Opening Statement of the Hon. Nancy L. Johnson, a Representative in
Congress from the State of Connecticut, and Chairman, Subcommittee on Health

Hearing on Medicare Supplemental Insurance

March 14, 2002

Good morning.  Two weeks ago, we held a hearing on Medicare’s complex, confusing, and totally irrational payment formula for physician services.  I made the statement that it clearly epitomized why we can wait no longer to modernize Medicare.    

After examining Medicare fee-for-service program’s complex and irrational cost-sharing structure, I come to the same conclusion.  Why would we charge seniors two different deductibles, and make the deductible for in-patient hospitalization -- when a patient is least price sensitive -- eight times higher than the outpatient deductible, when health care is arguably more discretionary?  And why would we impose new cost-sharing on a patient who has been lying on her back in a hospital bed for two months?  While most private health plans provide catastrophic protection for their enrollees, why does Medicare expose the sickest patients to unlimited cost-sharing?  Similarly, while private plans integrated outpatient prescription drug coverage years ago because it simply made sense, why does Medicare lack a prescription drug benefit?

The answer, of course, is that Congress has not changed the law to modernize the Medicare program.  As a result, 90 percent -- that’s right 9 out of 10 beneficiaries -- feel compelled to carry supplemental insurance to fill in the holes that Medicare does not cover.  Many receive retiree coverage through their former employer.  The poor receive assistance through Medicaid.  But  more than one-quarter of beneficiaries purchase Medigap insurance themselves. 

In 1990, Congress created 10 standardized Medigap policies to assist beneficiaries in choosing plans.  After 12 years, it’s time to re-visit the adequacy and structure of these  plans.  All 10 Medigap plans are required to cover the coinsurance that beneficiaries must pay under Medicare, for example, the 20 percent of the costs of a physician visit.  Nine out of 10 of these plans are required to cover the Part A inpatient hospital deductible, which is currently $812.  The most popular Medigap policy covers both the Part A hospital deductible and the $100 Part B deductible for physician services.  And 8 of the 10 policies are required to cover foreign travel insurance, just in case these beneficiaries travel to France, though many never leave their home state!  At the same time, only the three most expensive Medigap policies cover prescription drugs, though prescription drugs are seniors’ most pressing need.

Numerous studies have demonstrated that Medigap’s first dollar coverage of medical services has resulted in excessive Medicare spending because items and services appear free to beneficiaries.  This higher utilization drives up costs for everyone -- premiums of Medicare beneficiaries without Medigap coverage and costs to taxpayers.  In addition, the prescription drug coverage mandated in Medigap is wholly inadequate.

Yet Medigap premiums continue to rise.  From 1998 to 2000, average premiums rose 16 percent for plans without drug coverage, and more than twice as fast, 37 percent, for plans with drug coverage.  In addition,  premiums vary dramatically for identical plans in the same location.  Weiss Ratings, Inc. analyzed Medigap premiums in 2001.  A 65-year old man living in Ft. Myers, Florida would pay about $3,600 for Plan J from Physicians Mutual Insurance Company, but only $2,700 with United Healthcare Insurance Company through AARP.  That’s nearly $1,000 less for the same policy in the same location!  The same gentleman living in Las Vegas would spend about $1,500 for Plan C with United American Insurance Company, but about half that amount -- $778 B with the USAA Life Insurance Company for the same policy.         

Much has changed in health care and health insurance over the past 12 years.  But Medigap insurers have been unable to modify their offerings in response to these market changes because the 10 standard Medigap policies are set by statute.  I believe that we can better design both Medicare fee-for-service benefits and Medigap policies so that seniors and persons with disabilities get the most for the health care dollars they spend.

It is my pleasure to introduce Bobby Jindal, Assistant Secretary of Health and Human Services for Planning and Evaluation.  I met Bobby when he was Executive Director of the Bipartisan Medicare Commission.    He will present the Administration’s proposal to add two new Medigap policies.  The General Accounting Office will testify about the effects of first dollar coverage and potential reforms to Medigap coverage.  Finally, we will hear from a representative of Medigap insurers and consumers about their ideas on reforming Medigap policies.