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Hearing on Medicare Health Plans

September 21, 2012

Hearing on Medicare Health Plans










September 21, 2012


Printed for the use of the Committee on Ways and Means


DAVE CAMP, Michigan, Chairman

WALLY HERGER, California
PAUL RYAN, Wisconsin
DEVIN NUNES, California
JIM GERLACH, Pennsylvania
TOM PRICE, Georgia
RICK BERG, North Dakota
DIANE BLACK, Tennessee
TOM REED, New York

RICHARD E. NEAL, Massachusetts
JOHN B. LARSON, Connecticut
RON KIND, Wisconsin

JENNIFER SAFAVIAN, Staff Director and General Counsel
JANICE MAYS, Minority Chief Counsel

WALLY HERGER, California, Chairman

PAUL RYAN, Wisconsin
DEVIN NUNES, California
JIM GERLACH, Pennsylvania
TOM PRICE, Georgia

RON KIND, Wisconsin





James Cosgrove
Director, Health Care, U.S. Government Accountability Office

James Capretta
Fellow, Ethics and Public Policy Center

Karen Ignagni
President and Chief Executive Officer, America’s Health Insurance Plans

Tim Schwab, M.D.
Chief Medical Officer, SCAN Health Plan

John Tallent
Chief Executive Officer, Medical Associates Clinic & Health Plans

Marsha Gold
Senior Fellow, Mathematica Policy Research


Hearing on Medicare Health Plans

Friday, September 21, 2012
U.S. House of Representatives,
Committee on Ways and Means,
Washington, D.C.


The subcommittee met, pursuant to call, at 9:32 a.m., in Room 1100, Longworth House Office Building, Hon. Wally Herger [chairman of the subcommittee] presiding.

[The  advisory of the hearing follows:]


Chairman Herger.  The subcommittee will come to order.  Today, we will hear testimony regarding the current role of Medicare health plans and, look to the future of how these plans can continue to effectively serve Medicare beneficiaries.  As you know, we will be having votes earlier than expected.  In the interest of time, and to ensure we hear the witnesses’ testimony, I ask unanimous consent that my opening statement be made part of the record.  Without objection, so ordered. 

The Honorable Wally Herger Opening Statement
The Honorable Pete Stark Opening Statement
The Honorable Jim McDermott Opening Statement

Chairman Herger.  I would also ask that if we do get interrupted by votes, I ask the members to return so we can finish questions.  Also, before I recognize Ranking Member Stark for the purposes of an opening statement, I ask unanimous consent that all members’ written statements be included in the record.  Without objection, so ordered.  I now recognize Ranking Member Stark for 5 minutes for the purpose of his opening statement. 

Mr. Stark.  Mr. Chairman, I ask that my opening statement be made part of the record, and yield back. 

Chairman Herger.  Without objection, so ordered.

Chairman Herger.  Today, we are joined by six witnesses:  James Cosgrove, director of the Health Care Group at the Government Accountability Office; Jim Capretta, fellow at the Ethics and Public Policy Center; Karen Ignagni, president and chief executive officer of America’s Health Insurance Plans; Dr. Tim Schwab, medical director of SCAN Health Plan; John Tallent, chief executive officer of Medical Associates of Iowa; and Marcia Gold, senior fellow at Mathematica Policy Research. 

Mr. Cosgrove, you are now recognized for 5 minutes. 


Mr. Cosgrove.  Good morning, Chairman Herger, Ranking Member Stark, members of the subcommittee.  I am pleased to be here today as you discuss Medicare Advantage and Medicare cost plans, which offer Medicare beneficiaries an alternative to the fee‑for‑service program.  For many years, private health plans have played an important role in caring for beneficiaries.  Currently, about 13.6 million Medicare beneficiaries, more than one out of every four, receive their health care from such plans.  Today, I would like to discuss our recent work in three areas related to Medicare health plans.  And let me start by summarizing our work on quality payments for MA plans and CMS’s demonstration. 

PPACA sought to foster high quality health care by paying bonuses to MA plans that achieve the very highest quality ratings, four or more stars on CMS’s five‑star quality scale.  However, instead of implementing these provisions CMS implemented the quality bonus payment demonstration.  This 3‑year demonstration makes plans of average quality eligible for bonuses, increased bonus amounts, and accelerates the phase‑in of bonuses.  The cost of the demonstration is expected to exceed $8.3 billion, an amount that is at least seven times larger than that of any other Medicare demonstration conducted since 1995.  The bonuses are expected to offset about 70 percent of PPACA payment reductions for MA plans this year, and about a third of the reductions next year.  Due to the design of the demonstration, most of the bonuses are paid to plans of average quality.  CMS’s intention is to test whether the demonstration’s approach would encourage plans to more rapidly adopt larger quality improvements.  However, we believe that serious shortcomings in the demonstration’s design cast doubt on its ability to produce meaningful results. 

In March of this year, we recommended that HHS cancel the demonstration and allow PPACA’s quality bonus payment system to take effect.  HHS did not agree with our recommendation.  Our findings also gave rise to concerns about the Agency’s authority to conduct the demonstration under the Social Security Amendments of 1967.  The statute does provide broad authority.  However, in a July 2012 letter to the Secretary of HHS, we found that the Agency had not established that the demonstration meets the criteria set forth in the statute. 

Next, I would like to discuss our most recent report, which examined MA plans designed for beneficiaries dually eligible for Medicare and Medicaid.  These plans, known as D‑SNPs, were originally envisioned as an option to help dually eligible beneficiaries navigate the two very different health care programs and obtain care appropriate to their needs.  It does appear that D‑SNPs provide a benefit package that may be more tailored to the needs of duals, and that duals enrolled in D‑SNPs have somewhat different characteristics relative to duals enrolled in other MA plans.  However, CMS has not required D‑SNPs to report information that could better hold plans accountable and help CMS determine whether D‑SNPs are realizing their full potential.  We found little available information on the amount and appropriateness of the care that these plans actually provide.  Furthermore, we found that the plans did not use standardized performance measures when reporting information on outcomes to CMS, making it difficult to compare D‑SNPs and hold them accountable for results. 

We concluded that there was insufficient information on how well these plans are meeting the unique needs of dual‑eligible beneficiaries.  We made several recommendations to CMS intended to increase D‑SNP accountability and ensure that CMS has the information it needs to systematically evaluate D‑SNP performance.  HHS concurred with these recommendations. 

Finally, I would like to share some of our findings related to Medicare cost plans.  These plans differ from MA plans in that they are paid based on their reasonable cost for delivering Medicare‑covered services.  Cost plans have been a part of the Medicare program since the 1970s.  When we examined these plans in 2009, we found that they tended to have higher quality scores than MA plans operating in the same areas.  Enrollment in cost plans has been fairly low, and is concentrated in a relatively small number of States.  As of March, Medicare had 20 contracts with cost plans, and enrollment was just under 400,000.  However, this represents a 36 percent enrollment increase since 2009. 

While cost plan enrollment is small when compared to MA enrollment, industry representatives told us that cost plans provide a managed care option in areas traditionally that have had few or no MA plans.  Over the last 3 years, the number of MA options available to beneficiaries enrolled in cost plans has declined.  Nonetheless, we found that as of March, 99 percent of beneficiaries enrolled in cost plans had at least one MA option available, and that 80 percent had at least five MA options available.  And this concludes my prepared remarks.  I would be happy to respond to any questions. 

Chairman Herger.  Thank you.

[The statement of Mr. Cosgrove follows:]

Chairman Herger.  Mr. Capretta, you are recognized for 5 minutes. 


Mr. Capretta.  Thank you.  Mr. Chairman, Ranking Member Stark, members of the subcommittee, I really appreciate the opportunity to be here at this important hearing.  I want to make just a couple of points today.  First, contrary to what is often stated, Medicare Advantage plans are not less efficient than the traditional Medicare fee‑for‑service program.  Data from the Medicare Payment Advisory Commission confirms this fact.  Comparing apples to apples, MA plans, and especially MA HMOs, can provide the Medicare benefit package to seniors at a cost well below that of fee‑for‑service.  In 2012, based on bids for the plans, MedPAC reports that the average MA plan provides Medicare benefits at 98 percent of fee‑for‑services costs, and the MA HMO plans did so at just 95 percent of fee‑for‑service costs.  It is clear from this data that MA HMOs, which have by far the largest enrollment numbers ‑‑ 11.4 million as of February 2012 ‑‑ have built the capacity over many years to deliver care more efficiently than fee‑for‑service.  This should not be surprising, however.  Medicare fee‑for‑service is an extremely inefficient model.  It breeds fragmentation and undermines coordination, leading to low quality care for too many seniors.  The emphasis from the Center for Medicare and Medicaid Services on quality in the MA program is admirable, but it would be even more effective if fee‑for‑service were rated on the same metrics.  There is ample evidence that the United States continues to experience much waste in the health care delivery system.  Recent Institute of Medicine studies left little doubt about this fact.  But what is often not stated is Medicare fee‑for‑service’s role in the problem.  Medicare fee‑for‑service is the dominant payer in many markets, and its rate setting regulations become the default option for other payers too. 

The sheer size Medicare fee‑for‑service ensures that the entire delivery system is organized around its incentives.  For those looking for the reasons that we have too much fragmentation, lack of coordination, and low quality care in too many settings, they should look no further than the incentives that are embedded in Medicare fee‑for‑service. 

My second point is that the reductions in MA payments contained in the 2012 health care law will raise costs for seniors and force many of them out of their MA plans.  The cuts are very deep.  According to the Congressional Budget Office, the total 10‑year cut in MA payments now estimated at $308; $156 billion in direct MA payment cuts; and $152 billion in indirect MA reductions from the interactions fee‑for‑service cuts contained in the law.  That these cuts will directly impact the beneficiaries is indisputable.  According to the most recent trustees’ report, enrollment in MA will peak in 2013 at 13.7 million people, and then fall to 9.7 million in 2017. 

Further, by law, MA plans must provide some percentage of the difference between their bids and the benchmark to the beneficiaries in the form of expanded benefits.  Thus, reducing MA payments will, by definition, reduce benefits provided through MA plans to current enrollees.  In a study I co‑authored with Robert Book for the Heritage Foundation, we estimated that this would be about $3,700 per MA enrollee by 2017. 

Why, if these cuts are so deep, has MA enrollment grown in 2012 and 2013?  The answer is relatively simple.  For starters, the cuts are back‑loaded.  Through 2013, less than 10 percent of the scheduled Medicare reductions will have into effect, and costs have risen modestly in recent years because of the slow economy.  More importantly, CMS has sent an unprecedented, and perhaps unlawful, $8.3 billion to MA plans, filling in over 70 percent of the cuts in 2012 alone, quite plainly because the agency wants to mitigate the impacts of the cuts required by the 2010 law.  There is no real other explanation for what they are doing in this particular demonstration program.  Certainly there is no public policy rationale that would justify it, as the testimony from various government agencies have indicated. 

Once the artificial and temporary bump up in payments is terminated, as it inevitably will be, MA plans will be forced to pare back benefits, and enrollment in the plans will drop. 

My third point is that MA plans are particularly important for lower income seniors, and cuts in MA payments will hit this population the hardest.  Lower income seniors are disproportionately represented in MA plans because they find the reduced cost sharing in these plans attractive, especially at premiums that are usually well below the cost of Medigap coverage. 

In the 2010 study I co‑authored, which I previously mentioned, we used earlier findings from an AHIP study to estimate that beneficiaries with incomes between $10,800 and $21,600 were 19 percent more likely than the average beneficiary to enroll in an MA plan.  The MA program has important features for the future of Medicare program.  MA can provide innovations in ways that Medicare fee‑for‑service cannot.  Moreover, the presence of the MA program ensures some level of choice of for the beneficiaries, which is important for program accountability.  If we want delivery system reform, and I think we do, the MA program is something to be built upon, not discarded.  Thank you. 

Chairman Herger.  Thank you.

[The statement of Mr. Capretta follows:]

Chairman Herger.  Ms. Ignagni is recognized for 5 minutes.


Ms. Ignagni.  Thank you Mr. Chairman, Ranking Member Stark.  We appreciate the opportunity to testify today on behalf of a program that serves 27 percent of Medicare beneficiaries.  Our testimony focuses on three things:  First, the specific programs our members have implemented to improve the effectiveness of care; second, the value Medicare Advantage plans bring to beneficiaries; and third, the impact of future cuts to the program, and a new premium tax that begins in 2014. 

Health plans in Medicare Advantage, as well as those serving employers and individual purchasers of coverage, are partnering with doctors and hospitals to change the way care is paid, by paying for the effectiveness of care provided rather than the volume of services delivered.  We are working to change what is purchased by rewarding successful outcomes and employing other strategies to ensure that patients receive the right care in the right setting.  For example, health plans offer customized programs and support services that are integral to avoiding hospital readmissions and reducing emergency room visits, while also addressing health care disparities, providing nurse hotlines, and offering personal health records.  These programs and tools have been validated in peer‑reviewed journals.  Health plans also help patients receive the appropriate level of services post‑discharge.  These include follow‑up calls from nurses to ensure that patients understand their drug therapy, their rehabilitation needs, and when they need to follow up with their physician. 

This follow‑up also includes home health visits and instructions on how to use any medical equipment necessary at home.  Health plans also are coordinating care to help patients with multiple chronic conditions navigate an increasingly complicated delivery system, as well as partnering with clinicians by supporting their ability to do complicated case management and improve quality of care by providing data about variations in care, best practices, and efficiency and effectiveness of treatment. 

Health plans also provide value to beneficiaries by providing strong consumer protections which are identified in our testimony, by protecting beneficiaries against unpredictable out‑of‑pocket costs, and by establishing care plans for beneficiaries which encourage them to get the preventive care they need, and providing a more organized support system for those with chronic illness. 

CMS is partnering with our plans in a variety of initiatives to expand these tools into the traditional program, and we believe these partnerships hold great promise. 

Two days ago, the Centers for Medicare and Medicaid Services announced information about the high quality affordable health plan choices that will be available in 2013 in the Medicare Advantage program.  This announcement is good news, and clearly demonstrates that Medicare Advantage plans have been successful in delivering value to beneficiaries.  Looking forward, however, we are concerned about the impact of ACA’s future cuts to the Medicare Advantage program. 

Our written testimony presented data from the Congressional Budget Office.  Mr. Capretta just referred to those data, I won’t repeat it.  But given the scale and scope of these reductions over the next few years, and since the majority of the reductions haven’t taken effect, we are seriously concerned about their potential impact. 

In addition, another element to this and to scaling the impact of potential reductions is it is going to be compounded by a new premium tax scheduled to begin in 2014 which will amount to $220 per beneficiary in 2014.  For Medicare part D plans, the tax will increase premiums by an estimated $9.  Given the size of the Medicare Advantage funding cuts and the new premium tax, if across‑the‑board sequestration cuts are triggered under the Budget Control Act of 2011, it could have serious impact on Medicare beneficiaries, and, place a financial burden on clinicians participating in the program. 

As the payment cuts take effect, Medicare health plans will continue to do everything they can to preserve benefits and keep coverage as affordable as possible for the millions of seniors and people with disabilities they serve.  However, given the size of these cuts, along with the impact of the premium tax, we are concerned in the coming years about the potential for Medicare Advantage beneficiaries to face higher costs and coverage disruptions. 

We look forward to working with the committee to address these concerns and preserve Medicare Advantage as a choice for current and future generations of beneficiaries.  Thank you very much. 

Chairman Herger.  Thank you.

[The statement of Ms. Ignagni follows:]

Chairman Herger.  Dr. Schwab is recognized for 5 minutes.  


Dr. Schwab.  Thank you, Chairman Herger, Ranking Member Stark, and members of the Health Subcommittee.  My name is Tim Schwab.  I am chief medical officer of SCAN Health Plan in Long Beach, California.  I am board certified in internal medicine, and have been working at SCAN for nearly 25 years.  I appreciate the opportunity to appear before you today to discuss the innovative programs that SCAN has put in place to meet the needs of our most vulnerable and frail members. 

My testimony will focus on SCAN’s Special Needs Plans, or SNPs.  SNPs serve Medicare beneficiaries with highly complex health needs.  There are three types of SNPs.  First, institutional SNPs, or I‑SNPs, serve individuals who reside in institutional settings or who live in the community but require an institutional level of care.  SCAN is the Nation’s largest community‑based I‑SNP. 

Second, chronic or C‑SNPs, which serve individuals living with multiple chronic conditions.  SCAN has a C‑SNP that focuses on end‑stage renal disease. 

And third, dual eligible SNPs, or D‑SNPs, which serve dual eligible beneficiaries.  SCAN runs California’s only fully integrated dual eligible SNP. 

All in all, SCAN serves 16,000 individuals in Special Needs Plans.  In addition, SCAN Health Plan is the Nation’s third largest not‑for‑profit Medicare Advantage plan.  We were founded in 1977 by senior citizens in Long Beach who worried about the prospect of declining health and loss of autonomy.  These citizen activists helped design a program of extra services and supports to keep them living in their own homes and not in a nursing home.  Since then, SCAN has helped nearly 100,000 individuals avoid or postpone a nursing home stay.  When Special Needs Plans came along in 2006, they reflected SCAN’s mission to help seniors maintain their health and independence through specialized care and attention.  Ideally, the SNP model was the same as SCAN’s, placing the beneficiary at the center of care.  It was a natural transition to move our beneficiaries to SNPs and continue with their personal care plans, care transitions assistance, disease management, and medication therapy management. 

Well done, this model can significantly improve health outcomes and bring down the cost of care.  Let me give you an example.  An April 2012 study by Avalere Health found that SCAN’s dual eligible members had a hospital readmission rate that was 25 percent lower than dual eligibles in Medicare fee‑for‑service with identical risk profiles.  The study also found that SCAN performed 14 percent better than fee‑for‑service on Prevention Quality Indicator, or PQI’s, overall composite, keeping people out of the hospital to begin with.  Keeping people out of the hospital saves money.  Based on results of a matched cohort analysis, if California fee‑for‑service duals had the same hospitalizations and readmission rates as SCAN’s duals, this would result in at least $50 million in annual savings to Medicare fee‑for‑service in California.  Studies are useful, but let me give you a real example.  Mr. A, a native Spanish speaker, recently enrolled in a SCAN D‑SNP.  Like all SCAN enrollees, he filled out an initial health assessment.  In it, he revealed that over the last few weeks he felt down, depressed, or hopeless more than half the days.  A SCAN case manager was able to reach Mr. A and perform an assessment. 

The manager identified three concerns:  Depression and suicidal ideation, poor relationship with his primary care physician, and inadequate access to needed psychiatric care.  The assessments were shared with the PCP, and a behavioral health specialist recommended partial hospitalization.  The team partnered with the medical group to coordinate services and address language‑related barriers. 

And they connected him with a Spanish‑speaking psychiatrist and new PCP.  Today, Mr. A has that new PCP, and is visiting his psychiatrist regularly, and is no longer having the suicidal ideations.  The SNP model of providing patient‑centered coordinated care to vulnerable populations has been a success.  Unfortunately, the authorization is set to expire at the end of 2013.  Congress should act as soon as possible to extend SNPs for a period of at least 5 years.  Moving quickly is imperative.  Plans must file their notices to offer these plans for 2014 by November of this year.  A multi‑year extension would provide stability to beneficiaries, States, and health plans to ensure beneficiaries do not experience a dangerous lapse in their care.  In addition, my written testimony includes a number of other recommendations to strengthen SNPs to give beneficiaries better care.  People who are frail, disabled, and chronically ill ‑‑

Chairman Herger.  Dr. Schwab, if you could conclude. 

Dr. Schwab.  ‑‑ are poorly served by fragmented models.  They deserve the specialized treatments.  SNPs are working, and we ask that you let them continue to work.  Thank you. 

Chairman Herger.  Thank you very much.

[The statement of Dr. Schwab follows:]

Chairman Herger.  Mr. Tallent is recognized for 5 minutes. 


Mr. Tallent.  Chairman Herger, Ranking Member Stark, and distinguished members of the subcommittee, my name is John Tallent.  I am the chief executive officer of Medical Associates Health Plans in Dubuque, Iowa.  I am here today testifying on behalf of the Medicare Cost Contractors Alliance, a coalition of 15 Medicare cost plans that currently serve over 400,000 Medicare beneficiaries enrolled in plans in 14 States and the District of Columbia.  Since 1972, they have proven to be a stable, quality alternative to Medicare fee‑for‑service, particularly for beneficiaries living in rural areas and areas in which risk‑based plans have encountered challenges.  We firmly believe that Medicare cost plans should remain available as a coverage option, and are grateful for the bipartisan support that the program has enjoyed.  We want to thank Representative Paulsen and Representative Kind for introducing legislation to preserve this important program. 

There are 19 Medicare cost plans across the U.S., located principally in rural areas, or areas with comparatively low Medicare Advantage rates.  Ninety percent of cost plans are nonprofit organizations.  A large portion of Medicare cost plans are either owned by or affiliated with well regarded medical groups.  The average Medicare cost plan has been providing high quality, cost‑effective services to Medicare beneficiaries for over 20 years.  For nearly three decades, Medical Associates Health Plans has been serving Medicare beneficiaries under a cost‑based contract in five counties in Iowa, four counties in Wisconsin, and one county in Illinois.  Like most cost plans, our members are elderly.  Their average age is almost 76.  And one third of our members are 80 years of age or older.  In fact, many of our members have been with us for 20 years or more.  Our members like our plan, and we have a less than 1 percent voluntary disenrollment rate.  Medical Associates Health Plans is owned by Medical Associates Clinic, which is the oldest multi‑specialty group practice clinic in Iowa. 

Medical Associates Health Plans is proud of the quality of services it offers to its cost plan members.  In 2012, Medical Associates Health Plan was one of 12 CMS contracts out of 569 that received a 5‑star rating.  Our Wisconsin plan received a 4.5‑star rating.  If current law is not changed, over 230,000 beneficiaries will lose their cost plan coverage in 10 States on January 1, 2014.  Medical Associates would be forced to withdraw from four of the five counties in its Iowa service area.  This is despite the fact that Medical Associates is overwhelmingly the most popular Medicare health plan in our service area, and has the highest quality rating as well.  In States like Texas and South Dakota, cost plans will have to withdraw from rural areas despite very low Medicare Advantage penetration.  Cost plan members throughout Minnesota and portions of Colorado, Wisconsin, and Ohio will also lose their plans. 

Because of the cost plan withdrawals, these vulnerable beneficiaries will face higher costs.  They could also face disruptions in long‑standing provider relationships, since many of them have been Medicare cost members for many years.  As you know, Medicare Advantage rates are scheduled to decline under current law.  History shows that when payments to Medicare risk‑based plans have decreased, plans have withdrawn from the program or reduced their service areas, resulting in many beneficiaries losing their Medicare health plan choices, particularly in rural areas. 

In order to prevent 230,000 Medicare beneficiaries from losing their Medicare cost plan choice in 2014, and to ensure that beneficiaries have an ongoing choice of quality Medicare managed care plans, it is imperative that Congress pass legislation this year.  We very much appreciate the opportunity to testify before the subcommittee, and look forward to continuing to work with members of this committee.  Thank you. 

Chairman Herger.  Thank you.

[The statement of Mr. Tallent follows:]

Chairman Herger.  Ms. Gold, you are recognized for 5 minutes. 


Ms. Gold.  Thank you.  Chairman Herger, Ranking Member Stark, and members of the subcommittee, I am a senior fellow at Mathematica Policy Research, an independent, nonpartisan public policy organization.  I want to make seven points today that I elaborate on in my written remarks. 

First, the MA program today is strong, with rising enrollment that is expected to continue into 2013.  While the ACA sought to scale back payments to MA plans to achieve closer alignment between payments made for beneficiaries in MA versus the traditional program, it was acting in line with the origins of the program, and consistent with the recommendations of Congress’s nonpartisan adviser MedPAC.  The ACA changes also served to extend the life of the Medicare Trust Fund and to slow increases in Part B premiums for all beneficiaries.  Second, MA plans are still paid considerably more for a similar beneficiary in the traditional program. 

In considering future policy change, it is difficult to see rationale on a national basis for paying private plans more than Medicare currently spends on the traditional program, particularly when there is so much concern with the Federal deficit and debt.  Third, although some suggest otherwise, I have studied these plans in depth for more than 20 years, and there was no strong and consistent evidence that private plans in general are better at cost control than traditional Medicare is, or that health plan competition will produce enough savings to address current fiscal concerns. 

Fourth, polls show traditional Medicare remains popular with beneficiaries.  That means that paying more for private plans is effectively a tax on their choice.  The Part B premiums will increase, with no gain in benefits to them.  Clearly, payment reductions at some point can discourage plans from participating in MA, but we are not there now.  Even if we were, the question is how much payment is warranted to preserve choice, especially if it costs rather than saves money. 

Overpayments also involve a substantial transfer of funds from government to private firms, a few of whom dominate the market.  Fifth, as the Congressional Budget Office has concluded, Medicare premium support programs that reduce government contributions to Medicare will shift costs to beneficiaries and limit the health and financial protection the program provides vulnerable beneficiaries.  MA has a role for private plans in Medicare, but it is not a voucher or premium support program.  The defined benefit Medicare provides differs fundamentally from a fixed contribution plan. 

Although premium support proposals vary, most would fundamentally change the traditional way the Medicare program operates, and some would eliminate traditional Medicare altogether. 

Sixth, traditional Medicare, with its defined and nationally uniform benefits across the country, has served as a valuable protection to beneficiaries.  It provides defined and nationally uniform benefits to all Medicare beneficiaries.  Some proposals say that they maintain the traditional Medicare plan option, but they do not appear to finance it.  This arguably presents a false assurance about the future availability of traditional Medicare as we know it now.  The program would be different, and beneficiaries would pay more.  Our health care system is very inefficient.  Both traditional Medicare and private plans alike face challenges in containing costs.  Fundamental reform of the system to reduce costs ultimately cannot be achieved without someone paying the price, whether that is the beneficiary, the plan, the provider, Medicare, or some combination. 

One person’s waste is another’s income.  It also is not that easy to define medically necessary care, especially at an individual level.  The 1990s managed care backlash showed that policymakers should not expect the private sector or beneficiaries to engage in battles from which they themselves want distance.  Medicare beneficiaries already pay a considerable amount out‑of‑pocket for health care, as my written testimony indicates. 

Seven, other programs show that strong oversight and risk adjustment are important to prevent unfair marketing practices, enrollment abuse, and protecting vulnerable Medicare beneficiaries.  When they are absent, scandals occur and people are hurt.  Appropriate risk adjustment is critical, and all of these will be more important if dual eligibles enter the program. 

In closing, although decisions about the future of Medicare will inevitably reflect the values considered socially acceptable by a variety of stakeholders, the evidence suggests there are no easy answers to the fiscal dilemmas facing our Nation.  Thank you. 

Chairman Herger.  Thank you.

[The statement of Ms. Gold follows:]

Chairman Herger.  Mr. Cosgrove, I read in your report that the CMS MA quality bonus payment demonstration would cover up nearly one third of the ObamaCare cuts to MA plans over the life of the demonstration.  Is this correct? 

Mr. Cosgrove.  The demonstration would offset about one third of the cuts, yes. 

Chairman Herger.  Can you please break down your estimate of how much of the cuts will be offset each year? 

Mr. Cosgrove.  This year, in 2012, just over 70 percent.  Next year, in 2013, about a third.  And then the final year about 16 percent, I believe. 

Chairman Herger.  It seems to me the administration is trying their hardest, and using any means necessary to hide these cuts until after this election. 

Ms. Ignagni, as you well know, ObamaCare’s cuts to Medicare Advantage are real, especially to the beneficiaries that are enrolled in these plans.  In fact, not too long ago, cuts to the Medicare health plans which were far less than those in ObamaCare resulted in millions of seniors losing access to their health plans.  In fact, in some counties in the Northern California district I represent, seniors lost all choice of private health plans after the 1997 cuts. 

Even the Medicare actuaries highlight this fact in this year’s report which stated that “As a direct consequence of the plan terminations, the percentage of Medicare beneficiaries who enrolled in private health plans declined each year from 2000 through 2004.” 

Won’t the cuts to Medicare Advantage in ObamaCare have a real and lasting impact on seniors’ access to the MA plan they have and like? 

Ms. Ignagni.  Two comments, sir.  One, with respect to the past, which I remember very vividly, I think the lesson there was that Congress responded by putting additional resources and targeted towards specific counties, Northern California as an example, in the upper northwest, in the middle part of the country, Michigan, Ohio, Illinois, Upstate New York, et cetera.  And that had a very positive effect.  It was a bipartisan action. 

With respect to what is going to happen as a result of the cuts that we see in the ACA, and also the premium tax, which hasn’t been much focused on but I think needs to be because it begins in 2014 and compounds this, I can’t tell you exactly what would happen, but I think the CBO estimates provide a window into that.  And we provided that in our testimony. 

Chairman Herger.  Thank you.  Dr. Schwab, I understand that SCAN Health has had a fully integrated health plan for beneficiaries, many of them dual eligible for over the last 20 years.  Can you describe how the plan integrates benefits between Medicare and Medicaid?  What are the benefits to this type of integration? 

Dr. Schwab.  Yes.  SCAN has had a program that for some of our members, we had a contract with the State of California to provide all Medicaid or Medi‑Cal services.  So from a member standpoint, all benefits are arranged through the health plan, whether it is a Medicare benefit, a Medi‑Cal benefit.  And included in the Medi‑Cal benefits are the home and community‑based services and nursing home care as per the Medi‑Cal program.  The way we integrate that primarily is through our case management program, a one‑on‑one relationship with the member, working in conjunction with the primary care physician and the medical group we contract with. 

Chairman Herger.  Thank you.  Mr. Stark is recognized for 5 minutes. 

Mr. Stark.  Thank you, Mr. Chairman.  I thank the panel for their testimony.  Ms. Gold, my Republican colleagues would like us to believe that the sky is falling in terms of enrollment, benefits, premiums.  But these projections have turned out to be incorrect.  And since the passage of the ACA, Medicare Advantage enrollment has increased, and the premiums have decreased.  Is that not correct? 

Ms. Gold.  That is correct. 

Mr. Stark.  And I am sure that this happened last year, so that it isn’t just a one‑time event, this is a trend.  Could you just discuss for a moment the distinctions between Medicare Advantage and the Romney‑Ryan voucher, or premium support program that the Republicans would have us ‑‑ how do they differ? 

Ms. Gold.  Well, there are so many plans floating around that I will answer generally.  But basically, under Medicare Advantage, beneficiaries always have the option to return to Medicare, traditional Medicare.  They get the same benefits in Medicare Advantage whether ‑‑ you know, whether they are in Medicare Advantage or traditional Medicare.  And plans are required to pay those.  They have a national Medicare program and strong oversight.  Under a premium support program, most of them ‑‑ and again, they all differ ‑‑ but they don’t guarantee a certain amount of money.  There is more wiggle room in the benefits.  And a lot of them would seem to dismantle the traditional Medicare program into a bunch of littler programs or changes that make its bargaining power nationally much more limited with providers, and might hurt it from controlling health care costs. 

Mr. Stark.  Also, there are some that would like you to believe that the only reason that plans are still in MA is because of the quality bonus program.  And I think most of our estimates show that the Affordable Care Act has reduced Medicare Advantage overpayments by, I think, $156 billion, which is listed in the Ryan budget, over 10 years.  And the quality bonus payment demonstration is a total of what, $8.5 billion over 10 years.  So isn’t it also true that the underlying quality program will continue in perpetuity under the law? 

Ms. Gold.  Yes, it is in the law. 

Mr. Stark.  So, it is possible that the demo is being targeted at the mid‑level plans to help them improve before this bonus plan takes over. 

Ms. Gold.  Yes. 

Mr. Stark.  Thank you very much. 

Chairman Herger.  Thank you.  Mr. Buchanan is recognized for 5 minutes. 

Mr. Buchanan.  Thank you, Chairman, for holding this important hearing today.  And I would like to thank all our witnesses for taking the time to do this.  I represent in my district in Florida about 200,000 seniors who rely, obviously, heavily on Medicare.  About 40,000 of those seniors are on Medicare Advantage.  And I want to make sure they have quality health care.  Millions of Americans are struggling, especially those living on fixed incomes.  I read a new study in terms of the cuts they are talking about, the $716 billion in cuts in the new health care law, that $2.2 billion will be in the two counties I represent in my congressional district.  The question I have for the panel, really, how big of an impact in terms of our congressional area?  

Mr. Tallent, can you maybe express your concerns on this or your thoughts on it? 

Mr. Tallent.  I apologize, but I don’t understand the particulars of Florida and your situation. 

Mr. Buchanan.  Well, just look at the $716 billion in cuts.  Of that, it will be applicable in a lot of different congressional districts around the country.  But I have 200,000 seniors 65 and older; $2.2 billion of those cuts are going to be in my immediate area, the area I represent.  And I was just wondering do you have a thought on the impact of those cuts? 

Mr. Tallent.  Specifically, I am focusing this morning, I have been asked to focus on the effect of ‑‑

Mr. Buchanan.  Medicare Advantage? 

Mr. Tallent.  Well, of the cost contracts and the situation that we are in. 

Mr. Buchanan.  Dr. Schwab, do you have any comments on that in terms of the cuts? 

Dr. Schwab.  Well, the cuts are going to force all plans to operate more efficiently and effectively.  I think some of the things that the plans are looking at are how do you use technology to more efficiently care for people.  Ultimately, cuts will potentially reduce the amount of benefits if the cuts are deep enough.  But the other thing that helps is as we have moved more towards a risk adjustment system so that you pay appropriately for the appropriate needs of that individual, that can help offset some of the impact of the cuts. 

Mr. Buchanan.  Ms. Ignagni, do you have any comments on that? 

Ms. Ignagni.  There is no way to know with precision exactly what will happen in any particular area.  But I do think that looking at what happened in the past post the Balanced Budget Act of 1997, there is reason for caution and deliberation.  In particular, I think that as we see the cuts have not ‑‑ they are back loaded.  So we haven’t seen the impact yet.  But number one.  Number two, the premium tax is going to be hitting in 2014 as these cuts ramp up.  And I think that is a place to start for real deliberation in terms of the impact of all of these things. 

So without a doubt, I think that our plans, what I can tell you, our plans are going to do everything they can to maintain benefits and service seniors who are depending upon them.  But the scale and scope of the cuts that have yet to come is something that we are concerned about. 

Mr. Buchanan.  Thank you.  And I yield back. 

Chairman Herger.  Thank you.  Mr. Kind is recognized for 5 minutes. 

Mr. Kind.  Thank you, Mr. Chairman.  I want to thank our panelists for the testimony today.  And this is yet another hearing that we are having on what is happening within health care reform, which I think is totally necessary, totally appropriate that we have these conversations, we find out what is working and what isn’t working.  And then hopefully have the ability as a Congress to continue to make adjustments as we learn more.  I don’t think anyone going into health care reform, certainly those of us who supported the Affordable Care Act, thought it was going to be easy or that it was going to happen overnight.  It is going to require a lot of hard work.  It is quite frankly going to take the effort of a Nation, not just one party, to try to reform a health care system that is in desperate need of reform.  I have been one of the leading voices of trying to do what we can to reform the way health care is delivered in our country so it is more integrated, coordinated, patient‑centered.  But especially we have to change the way we pay for health care so it is value‑ or outcome‑based, and no longer volume‑based payments. 

And Ms. Ignagni, I know you and the plans that you represent and that have been at the forefront when it comes to a lot of these changes and a lot of these reforms.  I think we need to be doing it on a parallel path between Medicare and the private plans that are out there.  I don’t think doing it in isolation is going to work.  Could you give us a quick update on what you are seeing happening, especially in the private sector right now, with these type of delivery and payment reforms that are happening? 

Ms. Ignagni.  I really appreciate the opportunity to do that.  A couple of points.  One, there are very significant changes going on all across the country that are very exciting.  And the story is about collaboration, health plans and clinicians collaborating in patient‑centered medical homes to bring more value and case management to those with chronic illnesses.  And baking those strategies into the Medicare Advantage, Medicaid plans, SNPs, and so on and so forth, I think that shows real promise. 

Two, bundling, which you have talked about a quite lot, really changing, moving to a prospective payment as opposed to retrospective and more of a piece rate.  And we are beginning to see real traction as a result of that all over the country.  And I think that holds real promise.  The third point, I had mentioned in my oral remarks that we are partnering with CMS on a number of these initiatives.  And I think that too holds promise in terms of getting more traction and getting more pickup across the country in a synergistic way. 

And I think you will be hearing more about that.  But without a doubt, what is very significant now, as a result of these strategies, health plans are showing in peer‑reviewed journal data that they are working with respect to readmissions, emergency room. 

So we are not finished by any means.  I don’t want to leave you with that impression.  But we have taken a major step.  And it clearly has to be the future, more coordinated care, more prospective payment and partnerships between plans and clinicians and hospitals. 

Mr. Kind.  Mr. Cosgrove, let’s back up here a little bit.  You testified about how the bonus payment plans are going to be phasing out over the next few years as far as the bonus payments are concerned and that.  But what I don’t understand is there are two different competing visions of where health care reform needs to go.  Under the Romney‑Ryan plan, the changes they are advocating under Medicare won’t happen until 10 years from now, the year 11, 12.  I am sorry, but that is just not good enough.  We can’t sit around and wait 10 years to start making important changes within the health care system, especially in a program as important and as vital as Medicare. 

Now, there is some criticism up here from the dais today about how these bonus payment incentives for quality plans are going to be reduced, and the impact it is going to have on Medicare Advantage plans.  But weren’t the MA plans created to begin with back in 2003 and actually passed in 2004 as part of the Medicare Modernization Act and also the new prescription drug plan?  Is that right?  Is that where the MA plans came from? 

Mr. Cosgrove.  Yes.  But there was a predecessor program, commonly referred to as the risk program, that went back to the 1980s.  But the MA program built upon that, yes. 

Mr. Kind.  And do you recall, sitting here today, whether or not that legislation that passed, that also called for higher reimbursement levels for MA plans, whether any of that was paid for in the 2004 bill? 

Mr. Cosgrove.  I do not. 

Mr. Kind.  Well, the answer, and I think everyone up here on the dais understands, that it wasn’t.  That was a major piece of legislation, the largest expansion of entitlement spending since Medicare was first created in 1965, and not a nickel of it was paid for.  Many of us at the time who voted against it didn’t think it was fiscally responsible to be offering these higher reimbursement payments to the MA plans without any ability to pay for it to begin with.  And now we are hearing some criticism when we are trying to reform that to find some cost savings.  Cost savings, by the way, that was completely adopted in the Ryan budget that virtually every one of my colleagues on the other side supported and voted for.  And now they are trying to have it both ways up here, which is inexplicable to me. 

And Ms. Gold, I think you testified about the differences that there is between their plan that would privatize, in essence, through a voucher or premium support, whatever you want to call it, with the existing Medicare program.  Is there an important distinction to be made there? 

Ms. Gold.  Extremely important decision.  Right now Medicare is a national ‑‑

Chairman Herger.  The gentleman’s time has expired.  Maybe you could respond in writing, please. 

Ms. Gold.  Yes, it is in my testimony.  Thank you. 

Mr. Kind.  Thank you. 

Chairman Herger.  Mr. Roskam is recognized for 5 minutes. 

Mr. Roskam.  Thank you, Mr. Chairman.  Mr. Cosgrove, in your testimony before the Government Reform Committee in July, and again before us today, you note that CMS enacted a demonstration that was seven times larger than any since 1995.  It was greater than the combined budgetary effects of the demonstration, has no control group or way to judge the outcomes of the demonstration program, and went so far as to suggest that the demonstration should be canceled.  Is that right? 

Mr. Cosgrove.  We did recommend that the Secretary cancel the demonstration, yes. 

Mr. Roskam.  Ms. Ignagni, you know, President Obama during the large discussions around the passage of the new health care law made much of the argument that if you like your plan you are going to be able to keep it.  Can you reflect on sort of how the reality is of what your members are dealing with and their ability to offer products that existed before the enactment of the health care law and what they are dealing with now? 

Ms. Ignagni.  Well, first of all, in the Medicare Advantage arena as well as the commercial arena, we are doing everything we can to bring costs down and to improve quality.  That is what beneficiaries want, and that is what purchasers want.  As we look at the cuts with respect to ACA in Medicare, we are very concerned about the future impacts.  We are going to continue to do everything we can to bring costs down and improve quality.  But if you look at the scale and the size of these, plus the premium tax, that compounds the impact.  We are very concerned.  The data that we provided in our testimony from CBO, that gives you a window, I think into the potential effect.  And so the honest answer is we don’t know what the future will hold.  And we are going to work very, very hard to do our part.  But as we see the size of all of this that will come into effect, we are very concerned. 

Mr. Roskam.  So I think you said concerned either two or three times.  And so let me focus on Mr. Capretta.  If you are advising Ms. Ignagni on the nature of her concern, if you are her consigliere and you are there looking out over a spreadsheet and making some predictions, what are the things that she needs to be concerned about if the stated goal of the President of the United States is to be able to offer a program ‑‑ to continue to offer a program that somebody currently enjoyed?  What would you advise about the nature of the concern going forward? 

Mr. Capretta.  Well, she needs no advice from me, first of all.  But ‑‑

Mr. Roskam.  Well played.  Well done. 

Mr. Capretta.  It is quite clear from the trustees’ projections that the program is going to shrink.  The question is degree and magnitude.  If you make these reductions, the law requires that any payments above a bid but below the benchmark are returned, essentially, to the beneficiary in the form of higher benefits.  So when you reduce the MA payments, by definition, they are going to be scaling back what they can offer to the beneficiaries to enroll in the program. 

Mr. Roskam.  That is a truism, right?  That is not a revelation. 

Mr. Capretta.  No. 

Mr. Roskam.  That is not a subject of dispute.  That is a truism. 

Mr. Capretta.  Absolutely. 

Mr. Roskam.  All right.  Go on.

Mr. Capretta.  The trustees project that about one third of the program is going to disenroll one way or the other.  Either the plan plans are going to close down some of the counties they are operating in, or some of the beneficiaries will disenroll voluntarily because the benefits will be less attractive.  So in about 6 years’ time, 5 years’ time, the trustees, based on the actuary’s projections, assume the program will be basically one third smaller than it is today. 

So for the Congressman from Florida, he has 200,000 beneficiaries, 40,000 of them in Medicare Advantage, you know, 10,000, 12,000, 15,000 beneficiaries probably will lose the plan they have today and move back into the traditional program.  I don’t view that as a very positive development.  Fee‑for‑service has its advantages; it is an important program.  But one has to recognize it is not coordinated care.  It is very fragmented care.  It doesn’t necessarily deliver higher quality care.  There is no metric to prove that. 

Mr. Roskam.  So your testimony today is that the trustees, the people that are calling balls and strikes on this, are saying that in a period of 6 years, a third of the beneficiaries are going to be out of the system.  And it is your conclusion that that one third leaves because of the downward pressure on reimbursements.  Either they take themselves out, the beneficiaries do, or the carriers no longer are participating in the program.  Is that right? 

Mr. Capretta.  That is correct.  It is slightly less than one third, but it is just below that end, yes.  And those are the reasons why. 

Mr. Roskam.  I yield back. 

Chairman Herger.  The gentleman yields back.  Mr. Reichert is recognized for 5 minutes.

Mr. Reichert.  Thank you, Mr. Chairman. 

I am going to continue the line of questioning that Mr. Roskam was pursuing with Mr. Capretta.  Just to clarify, when the bill was first drafted and passed, we were looking at a $523 billion cut to Medicare.  About $200 billion of that was Medicare Advantage.  Today, CBO has upped that figure to $700 billion and $308 billion in Medicare Advantage; is that correct? 

Mr. Capretta.  That is correct. 

Mr. Reichert.  I am really confused as to what we are supposed to believe, because the other question is, and Mr. Roskam touched on it, the President of the United States has said if you like your health care plan, you can keep it.  But I was at an event where the President actually came back and said, when he was asked that question, well, there may have been some language inserted in that bill that runs contrary to that premise.  That is a paraphrase of his comment. 

What are we supposed to believe is still my question.  So to follow up, your testimony suggests that the cuts to Medicare Advantage may force seniors out of the plan that they like and that they currently have; is that true? 

Mr. Capretta.  Yes, that is true.

Mr. Reichert.  And they are forced into less preferred options like fee‑for‑services or less generous Medicare Advantage plans; is that correct? 

Mr. Capretta.  That is true, yes. 

Mr. Reichert.  So let’s talk about those seniors who lose their plan.  Isn’t it true that Medicare trustees expect million of seniors to lose access to Medicare Advantage altogether?

Mr. Capretta.  I haven’t seen them specify exactly how it is likely to fall out, but one can surmise.  There are about 4 million beneficiaries, fewer beneficiaries, enrolled in Medicare Advantage in 2017 than there will be in 2013.  Of those 4 million, one might surmise that some of them are in counties where the plans have pulled out.  Some are in counties where the plans are still there operating, but perhaps offering less generous benefits, so they don’t find it as attractive and they move back into fee‑for‑service.  So the reasons for the disenrollment and the shrinkage is not all that clear yet.

Mr. Reichert.  But there will be disenrollment?

Mr. Capretta.  Yes, there will be. 

Mr. Reichert.  And so they won’t be able to keep their health care if they like it, obviously? 

Mr. Capretta.  That’s correct. 

Mr. Reichert.  And seniors who stay in that program are going to lose benefits, as you just mentioned? 

Mr. Capretta.  Yes, they will. 

Mr. Reichert.  So really these seniors will be forced back in the traditional fee‑for‑service Medicare, which is not coordinated, does not have the additional benefits that seniors are used to, and lacks any type of out‑of‑pocket maximum; is that correct? 

Mr. Capretta.  That is correct.  Many of them may end up trying to buy Medigap insurance, which the average premium is $150 or $200 a month, something like that. 

Mr. Reichert.  So that was my next question.  As you know, Chairman Herger and I have been doing a little bit of investigation into AARP and its relationship to, its involvement in helping to negotiate this Obama health care plan.  I find it interesting that the promises made ‑‑ you can keep your health care if you like it ‑‑ AARP benefits from this.  As seniors leave Medicare Advantage and they are forced into Medigap, what happens is, for AARP, they end up with a $1 billion windfall over 10 years.  They increase their revenue by $1 billion in 10 years as a result of that change because AARP gets a flat rate fee for seniors who are on Medicare Advantage, and they get a percentage of every senior enrolled in Medigap. 

I also find it curious that in this bill what we are going to do is we are going to tax people who don’t buy insurance.  We are going to tax medical devices.  We are going to tax businesses who don’t provide enough insurance with a penalty.  We are also going to add a $3,000 tax penalty if you provide too much insurance.  And then we are going to tax 40 percent on Cadillac health.  We are going to tax American citizens over and over and over and again.  But AARP, with a $1 billion increase in revenue in 10 years, is a tax‑free organization that will not be taxed one cent on that $1 billion.  And I don’t expect you to respond to that.  I appreciate the time, and I yield, Mr. Chairman. 

Chairman Herger.  Thank you. 

Mrs. Black is recognized for 5 minutes. 

Mrs. Black.  Thank you, Mr. Chairman. 

I appreciate the panel being here today and helping us to look at what the future of these programs might be for especially the very frail population.  And given my health care background and having worked in long term care, I am certainly acutely aware of what their needs are.  One of the things that I know as I worked with patients over the years is that they still want choice.  They still want to make some of those decisions and not feel like they will be told about everything that is going to be done for them. 

So I want to turn to you, Dr. Schwab, because I believe this is an area that we really need to take a look at.  You have both the clinical background and also the background on the economics side of SCAN which has been the special needs programs for many years.  And so in your testimony on page 6, you talk about the special needs model providing patient‑centered, coordinated care to vulnerable populations having been a success.  You say:  Unfortunately, as we all know, the current special needs program authorization is set to expire in 2013, which is great concern to me. 

If you could just briefly talk about what you see, if you were going to sell this program to the policymakers who are going to make that decision, tell me what you see as being the benefits, and then also, I want to know from you what do you see as a possibility of working within the environment, the cost, but yet the patient‑centered care and the quality, what kind of things could you do to make the program better and make it more effective? 

Dr. Schwab.  Well, to start with, what can you do to make it better, and there are three different types of SNPs and so the answers depends on which SNPs you are talking about.  The dual SNPs, one of the things that could be improved is better coordinating and reducing overlap of regulatory issues between the State and the Federal Government.  Not that one is wrong or one is right, it is just that there is confliction and there is duplicative work. 

What you can do for the overall programs I think is recognize that all SNPs are people that are very different.  Whether it is the duals or whether it is the chronic or whether it is institutional, and measuring quality specifically for that population would be a big help.  The five‑star system is a great step forward in measuring quality in plans.  But, unfortunately, it doesn’t always apply to some of the unique populations within there.  What is good for a person on dialysis may not be same quality metric you want to measure for a person who is dual eligible and not on dialysis. 

The other thing is we have shown that providing home and community‑based services is very valuable in keeping people in their home, which is where they want to stay, and out of a nursing home.  Allowing plans, other plans other than just the D‑SNPs to provide the supplemental benefits would go a long way to, especially in the I‑SNPs, preventing people who are low income but not yet on Medicaid, to prevent their spend down and going into a nursing home and then ending up on the Medicaid program. 

Mrs. Black.  Thank you. 

Mr. Cosgrove, I want to turn to you because I know the GAO examined the requirements from the Medicare improvements for Patients and Providers Act of 2008, which established the contracting requirements for the dual Special Needs Program.  Can you discuss some of the challenges identified by the States in implementing these contracts? 

Mr. Cosgrove.  Yes.  We met with, I think, five States to talk about some of the challenges that they face.  And part of it they just explained to us, one of the terms they used was bandwidth.  It is just the number of organizations that they would have to contract with, and it is the State having the resources to be able to do it.  They could see that it is more valuable for plans that are larger.  Some of the SNPs are fairly small and ‑‑ but still, it takes the contracting effort. 

And they also brought up some other issues as well in terms of the State’s fiscal year may not coincide with the contracting year for the SNP which causes difficulty for them entering into contracts as well. 

Mrs. Black.  Dr. Schwab, you have experience in this particular issue.  Do you have any comments regarding this report? 

Chairman Herger.  The gentlelady’s time has expired.  If you can answer that in writing.

Mrs. Black.  Thank you, Mr. Chairman, that went quickly.

Chairman Herger.  Mr. McDermott is recognized for 5 minutes. 

Mr. McDermott.  Thank you, Mr. Chairman. 

As I sit here and listen to this, I think about the fact that dust is the best political defense you have ‑‑ make people confused.  And I think there are a lot of people watching this who don’t understand that everyone who is speaking on the other side talking about these awful cuts, voted for them.  Every single one of them voted twice for them.  So they are trying to have it both ways because isn’t it true that the ACA actually eliminated costs and gave new benefits to people that are in place now?  Is that true, Ms. Gold? 

Ms. Gold.  Yes. 

Mr. McDermott.  So what is the difference between this voucher plan that the Ryan budget wants, and this medical plan?  What does it mean to patients?  Because I sit up here as a doctor and I think about patients rather than product and numbers and trends and graphs.  I think what it does to patients.  So tell me what is going to be the difference for a patient if they are forced into a voucher plan by Ryan or remain in the regular Medicare program? 

Ms. Gold.  Well, I think it is going to be a lot more confusing and probably a lot more expensive, depending upon how much money Congress puts in. 

Right now, beneficiaries know there is Medicare.  Medicare is very popular.  70 percent of beneficiaries remain in the traditional program, and like it. 

If this goes forward, beneficiaries probably will not necessarily have the same benefits across the country.  Some may have less.  We will get into more fights about what areas have more money or less money.  They will have to figure out whether they pay more money, how these benefits compare to one another, and it is likely to be relatively confusing.  Also, I think underappreciated is that your plan may affect what doctor you can go to, and if every year these plans switch, and especially if there are different bids and different plans come in and out, it means that beneficiary’s care may not be stable over time and that they may find that even if they stay in the same plan, they don’t have the same doctor or they could lose their doctor. 

Mr. McDermott.  When we talk about cuts, everybody here thinks they know what we are talking about, but I have no idea what the average American thinks when we say we are making cuts in Medicare.  Does that mean that they won’t take my blood pressure anymore?  Or does that mean they won’t take my blood sugar?  Or does that mean I won’t get physical therapy with my aching bones?  What are these cuts? 

Ms. Gold.  Do you mean under the current program? 

Mr. McDermott.  Well, they are making all of these cuts to Medicare. 

Ms. Gold.  Every day Congress decides how much money it is going to spend.  It pays providers.  It decides how much to update this provider’s rate and that provider’s rate.  As I understand the cuts in the ACA, most of the general cuts involve those kind of decisions as to what an equitable payment for a hospital was, or another provider.  So they are changes in provider payments.  There was no change made except improvements in benefits for cost sharing for beneficiaries. 

So presumably, and there always is a problem.  If you cut providers too far, you could have a problem getting access to them.  But I think most of these cuts are probably invisible to beneficiaries right now. 

Mr. McDermott.  When somebody said, I forgot which one of the witness, that this pressure on Medicare with the cuts is going to make them more efficient, does that mean you won’t get good medical care, if it is efficient? 

Ms. Gold.  You know, what is efficiency? 

Mr. McDermott.  Let me ask Dr. Schwab or Dr. Tallent, what do you intend to cut because of these changes in Medicare that will make people get out of your program or leave?  Or is it just that the rural areas are too far away so we are not going to give that coverage?  We are going to drop that county?  What does it mean? 

Dr. Schwab.  Well, because I was the one that used the term “efficiency,” I think the first focus is on how do you become more efficient and not reduce quality.  The quality comes first in all plans.  And efficiency means you are going to be cutting administrative overhead that you can find better ways to do things more efficiently and more effectively.  That can only go so far, but that is clearly the first area that we are looking at of cutting, how do we work more efficiently without impacting beneficiary experience. 

Chairman Herger.  The gentleman’s time has expired.  If there is any further response, if you could respond in writing, please.  Thank you. 

Mr. Paulsen is recognized for 5 minutes. 

Mr. Paulsen.  Thank you, Mr. Chairman, and also for holding this very important hearing.  Like many of my colleagues, I am concerned about the pending cuts to the Medicare Advantage program and the likelihood that millions of seniors will be pushed out of their health care plans in the coming years, even though they may like those health care plans.

Mr. Tallent, in your testimony, you pointed out that about 250,000 Medicare beneficiaries could lose access to their cost contract plan unless Congress takes some action or steps this year to extend the program or make modifications to the so‑called two‑plan test.  A substantial number of those affected beneficiaries, about 200,000 of them, are in my home State of Minnesota.  And when cuts have been made in the past to the Medicare risk program, plans have been forced to either scale back offerings or even withdraw from certain areas of the country altogether.  So Mr. Tallent, from your experience, do you agree that it is even more important now to extend cost contract, that program, the cost contract program given the cuts to the MA program that are slated to take effect now over the next few years? 

Mr. Tallent.  Well, yes.  We think it is very important because we are entering another period, it would appear, of instability, of unknown rates, for the MA plans.  And over history, which has been mentioned a number of times by the panel, we have observed these plans, MA plans, making decisions to pull out of certain markets.  And that is what we are experiencing. 

In my testimony, I discussed specifically in Iowa that we are concerned that we will be displaced next year and there could be a very high probability that in the near future, that the plans that are displacing us will also leave and the result will be many beneficiaries without appropriate high‑quality options for plans. 

Mr. Paulsen.  Okay.  I think you also mentioned that many cost plans enrollees at Medical Associates, health plans and at other cost contract plans are older than the average of Medicare beneficiaries in general, and they have been members for a decade or longer, for a long period of time.  So to me, this seems like a potentially vulnerable group to disrupt care for.  I imagine you would agree with that.  What would it mean to these beneficiaries if they could no longer choose to enroll in the plan that they had come to rely upon?  You talked about the high probability of disruption, and losing out to ‑‑ if other competitors pull out down the road as well? 

Mr. Tallent.  Well, certainly for many of our members, I think it would be very disruptive.  In my testimony, I mentioned that 30 percent of our membership is over the age of 80.  And also that many of these members have been with us for very lengthy periods of time, have been with the same doctor or sets of doctors, many of them have multiple issues, for lengthy periods of time.  If we were to have to be displaced, this vulnerable population would definitely be affected. 

Mr. Paulsen.  Thank you, Mr. Chairman.  I yield back the time, and I appreciate the testimony. 

Chairman Herger.  Thank you.  I want to thank each of our witnesses for your expert testimony today. 

Today we heard a detailed discussion of the future of health plans and Medicare.  Clearly, significant changes are coming to the Medicare Advantage program, and seniors are right to be concerned about what will happen to the health plan they have and like. 

As I conclude this hearing, likely my final one as a member of this committee, I would like to highlight that this committee has some of the most challenging issues before it.  I want to thank my colleagues for their thoughtful and often spirited discussion of those issues.  We have debated these issues honestly and thoroughly, and I have laid down the groundwork to address the issues important to the millions of current Medicare beneficiaries, and those joining the program in the future. 

I want to say, it has been an honor and a privilege to work with all of my colleagues, and a blessing to represent my northern California constituents.  The work that we do is critical to maintaining a vibrant and thriving Nation, and I have been proud to be a part of it. 

As a reminder, any member wishing to submit a question for the record will have 14 days to do so.  If any questions are submitted, I ask that the witnesses respond in a timely manner. 

Mr. McDermott.  Mr. Chairman? 

Chairman Herger.  Yes. 

Mr. McDermott.  May I have a point of personal privilege? 

Chairman Herger.  You may.  Mr. McDermott is recognized. 

Mr. McDermott.  It is typical of you that you would put this announcement of your leaving at the end when there is nobody here except me.  We are going to miss you.  You have done a good job for your people in California and for the committee.  I think that it should be acknowledged publicly.  Good Members retire sometimes before they are thrown out, and it is good to see you going to retirement.  I hope you enjoy it.  You have done a great service to our country.  Thank you. 

Chairman Herger.  I thank my good friend for those comments. 

With that, this subcommittee stands adjourned. 

[Whereupon, at 10:48 a.m., the subcommittee was adjourned.]

Public Submissions For The Record