[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]

MEDICARE HEALTH PLANS

=======================================================================

HEARING

before the

SUBCOMMITTEE ON HEALTH

of the

COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

SECOND SESSION

__________

SEPTEMBER 21, 2012

__________

Serial No. 112-HL16

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Printed for the use of the Committee on Ways and Means

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COMMITTEE ON WAYS AND MEANS

DAVE CAMP, Michigan, Chairman

WALLY HERGER, California SANDER M. LEVIN, Michigan
SAM JOHNSON, Texas CHARLES B. RANGEL, New York
KEVIN BRADY, Texas FORTNEY PETE STARK, California
PAUL RYAN, Wisconsin JIM MCDERMOTT, Washington
DEVIN NUNES, California JOHN LEWIS, Georgia
PATRICK J. TIBERI, Ohio RICHARD E. NEAL, Massachusetts
DAVID G. REICHERT, Washington XAVIER BECERRA, California
CHARLES W. BOUSTANY, JR., Louisiana LLOYD DOGGETT, Texas
PETER J. ROSKAM, Illinois MIKE THOMPSON, California
JIM GERLACH, Pennsylvania JOHN B. LARSON, Connecticut
TOM PRICE, Georgia EARL BLUMENAUER, Oregon
VERN BUCHANAN, Florida RON KIND, Wisconsin
ADRIAN SMITH, Nebraska BILL PASCRELL, JR., New Jersey
AARON SCHOCK, Illinois SHELLEY BERKLEY, Nevada
LYNN JENKINS, Kansas JOSEPH CROWLEY, New York
ERIK PAULSEN, Minnesota
KENNY MARCHANT, Texas
RICK BERG, North Dakota
DIANE BLACK, Tennessee
TOM REED, New York

Jennifer M. Safavian, Staff Director and General Counsel

Janice Mays, Minority Chief Cousel

______

SUBCOMMITTEE ON HEALTH

WALLY HERGER, California, Chairman

SAM JOHNSON, Texas FORTNEY PETE STARK, California
PAUL RYAN, Wisconsin MIKE THOMPSON, California
DEVIN NUNES, California RON KIND, Wisconsin
DAVID G. REICHERT, Washington EARL BLUMENAUER, Oregon
PETER J. ROSKAM, Illinois BILL PASCRELL, JR., New Jersey
JIM GERLACH, Pennsylvania
TOM PRICE, Georgia
VERN BUCHANAN, Florida

C O N T E N T S

__________

Page

Advisory of September 21, 2012 announcing the hearing............ 2

WITNESSES

James Cosgrove, Director, Health Care, U.S. Government
Accountability Office, Testimony............................... 18
James Capretta, Fellow, Ethics and Public Policy Center,
Testimony...................................................... 32
Karen Ignagni, President and Chief Executive Officer, America's
Health Insurance Plans, Testimony.............................. 39
Tim Schwab, M.D., Chief Medical Officer, SCAN Health Plan,
Testimony...................................................... 57
John Tallent, Chief Executive Officer, Medical Associates Clinic
& Health Plans, Testimony...................................... 66
Marsha Gold, Senior Fellow, Mathematica Policy Research,
Testimony...................................................... 75

SUBMISSIONS FOR THE RECORD

Association for Community Affiliated Plans....................... 109

MEDICARE HEALTH PLANS

----------

FRIDAY, SEPTEMBER 21, 2012

U.S. House of Representatives,
Committee on Ways and Means,
Subcommittee on Health,
Washington, DC.

The Subcommittee met, pursuant to call, at 9:32 a.m., in
Room 1100, Longworth House Office Building, the Honorable Wally
Herger [Chairman of the Subcommittee] presiding.
[The advisory of the hearing follows:]

HEARING ADVISORY

Chairman Herger Announces Hearing on Medicare Health Plans

Friday, September 14, 2012

House Ways and Means Health Subcommittee Chairman Wally Herger (R-
CA) today announced that the Subcommittee on Health will hold a hearing
to examine the current status of the Medicare Advantage (MA) program
and other health plans. The hearing will take place on Friday,
September 21, 2012 in 1100 Longworth House Office Building, beginning
at 9:30 A.M.

In view of the limited time available to hear from witnesses, oral
testimony at this hearing will be from invited witnesses only. 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. A list of witnesses
will follow.

BACKGROUND:

Private health plans have served Medicare beneficiaries from the
early years of the program. With 2003 legislation that increased plan
payments, beneficiaries were provided with more plan options and
enhanced benefits, resulting in millions of seniors choosing to join
private Medicare plans. Recent data from the Centers for Medicare and
Medicaid Services (CMS) indicates that there are currently over 13.5
million beneficiaries enrolled in private health plans, representing
more than one in four Medicare beneficiaries.

According to the Congressional Budget Office (CBO), the Democrats'
health law will cut $308 billion from the MA program over the next ten
years. As a result of these cuts, the Medicare Trustees predict
enrollment in MA will be cut in half by 2017 as compared to prior law.
CBO estimates that those beneficiaries who remain in MA will lose $816
worth of extra benefits they would have otherwise received in 2019
alone.

The statutory authority for one type of Medicare Advantage plan, MA
Special Needs Plans (SNPs), expires at the end of 2013. SNPs were
created in the Medicare Modernization Act of 2003 (P.L. 108-173) with
the goal of better coordinating care for and tailoring benefits to
higher-cost and vulnerable beneficiaries, including dual-eligibles,
those with chronic diseases, and the institutionalized. Approximately
1.5 million beneficiaries are enrolled in SNP plans.

Another type of Medicare health plan, Medicare Cost Plans, are paid
based on the costs of delivering Medicare-covered services, rather than
on a capitated and risk-based basis like MA plans. Congress has
repeatedly delayed enforcing a provision that requires cost plans to
withdraw from areas that have competition from two or more MA plans.
This moratorium expires on January 1, 2013, which would affect the 2014
plan year. There are approximately 400,000 beneficiaries enrolled in
cost plans.

In announcing the hearing, Chairman Herger stated, ``More than one
in four Medicare beneficiaries have chosen to receive their Medicare
benefits through a private Medicare plan. Since 2003, enrollment in the
Medicare Advantage program has tripled, which is a clear indication
that many beneficiaries enjoy the additional benefits that are often
provided by these private health plans. Unfortunately, the Democrats'
health law slashed payments to the Medicare Advantage program by more
than $300 billion over the next 10 years to fund ObamaCare. These cuts
will significantly alter the program and jeopardize seniors' access to
the health plans they rely on. Understanding the successful structure
of the current MA program, and the challenges the program will face
because of the Democrats' health law, is key to ensuring Medicare meets
the needs of seniors now and into the future.''

FOCUS OF THE HEARING:

The hearing will examine the current status of the MA program,
including SNPs and Medicare Cost Plans.

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

Please Note: Any person(s) and/or organization(s) wishing to submit
for the hearing record must follow the appropriate link on the hearing
page of the Committee website and complete the informational forms.
From the Committee homepage, http://waysandmeans.house.gov, select
``Hearings.'' Select the hearing for which you would like to submit,
and click on the link entitled, ``Click here to provide a submission
for the record.'' Once you have followed the online instructions,
submit all requested information. ATTACH your submission as a Word
document, in compliance with the formatting requirements listed below,
by the close of business on Friday, October 5, 2012. Finally, please
note that due to the change in House mail policy, the U.S. Capitol
Police will refuse sealed-package deliveries to all House Office
Buildings. For questions, or if you encounter technical problems,
please call (202) 225-1721 or (202) 225-3625.

FORMATTING REQUIREMENTS:

The Committee relies on electronic submissions for printing the
official hearing record. As always, submissions will be included in the
record according to the discretion of the Committee. The Committee will
not alter the content of your submission, but we reserve the right to
format it according to our guidelines. Any submission provided to the
Committee by a witness, any supplementary materials submitted for the
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written comments must conform to the guidelines listed below. Any
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guidelines will not be printed, but will be maintained in the Committee
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1. All submissions and supplementary materials must be provided in
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attachments. Witnesses and submitters are advised that the Committee
relies 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
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review and use by the Committee.

3. All submissions must include a list of all clients, persons and/
or organizations on whose behalf the witness appears. A supplemental
sheet must accompany each submission listing the name, company,
address, telephone, and fax numbers of each witness.

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.

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

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

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The Honorable Pete Stark Opening Statement

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The Honorable Jim McDermott Opening Statement

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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.

STATEMENT OF JAMES COSGROVE, DIRECTOR, HEALTH CARE, U.S.
GOVERNMENT ACCOUNTABILITY OFFICE

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 prepared statement of Mr. Cosgrove follows:]

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

STATEMENT OF JAMES CAPRETTA, FELLOW, ETHICS AND PUBLIC POLICY
CENTER

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 of 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 gone 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 the 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 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 prepared statement of Mr. Capretta follows:]

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

STATEMENT OF KAREN IGNAGNI, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, AMERICA'S HEALTH INSURANCE PLANS

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 prepared statement of Ms. Ignagni follows:]

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

STATEMENT OF TIM SCHWAB, M.D., CHIEF MEDICAL OFFICER, SCAN
HEALTH PLAN

Mr. 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.
Mr. SCHWAB [continuing]. 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 prepared statement of Mr. Schwab follows:]

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

STATEMENT OF JOHN TALLENT, CHIEF EXECUTIVE OFFICER, MEDICAL
ASSOCIATES CLINIC & HEALTH PLANS

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 prepared statement of Mr. Tallent follows:]

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

STATEMENT OF MARSHA GOLD, SENIOR FELLOW, MATHEMATICA POLICY
RESEARCH

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 prepared statement of Ms. Gold follows:]

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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?
Mr. 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?
Mr. 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?
Mr. 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?
Mr. 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.]
[Submissions for the Record follow:]

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