referred to the fact that even those employees with employer-provided coverage with very modest cost sharing and a structure similar to what we are describing here have lower utilization than those with first-dollar coverage.

And so, certainly, the concept that we are proposing and that we want to work with you on is how to drive down the over-utilization and use those savings to benefit both beneficiaries and the Medicare program.  And I think you have heard all of the witnesses today and you have heard Members on both sides agree that that would be a good thing, if we could accomplish that.

Mr. STARK.  What are some of the areas?  Where is the highest over-utilization?  What is the area that is most abused?

Mr. JINDAL.  Well, I think, again, if you look at the GAO work and the CBO work, what you will find is--

Mr. STARK.  No, no, no, no, no.  In Medicare, what is the area?  What do us "old farts" do?  Where do I go spend money that is the most abusive?  Where do I waste the most money for Medicare?  Is it getting proctoscopic examinations, buying medicine for strep throat?  I mean, where do you find that us seniors abuse the system the most?

Mr. JINDAL.  Well, Congressman, certainly, I am not going to make that characterization you made in terms of who is--

Mr. STARK.  Okay, but where?

Mr. JINDAL.  Again, if you look at the CBO and GAO studies, and you look at where the utilization is higher for those with Medigap, versus those without Medigap--

Mr. STARK.  But stop a minute.  You are not hearing the question.  What do the seniors buy with our taxpayer dollars?  What is the highest abuse going to visit the doctor, going to the emergency room?  What are the procedures that are the highest, the most abused, over-utilized?

Mr. JINDAL.  I mean, I will not be able--I will defer to GAO, in terms of picking which single service is the most over-utilized.  But again, if you look at the CBO and GAO studies, you see higher utilization across the board, in terms of both--

Mr. STARK.  Would Mr. Scanlon know that?

Mr. SCANLON.  I cannot give you a list of procedures specifically.  I think that one of the things that we do ascertain from looking at the work that Dr. Wenberg does, in terms of the variation that exists across the country, is that all medical care is not necessarily optimal.

And that is part of this, I think.  Because I think it is an issue that it is not necessarily a procedure, because with procedures often the needs criteria are more clearly defined.  It can be chronic care for a condition, in which visits every 6 weeks could be adequate; but when there is no cost-sharing, there is no resistance on the part of the beneficiary or the provider to come back monthly.  So it is something like that that may be affected by this kind of a change.  That kind of a change would be benign.

Mr. STARK.  But could we not also change that by restricting the providers in some cases, to say, in this case--if we could determine that--that every 2 weeks is too much, but perhaps every 4 weeks is correct?

What I am getting at is that sometimes I think that we blame the beneficiaries for things that they may not choose to do.  And I am sure that most of us do not choose diagnostic tests, for instance.  Most of them are not any fun.  Possibly, a visit to the doctor; but often that takes getting on the bus, you know.  I am not sure that it is entirely the patient.  There may be some areas.

Mr. SCANLON.  I agree with you, it is not entirely the patient.  And we are not here to blame the patient.  I think, though, that the idea that we could manage the program through utilization review is not feasible, given that we have got about 600 million claims for physician services in the course of a year.

We really need, I think, to enlist both beneficiaries and providers to be sensitive to cost.  I mean, that is part of why cost sharing is in employer-based insurance, why it was originally put into Medicare.  It is just that Medigap has taken away cost sharing from the Medicare program.  And having some cost sharing, I think, puts it more on the same basis as the way the rest of insurance is designed, and will provide some of that sensitivity to cost and will prompt questions about the value of services.  That is what I think we can hope for at best.

Mr. STARK.  Except that for the people in those plans, the difference between those--for example, with drugs and without drugs--is almost non-existent.  The out-of-pocket costs--in other words, the Medigap with prescription drug and Medigap without prescription drug--the difference in the out-of-pocket costs for the beneficiaries is only 30 bucks a year.  So that part of this first-dollar cost is the $1,000 premium they are paying.  In other words, they are kind of pre-paying.  They are funding their own medical savings account.

And depending on how far up you go, you are saying they are already paying $1,000; are you going to make them pay $5,000 before we clock in?  I mean, how much more do you want to kick up their out-of-pocket costs?  Or do you think if you made them pay the $1,000 on a per-doctor visit, they would spend less?  That is possible.  I do not know.  Dr. Young?

Dr. YOUNG.  I think this is a very important issue that deserves more attention and discussion than we have given it.  As a physician, what concerns me is the research that has shown, yes, increasing out-of-pocket spending does indeed reduce utilization of services; but it could be unnecessary or necessary services.

Mr. STARK.  Right.

Dr. YOUNG.  So how do you know which one you are doing?  And that may be a tool that is just a little too blunt, particularly for seniors, and frail seniors.

The other end of the research spectrum is on low-income people; and most of Medigap purchasers are low-income.  And the Center, I think, has good data on that.  It is that clearly, when you remove the affected insurance and simply look at service utilization by income, service utilization increases as income increases.  And those at the low end report not having a regular physician, not getting the care that they need, delaying care.  And so that very much concerns me, when we look at blunt data that says, "Here is how much money you can save."  That may just be too blunt.

Mr. SCANLON.  I think it should then concern all of the employers that are offering the same kinds of policies that we are talking about today in terms of restructured Medigap.

Dr. YOUNG.  There are options that can be considered, and I think they should be when it is time to do a comprehensive reform.  An option that looks at payment from a deductible may have a different effect than one that looks at co-payments.  An option that looks at co-payments through increased cost sharing will have huge administrative costs to it.  So as the time comes to look at a comprehensive reform and a comprehensive set of packages, we are very interested in taking you up on your offer and discussing these things with you and trying to identify the best approach.  Our interest is in a product that Medicare beneficiaries want to buy.

Mr. JINDAL.  And if I could just add one final thing--and I know others may have other questions--I do think it is important to note that it is possible to decrease over-utilization without negatively impacting beneficiaries' health.  And the choice is not either first-dollar coverage, or under-utilization.  I do think there is a middle road.  And we would be happy to work with the Members of the Committee.

I know there have been studies looking at self-reported health status and others.  I think as long as the cost sharing is modest and reasonable and there are reasonable protections and out-of-pocket exposure, there is a way to, as Bill has mentioned, make beneficiaries aware of the cost of additional services without, as the Congressman has suggested, giving them false incentives to under-utilize care.

So I do not want to leave the Committee with the impression that the choice is either first-dollar coverage and over-utilization, or under-utilization.  We do think there are moderate policies that can balance both of those competing goals, and do so better than we are doing so today.

Ms. WEISS.  I also just want to reiterate that we would again recommend considering moving Medigap into Medicare and looking at the first-dollar coverage issue with maybe a modest co-pay or a modest premium--with the emphasis on "modest."  There are multiple benefits to doing this.  Again, we could talk about spreading risk throughout the entire Medicare population.

But again, two other key issues, one which I mentioned in the testimony:  Currently, there are a number of States that do not provide Medigap coverage to people who are under 65 with disabilities.  And the second point is that, depending on where you live, that determines how affordable your Medigap coverage is.  States that have community rating provide the same cost to each person who enrolls, no matter what their age or when they buy the policy.  However, most States have moved towards attained age rating.  And while it may be a cheaper policy at the time you buy it when you are 65, as you age the costs go up, and it becomes more unaffordable at the very time when people have less money to spend.  So again, I would reiterate looking at the option of moving it into Medicare.

Mr. STARK.  The Chair is going to indulge me with one more question.  Dr. Young, think about this.  You cannot answer it here.  But if we were to follow Ms. Weiss' idea, or even my idea of federalizing Medigap, in effect, or some of it, what portions of the risk exposure--It is my understanding there are only five or six underwriters of Medigap left, anyway.  That is close; isn't it?

Dr. YOUNG.  Now you are talking about the overall risk exposure, in terms of services?

Mr. STARK.  No, I am talking about--there are only four or five insurance companies left writing Medigap, as far as I know.  Maybe there are a few more.

Dr. YOUNG.  Oh, there are well over a 100 different insurance companies that sell this product.

Mr. STARK.  There are?

Dr. YOUNG.  Yes.

Mr. STARK.  Okay.

Dr. YOUNG.  A large number of them.

Mr. STARK.  The question is, if we were going to pick and choose, if we were going to federalize a portion of the risk that they are now insuring through this variety of Medigap plans, what are the most profitable segments that your guys would like to keep, and what would you like to get rid of?  In other words, I am sure the long-term liability you would love to get rid of, right?

Dr. YOUNG.  Well, there are a lot of things we would like to get rid of.

Mr. STARK.  No, I am serious.  I am serious.  I mean, that is the risky part.

Dr. YOUNG.  Yes.  I mean, the bottom line is what I said earlier.  We would like to keep the piece the beneficiaries love.  And I must say that one thing that is the highest on their list is they like the certainty of knowing what their out-of-pocket spending is going to be.

My mother, who could easily self-insure--and we have had this conversation many times, and I have concluded she is right--she loves her Medigap.  Because she knows what her expense is going to be every single month.

And we forget in these conversations that Medigap is insurance.  When the year begins, she does not know if she is going to be hospitalized twice, or once, or no times.  She does not know if something is going to come up that is going to require 10 or 20 doctor visits.  So she is sharing the risk of that unknown as the year moves forward.  So she has the certainty; she has the peace of mind.  And she has absolutely convinced me this is a good deal for her.

Mr. STARK.  Well, I think that it is a good deal for you guys, too.  And you are getting $1,000 or $1,100 a year, on average, $1,158, for, on average, 1,369 bucks out.  So you are clearing a couple of hundred bucks per policy, which is about what you ought to be making.  It is that simple.

Dr. YOUNG.  Well, I mean, we are not clearing that on the profit side.  My members would love to.

Mr. STARK.  No, but you are on your loss ratio side, easily.

Dr. YOUNG.  Oh, in terms of the overall administrative costs, including everything.

Mr. STARK.  Yes.  But that is your word.  I mean, that goes all to your membership fees.  But my point is that you are trading dollars with your mother.  You are saying, "Mom, instead of putting the $2,000 in the savings and loan, and drawing on that if you need it, you pay so many bucks a month for your Medigap policy, and it is going to work out."  And on average--which is what you depend on--it does.

Now, I am just saying you ought to take the front end of that and take the $2,000 chunk, and let us take the high costs and the outliers.  And we should figure out, because there is no sense fighting with your guys--There is a lot of administration, a lot of fees, a lot of claims for you to pay.  Maybe you would rather take the high stuff.  I do not know.

Dr. YOUNG.  Well, the problem with that approach is, as you get a product you are selling that is less and less and less in value--that is, has less benefits in it--your fixed costs remain the same.  So the share of the fixed costs grows.  If you can spread those fixed costs across a larger benefit package, then everybody is better off because of that.

Chairman JOHNSON.  Thank you.

Mr. STARK.  Thank you, Madam Chairman.

Chairman JOHNSON.  I would like to pursue the topics that my colleagues initiated.  I let them go first because I know that it is late and the last date, and they have other obligations, and I know Mr. Stark is not feeling very well.  But I do want to pursue a couple of things.

First of all, the RAND health experiment study that showed that individuals were just as likely to limit the use of highly effective care as less-effective care, also indicated that there was no overall effect on health for the average person.  So I am not aware of any studies that indicate that first-dollar coverage erodes health.

Dr. YOUNG.  That is a very good point.  The problem with that is the kind of research that you need to do, if you were to prove that.  Because a large amount of medicine, every-day medicine, does not have an effect on mortality or a measurable outcome.  It has an effect on activities of daily living; it has an effect on peace of mind; it reduces pain.

Chairman JOHNSON.  But for example, Dr. Young, though, would it not be quite easy to look at Medicare participants who cannot afford Medigap?  Those are the ones, frankly, I am most concerned about.  The other group are Medicare recipients who can afford Medigap.  Because you have two groups with exactly the same coverage; one of whom has first-dollar responsibilities, and one of whom does not.  I mean, are we aware of any difference in health outcomes in those two groups?

Dr. YOUNG.  As far as I know--and Bill can comment on this--we are not aware of it on either end of the spectrum, because it is such a difficult issue to measure.  But we will see if he has some insights.

Mr. SCANLON.  No, I am afraid I do not.  I do not think we have good health status measures.  I agree that we do not have comprehensive measures, and it is difficult to deal with.  But at the same time, I think that there are discretionary services that people, when they are sensitive to costs, will forego.  We have got to design cost sharing in ways that try to avoid people foregoing important services.

Chairman JOHNSON.  I appreciate that.

Mr. SCANLON.  Like hospitalization.

Chairman JOHNSON.  I appreciate that, and I am not proposing that the answer is necessarily that we have no exceptions to the exposure of deductible.  But I think it is important to remember that we have no evidence showing that seniors who have Medicare and no other coverage are in worse health.

Now, we do know we have to exclude prescription drugs because, of course, that is not part of Medicare.  And that seniors who have Medigap coverage, without prescription drugs, have better health outcomes because they are not exposed to the deductible.  See, there really is no evidence supporting this.

I understand that that means the reverse is not necessarily true.  But the one piece of evidence that we clearly do have is that the people who have first-dollar responsibility use fewer services.  Though, we do not know that that necessarily results in poorer health outcomes.  Now, logic would dictate that we have an interest in those people using preventive services.

And so we could use coverage as an incentive.  We have never done that for any groups; where services are singled out as having no co-payment, and therefore in a sense focusing on them and providing some kind of incentive to use them.  And so, personally, I think that is philosophically a worthy thing to do.

I did want to get clearly on the board that one of the reasons the Committee is compelled to look at prohibiting 80 percent of first-dollar coverage, or 100 percent of first-dollar coverage, is because there is increased evidence that these people use more services, pushing premiums up for existing seniors and pushing taxpayer costs up.  This money could be better utilized.

Now, I want to ask two sort of basic questions about the Administration's proposal.  Are you proposing these two plans, and eliminating all other Medigap policies?  Or are you proposing these two as additional Medigap policies?

Mr. JINDAL.  I think that we absolutely are proposing these as additions to existing policies.  So we are not trying to take away anything from seniors, or deprive them of options they have today.

I also want to absolutely agree with your earlier remarks.  When you look at not only the RAND study, but other self-reported studies, you are right that seniors do not report a decrease in self-reported health status, as well.  And I think that, from one of the previous questions, it is true that when you look at employer-provided coverage, either retiree or pre-retiree coverage, outside of this market, I am not aware of another market where you have got first-dollar coverage without some kind of coordination of care, without some kind of examination of utilization.

Clearly, what this Congress, what you have done through creating additional options for seniors, and in private plans, is you have allowed them to buy down--meaning Medicare+Choice and other plans--you have allowed them to buy down their cost sharing, reduce their cost sharing, but to do so in an integrated plan that also coordinates their overall care.

Chairman JOHNSON.  Now, if these are options, why would you not be concerned about adverse selection?  If I were a senior, for just 50 percent of Medicare cost sharing, that is 50 percent of the Part B deductible, really--no, you are not going to cover the Part B deductible.

Mr. JINDAL.  That is correct.

Chairman JOHNSON.  But then, your co-payments for doctors' visits and things like that would be 10 percent, instead of 20 percent, right?  You know, for really a rather modest first-dollar responsibility, because you are proposing that you would cover the co-insurance in long-term hospital stays.

Mr. JINDAL.  That is correct.

Chairman JOHNSON.  Which has always been a big problem.  And also, in nursing home?  The variations in nursing home deductibles?

Mr. JINDAL.  That is correct.

Chairman JOHNSON.  So really, for the $100 deductible in Part B, and 50 percent less exposure in the co-insurance area, you are going to provide a $4,000 limit on out-of-pocket expenses, and 50 percent of all drug costs up to $6,000.  Now, that seems to be an awful lot to be paying for, with just this change in the deductible.  And you say this will be a lower premium than current Medigap policies.

Now, what do you think the premium is going to be?  And what would be the difference between the premium for, say, your two proposals?

Mr. JINDAL.  Well, first of all, we think the premium will be $500 or less than what it costs currently for Plans "H" and "J."  So it would be competitive with what seniors currently pay for Medigap without drug coverage.  So you are absolutely right.  We look at this as a great deal for seniors, but also a good deal for the Medicare program, as well.

Seniors will be able to reduce their out-of-pocket spending on premiums by $500.  The Medicare program will save well over a billion dollars.  Plus, you have over 700,000 seniors who do not have drug coverage today, who would get drug coverage through these options.  So we absolutely agree with you.

Chairman JOHNSON.  But now, just a little bit slower.  You say this would be $500 less.  And yet, instead of providing 50 percent of drug costs, for a maximum of up to $3,000, this would go up to $6,000.  So you are getting, you know, $1,500 more in drug costs, and the $5,000 limit on out-of-pocket expenditures under the rest of the plan.  And you can do that for $500 less, just because of the co-payment changes?

Mr. JINDAL.  That is right.  Well, and the drug benefit is actually identical to what is contained in Plans "H" and "J" now.  And that helps to address part of your concerns about adverse selection.  By not varying the drug benefit, but by using the changes in over-utilization to help pay for that, that helps to make the plan more affordable, and increase the number of seniors with drug coverage.

Now, we do not look at this as a comprehensive solution.  We look at this as a first step that we would like to work with you and other Members to help increase the numbers with drug coverage and reduce the cost for seniors.

Chairman JOHNSON.  And what would be the premium on the one that covers 75 percent of cost sharing, and a $2,000 limit on out-of-pocket expenditures, but only covers 50 percent of drugs, up to $2,500?

Mr. JINDAL.  And again, it would be roughly $500 less than Plan "H."

Chairman JOHNSON.  Both of them have roughly the same premium?

Mr. JINDAL.  That's right--Well, no, they are $500 versus their counterparts.  So Plan "K" would be roughly $500 less than Plan "J," Plan "L" would be roughly $500 less than Plan "H," in terms of what seniors can pay today.  And obviously, as you heard, there is a variation across States and across plans, but it would be roughly $500 less than their counterparts today.

Chairman JOHNSON.  That is very interesting.  Do you have any comment on that, Mr. Scanlon?

Mr. SCANLON.  I cannot comment in terms of the amounts of the premiums.  We did not have the details before today.  And also, we need to think about talking with actuaries about this.

I do think the issue that you raise of selection is a very important one here.  One of the things that is true about current Medigap plans is that beneficiaries have an open enrollment period in the first 6 months in which they are Medicare eligible.  And then there are certain enrollment rights when people leave Medicare+Choice plans or when their employer coverage is dropped.  What the terms would be, in terms of beneficiaries being able to sign up for new plans, would be critical in affecting selection.

I would surmise that perhaps some of the low use of Medigap drug coverage today is the fact that most seniors became 65 when drugs were not such an important issue.  I mean, if you think about it, our focus on drugs as both expensive and as having incredible therapeutic value has been a relatively recent phenomenon.  People that are turning 65 today may have a very different perspective on wanting to buy drug coverage than those that turned 65 in the early '90s or in the '80s.

Chairman JOHNSON.  Thank you.  I was not aware that Medigap was quite so rigid as I heard from your description.  You can change Medigap plans from one to another now, although sometimes you will have to pay more because you get medically underwritten, right?

Mr. SCANLON.  That is correct.  I mean, generally, plans are available without underwriting when there is no drug coverage involved.  But when drug coverage is involved, it is very hard to find a plan without underwriting.

Chairman JOHNSON.  And Mr. Jindal, would there be underwriting for eligibility for Plan "K" and Plan "L"?

Mr. JINDAL.  The protections we envision will be those similar to what exists today, in terms of the 6-month enrollment.  So that seniors would have a chance to sign up 6 months after they become eligible for the program, when they turn 65.

And given those assumptions, that is the basis on which the actuaries assumed you would have one and a half million beneficiaries choose these plans and, as a conservative estimate, you would save the program over a billion dollars, but you would also save beneficiaries $500 a year in premiums.  So again, that is why we described it as a "win-win" for the program and for beneficiaries.

Chairman JOHNSON.  And would you envision opening Plan "K" and Plan "L" only to new retirees?  Or would there be a one-time opportunity for all Medigap participants to change into those plans?

Mr. JINDAL.  I think we could certainly--I think we would be open to that one-time opportunity for existing Medicare beneficiaries, as well; not just those turning 65.

Chairman JOHNSON.  Can you also look at, as you estimate--and this is all of you, because I am sure all of you in your own bailiwicks will be looking at this.  But I think we ought to begin looking at opening it every 5 years.  You know, the rigidity of the plans does not seem to be in the interests of seniors, and not necessarily in the interests of government.

Now, that would be particularly true if we also eliminated the absolute first-dollar coverage of all of the Medigap plans.  Anyone who can afford to buy a Medigap plan can actually afford some level of first-dollar responsibility.  And so, if there were some first-dollar responsibility across the board, you might then be able to open these bigger plans more frequently that have more catastrophic coverage aspects to them, both in the catastrophic coverage for Medicare and in the higher drug assistance.

Dr. YOUNG.  The problem that you will run into, though, very quickly, if you opened it up, let's say, every 5 years to anybody who wanted it, is that the healthy people at age 65 would say, "I am going to wait."

Chairman JOHNSON.  I appreciate that.  Yes, I appreciate that problem.  But it depends on how expensive they are.  When you say they are $500 less than the current plans, those are the most expensive current plans.  So that is a problem.

Dr. YOUNG.  Yes.  And then that just drives up the premiums for everybody else, when the people do select like that.

Chairman JOHNSON.  Now, in terms of--

Mr. CARDIN.  Would the Chairman yield on that point?

Chairman JOHNSON.  Yes.

Mr. CARDIN.  Just on that point.

Chairman JOHNSON.  Let me welcome Ben Cardin.  He is not on the Subcommittee, but he often joins us. It is nice to have you here.

Mr. CARDIN.  Thank you.  Thank you, Madam Chair.

What I do not understand is, if there has been continuous coverage, why do we then require an individual who wants to join a Medigap plan that has prescription drug coverage to be subjected to medical underwriting?  For example, if a person has been insured by an HMO, and that HMO pulls out of the market--which has happened in my State--why should that individual not be able to join one of the Medigap plans at that time, without the concern of medical underwriting?

Dr. YOUNG.  They are.  Under current law, they are allowed to.  There is a special election period when an HMO goes out of business and leaves the market that they are allowed to, under current law.

Mr. CARDIN.  For how long?

Dr. YOUNG.  What is the time?

Mr. CARDIN.  Yes.

Dr. YOUNG.  The window that they have that they can make that election?

Chairman JOHNSON.  I believe it is 2 months.

Dr. YOUNG.  Yes, it is 63 days.

Chairman JOHNSON.  Yes.

Mr. CARDIN.  Now, that also applies to the prescription drug plans?

Dr. YOUNG.  No.  No, it only applies to the basic Medigap.

Mr. CARDIN.  Why does it not apply?  My question dealt with prescription drug plans.

Dr. YOUNG.  Okay, now I understand your question.

Mr. CARDIN.  My question is, why does that not apply to the prescription drug plans?

Dr. YOUNG.  Yes.  And again, because of, I think, the concern of the costs and the risks.

Mr. CARDIN.  I guess I do not understand that, Dr. Young.  If the person had continuous coverage, why would you be concerned about adverse risk selection?  The person is just going from one plan to another.  This is the same situation we do for private insurance, basically.

Dr. YOUNG.  It is if people make the choice to move for that very purpose.  What we have seen, for example, in the Medicare Choice program is that people have come into Plan A with a $1,000 benefit; used up their drugs; left; gone to another one; and received drugs again.  So beneficiaries will do those kinds of things.

Mr. CARDIN.  Well, no, the scenario I am giving you is a person who is in an HMO, a senior who is in an HMO, expected to stay in that HMO.  The HMO has left the market.  The HMO had prescription drug coverage.  The individual, if the individual comes from Maryland, has no HMO that that person could enter into any longer and get prescription drug coverage.  The senior made a decision at 65 to go into the Medicare+Choice HMO to have prescription drug coverage and forego the opportunity to get a Medigap plan with prescription drug coverage.  I guess I do not understand the logic as to why we would want to restrict a senior--

Chairman JOHNSON.  If the gentleman will yield--

Mr. CARDIN.  Who has had continuous coverage.

Chairman JOHNSON.  If the gentleman will yield, I think the point he is making is really very well taken.  If your plan leaves the market, why can you not buy a comparable plan?  Now, if you had not been paying for one with prescription drugs, I can see the problem.  But if you have been paying a higher premium for prescription drugs, why could there not be that continuity, so you would have access to one with prescription drugs?

If you were in an Medicare+Choice plan that did not have prescription drugs, then your only choices would be other plans that did not have prescription drugs.  But I find it hard to believe that we cannot structure that kind of arrangement.

That does not solve the other problem that we are having, which is when Medicare+Choice plans do not leave the market, but change their benefits so dramatically that people are not getting the best value for their dollar, and you decide to move into another Medigap plan.  There are some circumstances in which you can do that, but I do think we need to clarify those situations.

Dr. YOUNG.  I think your points are well taken.  And it is important to remember, as Mr. Scanlon told us a bit ago, that the rules and the policies that are currently in place for Medigap came about in 1990 or 1992 when they were implemented.  The world has changed dramatically since that time.  The Medigap structure, in terms of adding a couple of new benefits, has changed dramatically since that time.

And as you consider Medicare reform, as I said in my testimony, that will be the time to look at all of these issues, revisit them all, and see what are the best policies that work for the beneficiaries.  So we are dealing today in a world and a set of policies that are now 12 years old.

Chairman JOHNSON.  Well, I do appreciate the testimony of the panel.  And I appreciate, Ms. Weiss, your comment that seniors are adverse to change, and need security.  That is why I was so interested in whether Mr. Jindal's proposals were as a substitute for all of the existing Medigap proposals, or simply an addition.

And actually, let me see if my colleague, Mr. Cardin, has any further questions.

It is very interesting how the literature has come together--and I do not want this point missed--to indicate that first-dollar responsibility is responsible.  And I think we do need to take that into account, especially now that we have some very, very powerful information as to how that money could be reused to expand benefits.

So I thank you for the thinking that you have done on this, Mr. Jindal.  And I ask all of you now to go back and run numbers on his ideas, and run numbers on some of the other ideas that have come up, like holding harmless preventive health care, which the Administration has talked about but which is not in this particular plan.  Because I think we need to see what are the outlines of the most progressive plans that are still different from the Medicare Choice option, which will have a better ability to provide product, disease management, case management of very ill people, and some other things that also are important for us to better understand.

Thank you very much for your attendance this afternoon.  I appreciate your input, and look forward to working with you.  Thank you.

Mr. JINDAL.  Thank you, Madam Chairman.

Mr. SCANLON.  Thank you.

Dr. YOUNG.  Thank you.

[Whereupon, at 3:43 p.m., the hearing was adjourned.]

[Questions submitted from Mr. Shaw to Mr. Jindal, and his responses follow:]

U.S. Department of Health and Human Services
Washington, DC 20201

Question 1:

The Congressional Budget Office (C.B.O.) indicated that elimination of first-dollar coverage would save approximately $1 billion but did not consider the impact of such a policy change on states that mandate first-dollar coverage. Would you be willing to work with Congress and the C.B.O. in order to quantify the impact on states which have this mandate?

Thank you for giving me the opportunity to clear up any confusion surrounding our Medigap proposals. The Administration is proposing to increase the choices available to Medicare beneficiaries and would not eliminate any existing policies. Specifically, we propose immediate action to add two new Medigap policies to the array of choices available to seniors to purchase Medicare supplemental insurance. We have labeled these new policies "K" and "L" because they would be offered in addition to current standardized policies labeled "A" through "J". These new policies would combine limited cost-sharing with stop-loss protection for Medicare covered services and a prescription drug benefit. Again, they would not replace existing Medigap policies but rather provide additional options for seniors.

Currently, seniors can choose between any of the ten standardized policies as well as two high-deductible options. It is true that virtually all states require new Medigap policies to conform to these standards, and that most of the current policies – particularly the most popular ones – include first-dollar coverage. We believe it would not be difficult to add these two new options, however, in the same way that the Balanced Budget Act added the high-deductible options, and want to work with Congress and the state insurance commissioners to make this a reality. This would also give seniors a choice that falls between getting first-dollar coverage for hospital costs and doctor visits – but with drug coverage available only as an expensive add-on – and having to pay all costs below the high-deductible level. While seniors with any of these existing Medigap policies would have a one-time opportunity to switch to one of the new policies, no beneficiary who was happy with their current policy would be required to switch.

As for the estimate of savings prepared by the Congressional Budget Office, our understanding is that their analysis of the President’s budget proposals assumed there would be new Medigap policies – ones that would not provide first-dollar coverage – and did not assume all existing first-dollar coverage would be eliminated. Apparently they also assumed a benefit design for these new policies that is different from the one described in my testimony. Nevertheless it is important to point out that the Administration also projected 10-year savings of over $1 billion just by offering these two new options.

American Viewpoint conducted a poll and listening groups on behalf of Blue Cross Blue Shield Association asking seniors about their satisfaction with their Medigap policy. CMS also has similar data showing an overwhelming number of Medigap policy holders (between 80% to 90% based on various estimates) are "very satisfied" with their Medigap policy. In the Administration’s proposal to eliminate first-dollar coverage, have you considered incorporating a transition period in order to gradually phase out this feature of Medigap policies?

Again I want to emphasize that the Administration is proposing to expand choices available to seniors, not to limit them. In designing this proposal we were very much aware of the data you cite and we know that many beneficiaries are satisfied with their current supplemental coverage and do not want to change. Others may prefer to purchase policies that include limited cost sharing but have lower premiums and include prescription drug coverage. The new policies proposed by the Administration would give them this chance. We estimate that as many as 1.5 million beneficiaries would welcome such an opportunity – and that nearly half of them (about 700,000) would be beneficiaries who do not have drug coverage now. Moreover, we can achieve this significant increase in drug coverage among seniors right away, not several years down the road, while saving money for beneficiaries and the Medicare program. It is interesting to note that the same poll you cite found that about one-third of Medigap policy-holders would favor a proposal that required Medigap plans to have a modest deductible and some payments for doctor visits and hospital stays – even without the offer of drug coverage. Thus, our proposal – which would offer such coverage but not require it – might attract more enrollees than we project.

Question 3:

Have you considered implementing preemptive initiatives to minimize disruption or confusion that the Administration proposal might cause for Medigap policy holders in Florida?

I wish to emphasize that our proposal does not entail disruption of the current Medigap market. Medigap policy holders should not experience any disruption because of the availability of new supplemental policy options. Since the OBRA 1990 Medigap reforms standardized Medigap benefit designs, the options offered to beneficiaries have hardly changed while medical practice has evolved and policy premiums have continued to rise. We believe that many beneficiaries will welcome the chance to purchase more affordable supplemental policies with limited cost sharing, protection against high out of pocket costs, and prescription drug coverage. On the other hand, seniors who are happy with their current Medigap policies will be able to keep them as long as they like. The Administration is committed to increasing beneficiary choice and keeping seniors fully informed about all of the choices available to them, including the availability of local Medicare + Choice plans as well as Medicare supplemental policies.

[A submission for the record follows:]

National Association of Health Underwriters, Arlington, VA, statement and attachment