ADVISORY
FROM THE COMMITTEE ON WAYS AND MEANS

SUBCOMMITTEE ON HEALTH

Johnson Announces Fifth Subcommittee Hearing in Series on
Strengthening Medicare: Modernizing Beneficiary Cost Sharing

Congresswoman Nancy L. Johnson (R-CT), Chairwoman, Subcommittee on Health of the Committee on Ways and Means, today announced that the Subcommittee will hold a hearing on beneficiary cost sharing. The hearing will take place on Wednesday, May 9, 2001, in the main Committee hearing room, 1100 Longworth House Office Building, beginning at 2:00 p.m.

In view of the limited time available to hear witnesses, oral testimony at this hearing will be from invited witnesses only. Witnesses will include program experts on beneficiary cost sharing under the Medicare benefit and Medigap insurance coverage. However, any individual or organization not scheduled for an oral appearance may submit a written statement for consideration by the Committee and for inclusion in the printed record of the hearing.

BACKGROUND:

The structure of Medicare beneficiary cost sharing in the fee-for-service program reflects the insurance practices at the inception of the Medicare program in 1965. As such, more than 35 years later, beneficiaries are confronted with irrational and confusing cost-sharing which does not reflect the current delivery of health care.

For example, the program has two different deductibles - a $792 deductible for Part A and a $100 deductible for Part B. This means that when a beneficiary is hospitalized for an in-patient procedure and less likely to be sensitive to pricing issues, the beneficiary is faced with a significant deductible. In addition, after a beneficiary has been hospitalized for 60 days, the beneficiary must then pay $198 coinsurance per day for days 61 through 90. There is a separate $100 Part B deductible for out-patient procedures, which is arguably more discretionary, never having been indexed to inflation.

Unlike 97 percent of private health policies, the Medicare fee-for-service program still lacks catastrophic insurance protection for those with serious health conditions. Medicare Part B, which is financed 25 percent from beneficiary premiums - about $50 per month - and 75 percent from the General Fund, has unlimited beneficiary cost-sharing. Part B has different coinsurance depending on the service -- none for lab or home health, 20 percent for physician services and supplies, and close to 50 percent for hospital outpatient services.

In total, due to cost-sharing obligations and Medicare's limited benefit package, nearly half of seniors' health care costs are not covered by Medicare. As a result, 90 percent of beneficiaries have some type of supplemental coverage. Those with retiree coverage from their former employers generally receive generous benefits, including catastrophic protection and good prescription drug coverage. The poorest beneficiaries receive wrap-around coverage through Medicaid.

Medicare's confusing and irrational cost-sharing has also induced 29 percent of beneficiaries to purchase Medigap insurance. In 1990, Congress created 10 standardized Medigap policies. Nine out of 10 of those policies, which comprise more than 90 percent of the Medigap market, are required to cover the Part A deductible, and the most popular Medigap policy covers both deductibles. Numerous studies have demonstrated that covering the deductibles has led to markedly higher Medicare spending because beneficiaries become insensitive to costs. In addition, only the three most expensive Medigap plans cover prescription drugs, and that coverage is limited. Yet, eight of the 10 plans are required to cover foreign travel insurance, while most beneficiaries never leave the country.

In announcing the hearing, Chairwoman Johnson stated: "A critical element of strengthening Medicare is modernizing the fee-for-service program's byzantine cost-sharing structure. No one designing a seniors' health program today would construct such a convoluted and irrational cost-sharing structure for beneficiaries. The system is a patchwork of outdated policies that fail to protect beneficiaries or taxpayers. We must learn from our experience and work to ensure a more consistent and understandable system for the future."

FOCUS OF THE HEARING:

The hearing's panel will include private and public experts on the Medicare fee-for-service program's beneficiary cost sharing. They will describe in detail the current structure of beneficiary cost-sharing and the incentives that have arisen from the benefit design. In addition, there will be a focus on the structure and policy implications of Medigap.

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

Any person or organization wishing to submit a written statement for the printed record of the hearing should submit six (6) single-spaced copies of their statement, along with an IBM compatible 3.5-inch diskette in WordPerfect or MS Word format, with their name, address, and hearing date noted on a label, by the close of business, Tuesday, May 23, 2001, to Allison Giles, Chief of Staff, Committee on Ways and Means, U.S. House of Representatives, 1102 Longworth House Office Building, Washington, D.C. 20515. If those filing written statements wish to have their statements distributed to the press and interested public at the hearing, they may deliver 200 additional copies for this purpose to the Subcommittee on Health office, room 1136 Longworth House Office Building, by close of business the day before the hearing.

FORMATTING REQUIREMENTS:

Each statement presented for printing to the Committee by a witness, any written statement or exhibit submitted for the printed record or any written comments in response to a request for written comments must conform to the guidelines listed below. Any statement or exhibit not in compliance with these guidelines will not be printed, but will be maintained in the Committee files for review and use by the Committee.

1. All statements and any accompanying exhibits for printing must be submitted on an IBM compatible 3.5-inch diskette in WordPerfect or MS Word format, typed in single space and may not exceed a total of 10 pages including attachments. Witnesses are advised that the Committee will rely on electronic submissions for printing the official hearing record.

2. Copies of whole documents submitted as exhibit material will not be accepted for printing. Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material not meeting these specifications will be maintained in the Committee files for review and use by the Committee.

3. A witness appearing at a public hearing, or submitting a statement for the record of a public hearing, or submitting written comments in response to a published request for comments by the Committee, must include on his statement or submission a list of all clients, persons, or organizations on whose behalf the witness appears.

4. A supplemental sheet must accompany each statement listing the name, company, address, telephone and fax numbers where the witness or the designated representative may be reached. This supplemental sheet will not be included in the printed record.

The above restrictions and limitations apply only to material being submitted for printing. Statements and exhibits or supplementary material submitted solely for distribution to the Members, the press, and the public during the course of a public hearing may be submitted in other forms.

Note: All Committee advisories and news releases are available on the World Wide Web at "http://waysandmeans.house.gov".

The Committee seeks to make its facilities accessible to persons with disabilities. If you are in need of special accommodations, please call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four business days notice is requested). Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above.