Opening Statement of the Hon. Fortney Pete Stark, a Representative in Congress from the State of California

Hearing on the Strengthening Medicare:  Modernizing Beneficiary Cost Sharing

May 9, 2001

Medicare cost-sharing could benefit from a fresh look. Medicare currently covers only approximately half of beneficiary health costs, and beneficiaries spend a disproportionate share of their income on health expenses. While much of the gap is due to the lack of coverage under Medicare for prescription drugs and other important items or services, it is also clear that the current cost-sharing arrangement continues to force too many beneficiaries to pay too much.

We have made modest progress in our effort to correct the co-insurance quirk that forces beneficiaries to pay far more than we intended for hospital outpatient services. But we have a long way to go. Beneficiaries also shoulder an unfair percentage of the cost for mental health services.

For these and other reasons, it may initially seem attractive to rearrange cost-sharing obligations. I am not averse to developing or examining options in this area, but we must keep in mind the effects of these changes on all Medicare beneficiaries. For example, there are good reasons to lower the hospital deductible, but that is often considered in the context of raising the Part B deductible. However, it is important to remember that 90 percent of beneficiaries use Part B services, while only approximately 18 percent use the inpatient hospital benefit. Any policy that lowers the hospital deductible while raising the Part B deductible reduces expenses for a few at the expense of many. While cost-sharing can be used as a tool to heighten "cost consciousness" of beneficiaries, it can also be used as a sickness tax on those who need health services the most.

I am sure that some of today's discussion will center around the so-called "first dollar coverage" under Medigap and its effect on Medicare spending. Some people think that we should prohibit Medigap and other insurance from providing coverage that essentially insulates beneficiaries from Medicare's patchwork quilt of co-insurance and co-payment obligations. I know it is intriguing to look at the options book produced by CBO and see the potential for enormous savings in some proposals, but I think a few words of caution are in order before anyone heads down that particular road.

Too often, it is assumed that utilization is bad. While we certainly want to curtail unnecessary utilization, cost-sharing is a blunt tool with which to accomplish that goal. Too often, it results in decreased use of both necessary and unnecessary services. Certainly, steps can be taken to minimize or direct the effects of cost-sharing, but we must keep in mind that cost-sharing requirements in a vulnerable lower-income population may result in adverse health effects. With very few exceptions, I find it hard to believe that Medicare beneficiaries seek unnecessary services. Most people are reluctant, not eager, to go to the doctor or be subject to procedures. Also, except for showing up at a doctor's office, most of us are unable to direct our care, and cost-sharing has little impact on our choices, except to discourage compliance with treatment regimens. After all, we can't order our own tests or procedures or prescribe other treatments.

In addition, the OBRA 1990 Medigap standardization legislation was desperately needed to address rampant abuses in the Medigap market. And it has largely served its purpose. Among other problems, there were reports of beneficiaries having dozens of policies, thanks to unscrupulous sales agents who preyed on unsuspecting senior citizens. Not so anymore. I admit that the benefit packages may be in need of some tweaking, but I remind my colleagues that they were designed through painful, lengthy negotiated rule-making process that involved all relevant parties. In addition, as we will hear from GAO, one-third of current Medigap policies have been in force since before 1992 and have non-standardized benefits. If Congress decides to dramatically change the benefit packages, care must be taken to avoid further segmenting the market and risk pools. Unless, of course, Congress wishes to force beneficiaries to give up the Medigap insurance they currently have. However, given the strong desire of beneficiaries to purchase this insurance, my personal belief is that it would be politically unwise to force change. On the other hand, if it is clearly a better deal, many may well be willing to voluntarily leave their current policies.

We might also consider creating a HCFA-sponsored Medigap option to compete with the private insurers. After all, given that Medigap's administrative costs and insurer profits total more than 20 percent of the premium, a HCFA option could offer equivalent coverage at a much lower price.

Finally, I would be remiss if I didn't advocate for some long-overdue Medigap improvements - regardless of what happens with respect to first-dollar coverage. Medicare beneficiaries essentially get one chance at purchasing Medigap when they first turn 65 and enroll in Part B. If they fail to take advantage of the one-time open enrollment period at that time, they may find themselves forever locked out of supplemental coverage. In addition, there are virtually no federal restrictions on underwriting or rating practices. That means that even if an insurer agrees to offer you coverage, they can charge you whatever they want. Or they can entice you in at age 65 with an attractive premium, while raising it as your age and needs increase. That's one reason why enrollment in the Medigap drug packages is so low. Their value is questionable, and most beneficiaries with any indication of need are priced out of the plans. When Congress finally acted to allow beneficiaries whose circumstances change beyond their control (e.g., M+C plan cancels, employer benefits drop, etc.) to get another chance at enrollment, we limited their ability to enroll or re-enroll to just four options - none with drug coverage. Disabled younger beneficiaries are still waiting to get an initial open enrollment period upon first becoming eligible for Medicare. Right now, they have to wait until they are 65 to be guaranteed an opportunity to purchase Medigap. Why are these things so? Because the insurance industry doesn't want to insure these folks. Keep this aversion to risk in mind as we consider other changes to Medicare that would increase the role of the private insurance industry.

Caution is the watchword as we work in this important area. There is an opportunity for improvement, but also for destruction. I look forward to today's testimony and discussion.