[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]








                             PRESERVING AND
                        STRENGTHENING MEDICARE

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

                                HEARING

                               before the

                         SUBCOMMITTEE ON HEALTH

                                 of the

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

                    ONE HUNDRED FOURTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 16, 2016

                               __________

                          Serial No. 114-HL06

                               __________

         Printed for the use of the Committee on Ways and Means



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                      COMMITTEE ON WAYS AND MEANS

                      KEVIN BRADY, Texas, Chairman

SAM JOHNSON, Texas                   SANDER M. LEVIN, Michigan
DEVIN NUNES, California              CHARLES B. RANGEL, New York
PATRICK J. TIBERI, Ohio              JIM MCDERMOTT, Washington
DAVID G. REICHERT, Washington        JOHN LEWIS, Georgia
CHARLES W. BOUSTANY, JR., Louisiana  RICHARD E. NEAL, Massachusetts
PETER J. ROSKAM, Illinois            XAVIER BECERRA, California
TOM PRICE, Georgia                   LLOYD DOGGETT, Texas
VERN BUCHANAN, Florida               MIKE THOMPSON, California
ADRIAN SMITH, Nebraska               JOHN B. LARSON, Connecticut
LYNN JENKINS, Kansas                 EARL BLUMENAUER, Oregon
ERIK PAULSEN, Minnesota              RON KIND, Wisconsin
KENNY MARCHANT, Texas                BILL PASCRELL, JR., New Jersey
DIANE BLACK, Tennessee               JOSEPH CROWLEY, New York
TOM REED, New York                   DANNY DAVIS, Illinois
TODD YOUNG, Indiana                  LINDA SANCHEZ, California
MIKE KELLY, Pennsylvania
JIM RENACCI, Ohio
PAT MEEHAN, Pennsylvania
KRISTI NOEM, South Dakota
GEORGE HOLDING, North Carolina
JASON SMITH, Missouri
ROBERT J. DOLD, Illinois
TOM RICE, South Carolina

                     David Stewart, Staff Director

         Janice Mays, Minority Chief Counsel and Staff Director

                                 ______

                         SUBCOMMITTEE ON HEALTH

                   PATRICK J. TIBERI, Ohio, Chairman

SAM JOHNSON, Texas                   JIM MCDERMOTT, Washington
DEVIN NUNES, California              MIKE THOMPSON, California
PETER J. ROSKAM, Illinois            RON KIND, Wisconsin
TOM PRICE, Georgia                   EARL BLUMENAUER, Oregon
VERN BUCHANAN, Florida               BILL PASCRELL, JR., New Jersey
ADRIAN SMITH, Nebraska               DANNY DAVIS, Illinois
LYNN JENKINS, Kansas                 JOHN LEWIS, Georgia
KENNY MARCHANT, Texas
DIANE BLACK, Tennessee
ERIK PAULSEN, Minnesota






















                            C O N T E N T S

                               __________

                                                                   Page

Advisory of March 16, 2016 announcing the hearing................     2

                               WITNESSES

Katherine Baicker, Ph.D., Chair and C. Boyden Gray Professor of 
  Health Economics, Department of Health Policy and Management, 
  Harvard T.H. Chan School of Public Health......................     6
Stuart Guterman, Senior Scholar in Residence, AcademyHealth......    25
Robert E. Moffit, Ph.D., Senior Fellow, Institute for Family, 
  Community, and Opportunity, The Heritage Foundation............    15

                        QUESTIONS FOR THE RECORD

Questions from Representative Black of Tennessee and 
  Representative Price of Georgia to Katherine Baicker...........    74
Questions from Representative Black of Tennessee to Stuart 
  Guterman.......................................................    76
Questions from Representative Black of Tennessee and 
  Representative Price of Georgia to Robert E. Moffit............    80

                       SUBMISSIONS FOR THE RECORD

AARP.............................................................    86
AFSCME...........................................................    89
Alliance for Retired Americans...................................    98
CarePayment......................................................   103
Gundersen Health System..........................................   105
Healthcare Leadership Council....................................   110
Leadership Council of Aging Organizations........................   117
National Association of Chain Drug Stores........................   125
National Committee to Preserve Social Security and Medicare......   131

 
                             PRESERVING AND
                         STRENGTHENING MEDICARE

                              ----------                              


                       WEDNESDAY, MARCH 16, 2016

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

    The Subcommittee met, pursuant to notice, at 10:02 a.m., in 
Room 1100, Longworth House Office Building, Hon. Pat Tiberi 
[Chairman of the Subcommittee] presiding.
    [The advisory announcing the hearing follows:]

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                         SUBCOMMITTEE ON HEALTH

                                                CONTACT: (202) 225-3943
FOR IMMEDIATE RELEASE
Wednesday, March 9, 2016
No. HL-06

             Chairman Tiberi Announces Health Subcommittee

                Hearing on Preserving and Strengthening

                                Medicare

    House Ways and Means Health Subcommittee Chairman Pat Tiberi (R-OH) 
today announced that the Subcommittee will hold a hearing on 
``Preserving and Strengthening Medicare.'' The hearing will take place 
Wednesday, March 16, 2016, in Room 1100 of the Longworth House Office 
Building, beginning at 10:00 a.m.
      
    Oral testimony at this hearing will be from the invited witnesses 
only. However, any individual or organization may submit a written 
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printed record of the hearing.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
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on Wednesday, March 30, 2016. For questions, or if you encounter 
technical problems, please call (202) 225-3943 or (202) 225-3625.
      

FORMATTING REQUIREMENTS:

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

                                 

    Chairman TIBERI. Good morning. This Subcommittee will come 
to order. Welcome to the Ways and Means Subcommittee on Health 
hearing on preserving and strengthening the Medicare program. 
This is my first hearing as the Chairman of the Health 
Subcommittee, and I would like to say thanks to this Committee, 
this Subcommittee, for giving me the opportunity for a good 
discussion today and in the future about health care.
    And I would like to welcome also to the Committee new 
Members of the Subcommittee: Mr. Paulsen of the great State of 
Minnesota and Mr. Lewis of the great State of Georgia. It is 
great joining you two, as well. And I am sure, knowing both of 
them, they will be valuable additions to our Subcommittee.
    Another year and another round of seniors have become 
Medicare-eligible, navigating through a difficult program at 
times. Instead of more choices today for those beneficiaries, 
this year there are fewer choices. Obamacare's raid on the 
program and the increased regulatory burden on providers piled 
on to the outdated structure of traditional Medicare benefit is 
causing today's seniors to be inundated with an array of 
confusing deductibles, coinsurance, co-payments with no 
protection from high healthcare costs unless they enroll in a 
private plan. I experienced that with my mom and dad on 
Medicare during a long Thanksgiving weekend, going through a 
number of different things that were mind-boggling.
    Despite major improvements and innovations in the 
healthcare sector that have transformed how care is delivered, 
traditional Medicare has barreled through the last 50 years on 
the same trajectory of increased costs and little innovation. 
And now we see in the Obamacare exchanges the same kind of 
bureaucratic nonsense that is driving up costs for 
beneficiaries, while disincentivizing personalized care: plans 
have one-size-fits-all requirements directed from Washington 
bureaucrats, not from patients or providers.
    Yet while the Administration continues to struggle to 
implement Obamacare by setting government standards for 
benefits and care, this Committee will begin the long look at 
how to make sure the patient is at the center of healthcare 
decisions. That begins with long-overdue reforms to the 
outdated Medicare benefit.
    It is time to continue those efforts sustained by the 
Bipartisan Policy Center and other bipartisan partnerships like 
Bowles-Simpson and Thomas-Breaux, to bring true entitlement 
reform to traditional Medicare. Their research, modeling, and 
their work over the years to advance long-overdue reform has 
been critical.
    Updating the Medicare benefit design will bring the program 
into the 21st Century and meet the needs of current and future 
seniors. These reforms would bring the traditional Fee-for-
Service benefit up to the standards that 17 million people, 
nearly 32 percent of enrolled seniors, are currently enjoying 
under the Medicare Advantage program. MA plans offer high 
quality, coordinated care for our seniors. These plans also 
provide stability: largely stable co-payments; financial 
protections provided by maximum out-of-pocket limits; and 
strong incentives under their benefit structures to encourage 
seniors to receive the most high-value, efficient care 
possible.
    Of course, Medicare Advantage isn't perfect. But its 
popularity and market-based roots serve as an excellent example 
for needed entitlement reform. For the MA programs to be the 
bridge to the entitlement reform we need, we also need to 
unshackle the program further. We should repeal such onerous 
Obamacare policies such as the cap on benchmarks and expand 
ideas like value-based insurance design throughout the entire 
MA program.
    While we are encouraged by the growth in seniors choosing 
innovative value-based care through Medicare Advantage, we 
remain concerned about the viability of the overall Medicare 
program. Congress must come together, Democrats and 
Republicans, to find commonsense policies that will ensure the 
solvency of the program, like combining the deductibles under 
Part A and Part B of Medicare, and empowering seniors and 
providers with choice.
    This will likely mean some hard choices, some education, 
and certainly lots of compromise. The status quo in Medicare is 
a fiscal fantasy, and we need to act sooner, rather than later, 
to ensure the program is around for future generations. I hope 
that this hearing can kick off a robust discussion on what 
policies we can get done to provide for the future of the 
Medicare program, as well as what past policies stand to go as 
they are hampering our goals to get to high-valued, coordinated 
health care for all seniors and future seniors, like me.
    So, with that, I would like to recognize the gentleman from 
the great northwestern State of Washington, the distinguished 
Ranking Member, Dr. McDermott.
    Mr. MCDERMOTT. Wow.
    [Laughter.]
    Chairman TIBERI. We are bipartisan.
    Mr. MCDERMOTT. Well, in that spirit, I want to indicate 
that one Member of the Committee is inching toward being on 
Medicare. This is Mr. Kind's birthday.
    Chairman TIBERI. This is your birthday song.
    [Laughter.]
    Mr. KIND. Thank you. Thanks, Doc. I feel good.
    Mr. MCDERMOTT. Keep feeling good. I must start with an 
apology. I have to leave this hearing after I make my opening 
statement, because in the wisdom of the leadership of this 
House, they had two hearings congruently meeting: this 
Committee, which is supposed to be preparing and preserving--
preserving and strengthening Medicare; and the Budget 
Committee, which is about to write a budget to unwind Medicare 
as we know it. At the very same time.
    I am going to go up there. That is more important, because 
that may actually happen. This Committee has met on this issue 
many times before. This is the first committee hearing we have 
had since November of last year. So you know the Health 
Subcommittee doesn't really amount to very much in the 
leadership's mind.
    And having this hearing again is like running over the same 
thing. The core proposal the Republicans have offered to end 
Medicare as we know it will have devastating effects on 
seniors, and that is what they are doing up in the Budget 
Committee. They will shift costs onto beneficiaries, create 
more losers than winners, and lead to a death spiral to the 
traditional Medicare program, if it would ever be enacted.
    Now, we all know this. We have been through it again and 
again. It has been rejected over and over again. But we have to 
have another hearing here today on it. We will hear the same 
tired arguments, but the people know the truth: Republican 
proposals fail spectacularly to meet the needs of seniors. And 
by putting forward these terrible ideas that they are going to 
put on that budget up there, the Majority is showing how out of 
step they are with the American people. It is no surprise, I 
guess, that the results last night are that Mr. Trump, I guess, 
is going to be the nominee, because everybody is angry. They 
are angry at government for not responding to the issues.
    Now, when the American people wanted a defined benefit--
when you are old, what you want is to know what you have. That 
is how your mind operates. I can tell you, it works. That 
provides peace of mind and health security to beneficiaries. My 
colleagues want to give a radical voucher program--give a piece 
of paper to somebody and say, ``Go find an insurance company 
that will take care of you and whatever you need,'' not a 
defined benefit where you know you are going to get it, and--
no, you are going to go out there and find out if the insurance 
company will do it.
    Now, the American people want a stronger benefit, one with 
limited out-of-pocket costs and access to dental and vision. 
And now hearing coverage. As people live longer, we are going 
to have more and more problems financing the hearing problems 
that people have. But instead, what we get are cuts in 
benefits. When the American people want to preserve coverage, 
they want to raise the eligibility age. Make it go up to 72 or 
maybe 80 is when we ought to start Medicare. That is probably 
the right time. We could save a lot of money that way.
    If we are serious about making sure the American Medicare 
program remains on a strong financial footing, we should be 
looking for ways to cut the waste and greed and inefficiency in 
the system, not shifting the cost on to beneficiaries, which is 
what is happening today.
    Prescription drug prices are out of control and the 
pharmaceutical industry is reaping the benefits. Medicare spent 
$120 billion on prescription drugs last year. It has been 13 
years, 13 years since the Congress sold out to the drug 
companies by creating Part D and tying the social and health 
service secretary's ability to negotiate prices. Seniors pay 50 
percent more than veterans in this country because the veterans 
can negotiate prices but Medicare--50 million Americans can't 
negotiate prices. And we haven't had a single hearing in 
Congress since that 13-year-ago decision. I have been here on 
this Committee through that whole period of time, and there is 
nothing.
    We continue to overpay the insurance industry through the 
Medicare Advantage program. Although ACA reduced these 
overpayments by $156 billion, we have a lot of work to do to 
crack down on widespread upcoding and cherry-picking of 
beneficiaries. And this Committee still has put no effort into 
scrutinizing the recent insurance industry consolidation, which 
is unprecedented in scale and threatens to eliminate 
competition in the Medicare Advantage program.
    So, there is a whole series of things we ought to be 
looking at. And I have sent letters to the Chairman--not Mr. 
Tiberi, but his predecessor--but nobody wants to have hearings 
and expose what is going on. Instead, we have these kind of 
show hearings, and I am sorry, Mr. Chairman, I have to go 
upstairs.
    Chairman TIBERI. Oh, no worries on my part.
    Mr. MCDERMOTT. And stop you from succeeding.
    [Laughter.]
    Chairman TIBERI. Should we warn Dr. Price that you are 
coming up?
    Mr. MCDERMOTT. You should tell him I am on my way.
    Chairman TIBERI. Without objection, other Members' opening 
statements will be made part of the record.
    Today's witness panel includes three expert witnesses. 
Thank you all for being here today.
    First, Katherine Baicker, the C. Boyden Gray Professor of 
Health Economics, and Chair of the Department of Health Policy 
and Management at Harvard University's T.H. Chan School of 
Public Health is with us.
    Next, we will hear from Bob Moffit, a Senior Fellow at the 
Heritage Foundation.
    And finally, we will hear from Stuart Guterman, a Senior 
Scholar in Residence at AcademyHealth. I think we have had you 
up here before, Mr. Guterman, so welcome back.
    With that, each of you will have 5 minutes, and we will 
begin.
    Ladies first, Ms. Baicker.

       STATEMENT OF KATHERINE BAICKER, PH.D., CHAIR AND 
         C. BOYDEN GRAY PROFESSOR OF HEALTH ECONOMICS, 
          DEPARTMENT OF HEALTH POLICY AND MANAGEMENT, 
           HARVARD T.H. CHAN SCHOOL OF PUBLIC HEALTH

    Ms. BAICKER. Thank you so much for the opportunity to talk 
with you about what I think is a crucial issue for the Medicare 
program. Medicare has provided invaluable benefits to 
beneficiaries for 50 years now, in terms of financial 
protection, access to valuable care. And we all, I think, share 
the goal of ensuring that that protection is available for 
decades to come.
    The right care to the right patient at the right time is 
what I think of as high-value care. It needs to be high 
quality, it needs to be affordable to beneficiaries, it needs 
to be affordable to the system. And high-value insurance is 
designed to provide that kind of high-quality care to 
beneficiaries at a price that the whole system can afford. I 
believe a thriving Medicare Advantage program can be a crucial 
component in driving higher-quality care at a more affordable 
price.
    And I think there are three ways that the Medicare 
Advantage program can do this. The first is managing the 
quantity of care the beneficiaries get. There is a lot of 
evidence that there is care delivered to beneficiaries that is, 
at best, minimally helpful to their health and, at worst, 
actually harms their health. And reforming the Fee-for-Service 
program to try to reduce that wasteful care that is not helping 
anyone and costing the system billions of dollars, that needs 
to be an ongoing effort.
    But there is some evidence that Medicare Advantage plans 
are doing a better job at shepherding resources by steering 
beneficiaries to lower-cost, higher-quality sites of care 
without any harm to the quality or health outcomes. And that 
quality is a crucial component of what I think of as high-value 
care. I think sometimes we hear high value, and we just think 
costs less. And that is no one's goal. The goal is not to spend 
less on Medicare. The goal is to spend less on stuff that is 
not helping people, and spend more on things that actually 
improve health.
    The evidence on quality, in my view, is a little more mixed 
than the evidence on quantity of care. But there are hopeful 
signs that the Medicare Advantage program is improving on a 
number of quality measures and provides higher quality than a 
lot of counterpart Fee-for-Service beneficiaries receive in 
that program.
    If you look at the quality of care that Fee-for-Service 
beneficiaries get in the parts of the country where we spend 
the most on Medicare Fee-for-Service, that quality is much 
lower in those high-spending areas than it is in low-spending 
areas. That doesn't mean that the Fee-for-Service providers are 
spending money to harm patients. It means that there is a lack 
of coordination and a lack of management of that patient's care 
that both results in higher spending and results in lower 
quality, things falling through the cracks. And the Medicare 
Advantage program aims to provide incentives to provide higher-
quality care by better managing.
    The last one I want to hit on is something mentioned by Mr. 
McDermott, which is the financial protection provided to 
beneficiaries. Medicare is not just to get people access to 
care; it is supposed to provide financial protections, so that 
seniors and their families aren't bankrupted when a really 
expensive health condition arises. And Medicare has done a 
moderate job of doing that, but the basic Medicare program 
benefit does not provide nearly the financial protection that 
we would like it to.
    Beneficiaries are exposed to unlimited out-of-pocket costs 
in the basic Medicare benefit, which is why more than 90 
percent of them have some additional coverage through MediGap, 
through an employer plan, or through Medicare Advantage. And 
MediGap plans are not affordable to all beneficiaries. Medicare 
Advantage attracts beneficiaries in part by providing them 
those financial protections.
    So I think there is enormous possibility in the Medicare 
Advantage program to improve quality and keep plans affordable, 
but there are some foundational elements of the program that 
require constant attention that I think reforms would help 
facilitate.
    We need good risk adjustors, so that plans have an 
incentive to enroll sick enrollees and quality measures 
accurately reflect the quality of care delivered to 
beneficiaries, so good risk adjustment methods are the 
foundation of all bidding and price adjustment in the Medicare 
Advantage system.
    We need better quality information, both for beneficiaries 
and to underpin incentives for proprietors to deliver high-
quality care. No one wants stinting on care in these programs, 
and quality measures help guard against that.
    Beneficiaries need to have incentives to choose the highest 
value plans, too. And this means Medicare Advantage programs 
competing on equal footing with other options that are 
available. And I think beneficiaries are going to continue to 
choose those plans because of the more comprehensive benefit 
that they offer, the higher quality care, the better 
coordinated care. Let them compete for enrollees, but let 
enrollees share in the benefits if they choose a higher-value 
plan. That benefits them and it benefits the taxpayers.
    The Medicare program is crucial for beneficiaries, there is 
no doubt about that. But it is posing an increasingly difficult 
burden on Federal budgets. We can't afford the program as it is 
in 20 or 30 years. My hope is that a thriving Medicare 
Advantage program will help drive higher-quality care, while 
keeping the program affordable both for seniors and for the 
system, so that it will be here for decades to come. Thank you.
    [The prepared statement of Ms. Baicker follows:]
    
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    Chairman TIBERI. Thank you, Dr. Baicker.
    Mr. Moffit, you are recognized for 5 minutes.

STATEMENT OF ROBERT E. MOFFIT, PH.D., SENIOR FELLOW, INSTITUTE 
FOR FAMILY, COMMUNITY, AND OPPORTUNITY, THE HERITAGE FOUNDATION

    Mr. MOFFIT. Thank you very much. Chairman Tiberi, 
distinguished Members of the Subcommittee, ladies and 
gentlemen, my name is Robert Moffit. I am a senior fellow at 
the Center for Health Policy Studies at the Heritage 
Foundation. And I want to say it is really an honor and a 
privilege to have the opportunity, the rare opportunity, to 
address the House Ways and Means Subcommittee on Health, the 
most powerful Committee in Congress, and one that has such a 
great influence on the course of American life.
    Rest assured, I am testifying today solely in my own 
capacity. Nothing I say here today will represent the views of 
the Heritage Foundation or its management or its board of 
trustees.
    Mr. Chairman, the Congressional Budget Office recently 
issued a rather somber warning about the state of America's 
fiscal health. It is impossible, of course, to tackle the 
growing fiscal problems of the Nation without addressing 
Federal entitlement spending, including Medicare. Of all the 
Federal entitlements, Medicare represents the greatest single 
challenge.
    Looking ahead, the Congressional Budget Office says that, 
in particular, revenues are going to be--remain steady as a 
percentage of GDP over the coming decade. But then the CBO 
says--and I quote--the aging of the population and the rising 
costs of health care are projected to substantially boost 
Federal spending on Social Security and the government's major 
health programs over the next 10 years and beyond.
    We are facing, in other words, serious deficits. We are 
back to trillion-dollar deficits, and we are looking at major 
increases in our debt. The policy challenge is very difficult, 
but it is not impossible. Congress and the Administration need 
to balance the burdens yet to be imposed on the taxpayer with 
the needs of growing millions of enrollees who depend upon 
Medicare. And to accomplish this objective, policymakers should 
undertake specific structural changes to alleviate the 
taxpayers' fiscal burdens, while ensuring the financial 
security and improving the medical care of millions of seniors.
    In other words, in short, the job--as Kate Baicker has just 
said, the job is to get better value for the ever-larger 
expenditure of Medicare dollars.
    This morning I am going to suggest that Congress reconsider 
structural changes to the Medicare program, specifically the 
simplification of the existing traditional Medicare program. 
And the best way to do that is to combine Medicare Part A and 
Part B, expand the existing policy of limiting taxpayer 
subsidies to the wealthiest classes of American citizens, and 
to gradually raise the normal retirement age of eligibility for 
Medicare enrollment.
    I am also going to suggest that Congress consider expanding 
the defined contribution of financing, which right now governs 
the provision of prescription drugs and comprehensive coverage 
and Medicare Advantage to the rest of the Medicare program. 
Now, these are very broad policy proposals, and I hasten to add 
they can be achieved in different ways. And the fiscal impact 
of these proposals would vary, of course, depending upon such 
details as the age of eligibility, risk adjustment, or payment 
formulas, or various modifications in the ways in which these 
proposals would be implemented.
    I want to make one other point. Mr. McDermott made this 
point, but I think it is important. None of these proposals are 
novel. They have all been offered before in other contexts. But 
they all have one thing in common. At different times, under 
different circumstances, these proposals have generated genuine 
bipartisan support. Congress could and should pursue a generous 
bipartisan support.
    With regard to the specifics, I think in simplifying 
Medicare, you can start to reduce Medicare's complexity by 
combining, as I say, Medicare Part A and Part B into a single 
plan, but then add catastrophic coverage. Catastrophic coverage 
is the greatest single need for senior citizens. And at the 
same time, simplify uniformity. Simplify the deductible and the 
coinsurance system.
    If you are going to add catastrophic coverage, you should 
also reform the MediGap program to make the catastrophic 
coverage feature of your change work well. Right now, under the 
existing MediGap system, we have excessive spending, which 
actually increases the premiums for senior citizens in Medicare 
Part B.
    With regard to the future of Medicare, my own view is that 
the defined contribution programs in both Medicare Part C and 
Medicare Part D have actually been very successful in providing 
a wide variety of healthcare benefits to senior citizens at 
reasonable cost. This performance that we have had so far 
offers tremendous opportunity, I think in the future, to 
improve both the quality of care for senior citizens and, at 
the same time, do it in a fashion which will be fiscally 
responsible.
    Thank you very much, Mr. Chairman.
    That concludes my remarks.
    [The prepared statement of Mr. Moffit follows:]
    
   [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] 
    
    
      

                                 
    Chairman TIBERI. Thank you, Mr. Moffit.
    Mr. Guterman, you may proceed. You have 5 minutes.

                 STATEMENT OF STUART GUTERMAN, 
           SENIOR SCHOLAR IN RESIDENCE, ACADEMYHEALTH

    Mr. GUTERMAN. Thank you, Chairman Tiberi and Ranking Member 
McDermott, and the Members of the Subcommittee, for this 
opportunity to testify on preserving and strengthening Medicare 
as it enters its second 50 years. I have been working on 
Medicare issues for many years, and I have seen and had the 
privilege of participating in many of the innovative changes 
that the program, in fact, has implemented over the years. And 
I am also well aware of the challenges faced by the program.
    Also, I have seen my elderly parents and the way they have 
been helped by Medicare's coverage and access to care it 
provides, and also how they have been hindered by the 
fragmented nature of health care provided in this country.
    Medicare has been a tremendous success over the years in 
ensuring health and economic security of the Nation's elderly 
and disabled, and it has been influential in shaping the U.S. 
health system, improving the quality of care, and contributing 
to medical progress. At the same time, like the rest of our 
healthcare system, Medicare faces considerable challenges. 
Rising costs affecting both the Federal budget and 
beneficiaries are an ongoing challenge. Medicare's benefit 
package, while rated highly by beneficiaries for enabling their 
access to care and protection from financial hardship and 
medical debts, can provide better financial protection for 
beneficiaries with low income and serious health problems.
    It is imperative we continue to improve the program and 
ensure its viability into the future. But, at the same time, we 
must be careful not to throw the beneficiary out with the bath 
water, not to hinder its effectiveness in carrying out its 
basic mission of providing access to needed health care for a 
vulnerable and growing number of aging and disabled Americans.
    In my written testimony I describe some of the issues 
Medicare faces, and offer some suggestions for improving its 
performance. And I will focus briefly on some of those 
suggestions.
    First, of course, slowing health spending growth is a 
problem that, again, is felt both in the public programs and in 
the private sector. In fact, Medicare spending per beneficiary 
has grown much more slowly in recent years, compared--even 
compared to the private sector. And solvency of the Hospital 
Insurance Trust Fund has been extended until 2030. But it is 
still an issue.
    Medicare faces a great challenge as the Boomer generation 
born after World War II ages into coverage. By 2030 the number 
of beneficiaries is projected to rise more than 50 percent. But 
that raises the question of if America has made a decision to 
produce more elderly people, which I think we have--and I don't 
see anybody objecting to that decision--shouldn't we be willing 
to accept and deal with devoting more resources to that higher 
proportion of the population?
    Still, policymakers are confronted, especially with the 
slow growth in per-beneficiary spending, on how to control the 
growth of Medicare spending. But I do suggest that there is 
also a revenue side that, as has been mentioned, is projected 
not to increase over the years, even as the proportion of 
Medicare beneficiaries grows.
    Again, the fact that Americans are living longer should be 
considered a success. Other countries have older populations 
than ours, and manage to spend much less on health care than we 
do.
    We need to, as Dr. Baicker said, reduce variation in cost 
and quality. I think the fact that that variation exists and 
the fact that cost and quality don't vary together provides us 
with an indication that there is an opportunity to improve 
quality without necessarily increasing costs. And, in fact, 
maybe even saving money.
    As Dr. Moffit has suggested, aligning benefit design with 
system goals would also be a desirable policy initiative. We 
have--with colleagues from the Commonwealth Fund, where I used 
to work, we published a paper that calls for combining not only 
Parts A and B, but also Part D into a comprehensive Medicare 
benefit with catastrophic coverage. And one other attractive 
feature of that is that it makes the Medicare program operate 
more on an equal footing with the private plans in Medicare 
Advantage by providing more comprehensive coverage.
    We need to focus on improving care for beneficiaries with 
complex conditions. The Medicare program has engaged in a 
number of initiatives in that direction. And it needs to do 
more. And there is potential for a fair amount of monetary 
savings, if care for that population is improved, because they 
account for a high proportion of spending in the Medicare 
program.
    Long-term services and supports is something that really 
scares me about growing old. That is something that Medicare 
currently doesn't cover, but it is something I would suggest 
needs to be paid attention to, as the tsunami of aging Baby 
Boomers starts to hit.
    And finally, balancing the roles of traditional Medicare 
and Medicare Advantage to bring out the best in both programs, 
and benefit the Medicare program in general. What is now the 
Medicare Advantage program was intended to provide a more 
efficient model of care for beneficiaries and greater choice.
    But remember that Medicare Advantage plan payments overall 
still exceed traditional Medicare spending in much of the 
country, and that relationship varies not only by geographic 
area, but also by type of plan. HMOs currently are the only 
type of MA plan with, on average, lower cost than traditional 
Medicare, and there is even wide variation in both efficiency 
and quality among--of individual plans, even in that group.
    So, when we talk about Medicare Advantage, we shouldn't 
talk about it as one program, like the traditional Medicare 
program is. We should talk about it in terms of rewarding the 
best and most efficient and most effective----
    Chairman TIBERI. Thank you.
    Mr. GUTERMAN [continuing]. Private plan, so that they can--
--
    Chairman TIBERI. Thank you, Mr. Guterman.
    Mr. GUTERMAN [continuing]. Provide an appropriate 
counterpoint.
    [The prepared statement of Mr. Guterman follows:]
    
    
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                 
    Chairman TIBERI. Thank you.
    Mr. GUTERMAN. Thank you.
    Chairman TIBERI. You are 1 minute over. I gave you a little 
bit more time.
    Thank you all for your really good testimony. I am going to 
start the questioning off with Dr. Baicker. In my district in 
central Ohio there is a wildly popular Medicare Advantage plan 
run by a Catholic non-profit, and they just get rave reviews. 
And, as you know, Obamacare instituted nearly $150 billion in 
specific cuts to the Medicare Advantage program. Even more than 
that if you account for interactions with the cuts to Medicare, 
as a whole.
    So, as an expert in MA plans, I would be quite interested 
in your opinion on what are the most egregious ongoing policies 
that we, as Congress, in a bipartisan way, can prioritize? 
Things that need to be repealed immediately. Where should we 
focus as a Committee and as a Congress to help?
    Ms. BAICKER. Thank you for that question. I hope that 
doesn't mean you have to be somewhere.
    Chairman TIBERI. No, you are good.
    [Laughter.]
    Ms. BAICKER. Preserving the option for beneficiaries to be 
able to enroll in innovative MA plans is of crucial importance. 
And we have seen innovation in the MA benefits along multiple 
dimensions.
    So I talked a little bit about the financial protection 
that the plans can provide. They also strive to provide better 
choices about sites of care and modes of care. So experimenting 
with tele-medicine, with including the hospice benefit, with 
freeing them up to do value-based insurance design I think 
would be crucial to unleashing the full potential of those 
plans to really advantage the seniors who enroll in them. And 
that is part of why they choose those plans, I think, they can 
get more effective care in the place where they want to get it, 
and get home more quickly.
    And we have seen better experimentation in MA plans with 
getting people out of the hospital and home and healthier 
faster. So freeing up that flexibility that they have, I would 
think, would be of first-order importance. Ensuring that 
quality information is available to the beneficiaries, but then 
plans are rewarded appropriately for providing high-quality 
care.
    I would like to see a cap on quality bonuses removed. I 
think going along with that would be the removal of the double 
bonus for quality, so that you are appropriately rewarding 
plans for delivering the high-quality care that beneficiaries 
are seeking out.
    I would agree that at the same time that that happens it 
would be very good to reform the basic Medicare benefit to 
provide the kind of financial protection that we think Medicare 
beneficiaries are entitled to and are seeking out in MA. And 
also combining the deductibles along the lines that Mr. Moffit 
described I think would improve that benefit, too.
    Chairman TIBERI. Great, thank you.
    Dr. Moffit, a question for you that pertains to protecting 
beneficiaries in the Medicare program. As mentioned, there is 
no out-of-pocket cap in traditional Medicare, yet the MA 
program is required to offer that type of protection to 
beneficiaries. A central feature of the bipartisan options to 
combine Medicare Parts A and B, as has been mentioned, includes 
that necessary protection.
    Based on the feature alone, it seems like a policy that is 
a no-brainer. Do you see any reason why we should hesitate? 
What are the pitfalls, if we go forward? Are there any? And 
should we begin that process?
    Mr. MOFFIT. Mr. Chairman, I was here in 1988, when we had 
the first major debate on adding a catastrophic provision to 
the Medicare program, the Medicare Catastrophic Coverage Act of 
1988. It was repealed 1 year later. I know exactly what 
happened then. I was there.
    What happened was that Congress took President Reagan's 
proposal, which was a very reasonable proposal to protect 
senior citizens against the financial devastation of 
catastrophic illness, and added a whole series of benefits on 
top of it, and imposed on seniors, basically, requirements to 
pay for many benefits they already had--a prescription drug 
benefit.
    The result was, at that time, a massive revolt among senior 
citizens. And within 1 year, that law was repealed. And 
unfortunately, it was repealed because of overreach. That is 
why that happened. It is something that is seared on my memory. 
I was congressional relations director for the Department of 
Health and Human Services.
    It is a no-brainer. It is absolutely a no-brainer for us to 
have a catastrophic piece in Medicare. There is no reason why 
traditional Medicare should not have a catastrophic coverage 
piece. The reason why senior citizens buy MediGap coverage--9 
out of 10 of them do--which ends up with first-dollar coverage, 
is precisely because they do not have protection from the most 
important thing that health insurance should deliver, which is 
that ultimate protection.
    The result of all that has been that the MediGap good plans 
in many respects, they provide first-dollar coverage. And as 
virtually every independent analyst including the Medicare 
Payment Advisory Committee has pointed out, this has resulted 
in an excessive utilization of the benefit. That is to say that 
you end up driving costs up. The costs that are being driven up 
by the overutilization of the benefit because of the MediGap 
arrangement we have today raises Part B premiums.
    I think what we have to do is we have to establish a 
catastrophic protection in Medicare, but at the same time we 
must deal directly with this problem of the existing MediGap 
arrangement which, in fact, is raising costs not only for the 
taxpayer, but also for senior citizens.
    I am not going to say it is simple to do it. I mean it is 
going to require some difficult, but not impossible, decisions. 
And this particular proposal, by the way, the idea of combining 
A and B and adding catastrophic coverage and simplifying the 
coinsurance and creating a single deductible has almost always 
been accompanied by MediGap reform. Basically, limiting the 
first-dollar coverage that MediGap plans can cover for senior 
citizens, so that we don't have an excessive utilization of 
Medicare Part B services.
    Chairman TIBERI. Thank you. I am going to turn to Mr. 
Thompson. But before I do that, you were all nodding, I think, 
yes when he talked about MediGap reform. All agree? Okay, 
interesting. Maybe we can all agree up here, too.
    Mr. Thompson, you are recognized for 5 minutes.
    Mr. THOMPSON. Thank you, Mr. Chairman, and thank you to the 
witnesses for being here.
    I want to make a couple remarks about Medicare, because I 
think they were missed in the opening comments from everyone 
who has spoken.
    I think it is important to note that spending growth has 
been cut nearly in half over the past 6 years, in regard to 
Medicare. And that is at the same time that our aging 
population is growing.
    And also I think it is important to note that the Hospital 
Trust Fund is solvent, and the projections show that it is 
solvent through the year 2030.
    And then probably as important and, for those of us who go 
home to our district every weekend probably more important, 
seniors really like it. It is an important program.
    And I think Mr. Moffit said it, that there is nothing being 
proposed here today that is a novel idea. And I think Mr. 
McDermott said it a little differently. He said it is a rehash 
of a bunch of stuff that we have heard time and time again. And 
I agree with both of you.
    I really think that there is an opportunity to drill down 
and figure out how we can enhance a program that seniors really 
like, and make sure that it does everything that we would all 
like it to do. And Ms. Baicker stated that, in addition to good 
health care, it is the idea of financial wellbeing for the 
beneficiaries and their families, and that is the important 
distinction. Families are very much a part of this.
    So I wish that, instead of doing the not-novel stuff, or 
the rehash of old stuff, we were looking at some things that 
would really accomplish what all three of you are nodding in 
agreement with, what I am talking about.
    I would like to see us talk about expansion of tele-health. 
And there are a couple of us on the Committee--I have a bill, 
myself--there are a couple of us who have been working on 
expansion of tele-health. And it is beneficial in more than 
just underserved or rural areas. It is good public policy that 
we could use to really improve the Medicare program that we all 
say we support. And it works, it saves lives, and it saves 
money, and it is, in fact, bipartisan.
    Also, I think we ought to look at mental health services in 
Medicare, especially if we are talking about the wellbeing of 
the beneficiary and the beneficiary's family. Seniors should be 
able to see marriage and family therapists. It would really 
enhance the program, and would really help considerably.
    So, as we address the Medicare issues, the one thing that 
we can't do, I believe, is make it more difficult for seniors, 
less services for seniors, or more expensive for seniors. And I 
am worried that some of the issues we are talking about are 
going down that road. And I think that that is inappropriate.
    And I would like to ask Mr. Guterman a question. If we were 
to put in place all of these reforms or changes that we are 
talking about, who would the winners and who would the losers 
be?
    Mr. GUTERMAN. Well, it depends on the specific change. But 
the programs that I suggested in my testimony, the changes in 
the Medicare program, would overwhelmingly help seniors who are 
in poor health and who need the Medicare program more to 
provide access to the care they need. Holes in the program were 
left primarily for budgetary considerations. And so they would 
help the population that needs the Medicare program most.
    Mr. THOMPSON. Are there adequate protections in the private 
market for Medicare beneficiaries?
    Mr. GUTERMAN. By the private market you mean Medicare 
Advantage? Congress did require Medicare Advantage plans to put 
in a catastrophic coverage limit. And so----
    Mr. THOMPSON. But if we were to do the voucher, for 
instance, where folks would have to go out into the private 
market to obtain their coverage----
    Mr. GUTERMAN. Well----
    Mr. THOMPSON [continuing]. Are those protections----
    Mr. GUTERMAN. I have to point out that in 1965, when 
Medicare was first enacted, one of the reasons that it was 
enacted was the fact that 50 percent of Americans over the age 
of 65 lacked health insurance coverage. You know, so there has 
to be a little bit of skepticism about what the private health 
insurance market would do----
    Mr. THOMPSON. So how would sicker patients fare if we were 
to do this?
    Mr. GUTERMAN. How would----
    Mr. THOMPSON. How would sicker patients fare?
    Mr. GUTERMAN. Sicker patients fare. Well, you know----
    Mr. THOMPSON. And what would it do to the risk pool?
    Mr. GUTERMAN [continuing]. Sicker patients are the ones 
that are least attractive to private health insurance 
companies. And there has been, over the years, some concern 
about private plans in what is now Medicare Advantage tending 
to sign up healthier patients.
    Mr. THOMPSON. Thank you.
    Chairman TIBERI. The gentleman's time has expired. I would 
point out that Medicare Advantage is private plans and, in my 
district, wildly popular.
    Mr. Thompson, one point, just for clarification, I don't 
know if you have seen it, but the CBO report from January has 
2026 as the new date for Medicare Part A. I think the number 
that you were using was the older number from last year from 
the trustee. So just a point for the record.
    Mr. Johnson is recognized for 5 minutes.
    Mr. JOHNSON. Thank you, Mr. Chairman. You know, Dr. Moffit, 
as this Committee works to ensure continued solvency of 
Medicare, I think it is important to mention one of the most 
anti-competitive policies in Medicare. Under Obamacare, new 
physician-owned hospitals are banned from Medicare and 
Medicaid, and those grandfathered in are prohibited from 
expanding.
    Despite critics' claims, studies have found that physician-
owned hospitals do not decrease self-referrals and services 
[sic]. The truth is that hospital consolidations are driving up 
the cost. And that is happening without increased services or 
better care. Even the Federal Trade Commission has recognized 
the critical role private-owned hospitals play in promoting 
competition, reducing costs, and increasing quality. Yet this 
anti-competitive policy remains in place, and that is just 
wrong. Medicare beneficiaries deserve better.
    Dr. Moffit, can you describe to the Committee the 
importance of competition for reducing healthcare costs and 
increasing quality, specifically within the hospital industry?
    Mr. MOFFIT. Well, Mr. Johnson, when you raised the point 
about competition, yes, all of the evidence that we have 
indicates--and I am talking about evidence from Medicare Part 
D; the Federal Employee Health Benefits program, which has been 
the longest defined contribution system that we have been 
dealing with; and Medicare Part D, in particular. All of these 
examples of head-to-head competition show that you can actually 
control costs not only in the short term, but over the long 
term.
    With regard to the specialty hospital issue, my colleagues 
at the Heritage Foundation have not dealt with this issue since 
2010, when Congress passed the restrictions on Medicare and 
prevented the expansion of the specialty hospitals and the 
physician-owned hospitals. But we did do a literature review 
prior to that time, and I will be very happy to share it with 
the Committee.
    We had a health policy fellow, Dr. Asha Roy from MIT, who 
is a physician, to examine what the literature at that time was 
with regard to the performance of specialty hospitals. And Dr. 
Roy showed that the specialty hospitals had a very high rate of 
patient satisfaction, they had lower mortality rates, they had 
higher-quality measures, higher performance in terms of the 
quality measures, and they had comparable costs to traditional 
hospitals. In other words, the specialty hospitals were not in 
any sense profoundly negatively affecting traditional 
hospitals.
    But getting to the broader point, no. I think it is an 
absolutely terrible idea for the Federal Government to start 
picking winners and losers in this area. What we need in health 
care--and I think we are all in agreement on this, at least as 
a general principle--is to promote innovation. We want to 
promote innovation in healthcare benefit design, better health 
plans, or newer and more effective health plans, but also 
healthcare delivery.
    And with regard specifically to specialty, I mean, every 
advanced economy increases specialization in terms of the 
production and distribution of goods and services, production 
of goods and services. That has happened with regard to 
specialty hospitals. An artificial barrier to that is basically 
an artificial barrier to progress, which can provide value for 
money.
    So, I am very much opposed to this policy. I think it is 
wrong-headed, and I think it will damage opportunities for 
seniors to get the best possible care. We know, from the 
professional literature--and I defer to my colleagues here but 
the literature shows that the more you do a particular set of 
procedures, whether it is cardiac procedures or orthopedic 
procedures, the more volume you have, the quality measures go 
up. And that is just the evidence.
    So, the point of your question is very well taken.
    Mr. JOHNSON. Thank you, sir. I appreciate that. And my time 
is about gone. But Dr. Baicker, would you try to let us know 
later, what the system is doing as far as Obamacare is 
concerned? I am concerned that our cuts are phased in along 
with CMS, continuing to hinder plan innovation by over-
regulation. And that result will be more and more of these 
plans leaving the market and forcing beneficiaries back into 
Fee-for-Service. If you agree--you are shaking your head yes.
    So, I thank you, and I have run out of time. I yield back--
--
    Chairman TIBERI. Thank you, Mr. Johnson.
    Dr. Baicker, if you could answer the Chairman in writing, 
that would be great. Thank you.
    Mr. Kind, your birthday. Have you heard about the Boehner 
birthday song?
    Mr. KIND. No, I havn't, but----
    Chairman TIBERI. I won't sing it to you, but I will say it.
    This is your birthday song, it won't last too long.
    Mr. KIND. Good, I am glad.
    [Laughter.]
    Chairman TIBERI. So happy birthday, and you are recognized 
for 5 minutes.
    Mr. KIND. Thank you very much, Mr. Chairman. Just remember, 
it is not the years, it is the mileage. There is a lot of miles 
on these bones, but I will survive. And, Mr. Chairman, thanks 
for having this hearing today. I think this is such a crucial 
issue.
    Hopefully we can continue moving forward with more hearings 
to drill down to the real details, so we know what is working, 
what isn't working, what changes we have to make, because the 
real challenge--most of our budget fiscal challenges we face 
are healthcare cost-related right now. And our challenge is 
whether we can reform a healthcare system before America grows 
old.
    As Mr. Guterman pointed out, there are two things at work 
here. One is beneficiary cost, which right now is looking 
pretty good, at a 50-year low when it comes to how much we are 
spending in the Medicare system. But the other big challenge is 
10,000 boomers that are retiring every day and joining Medicare 
and the Social Security system, and the 74 million boomers that 
will eventually join the system here.
    And I think you are right, I don't think we have enough 
revenue in order to deal with that tidal wave that is joining 
Medicare here over the next 10 to 20 years. And that, I think, 
is the real challenge this Committee faces.
    But I think there are some answers. And fortunately, under 
the Affordable Care Act, there is a lot of experimentation 
going on right now through delivery system reform and payment 
reform.
    And Ms. Baicker, back to you. My ears perked up when you 
were talking about quantity and quality. I have been a student 
of the Dartmouth Atlas Study for a long time, and that studies 
the utilization and variation from around the country. And I 
think--I am convinced, as you are, that there is still a lot of 
quantity and not enough quality that we are getting with the 
dollars that are being spent.
    But the good news under the Affordable Care Act, there are 
a lot of different payment models that are being experimented 
with right now that do emphasize outcomes, values, and 
qualities. In fact, CMS just announced here that 30 percent of 
Medicare payments will be quality-based, and their goal is to 
be 50 percent next year and over 80 percent over the next few 
years.
    So, clearly, we are moving in that direction. And I think, 
if we can get the financial incentives aligned the right way, 
where we are rewarding providers based on outcome, based on 
results, and not just on more of what they are doing, we are 
going to see a lot of that innovation, and a lot of that 
creativity taking place in the healthcare realm.
    But, Ms. Baicker, I want to hear your opinion as far as how 
these payment models are working, and whether there is some 
hope or some light at the end of the tunnel, that we are, in 
fact, driving the system in the right direction by emphasizing 
quality, value- based payments, and moving away from the Fee-
for-Service system.
    Ms. BAICKER. I very much share your emphasis on quality the 
beneficiaries are getting. And the geographic variation, I 
spent 6 years on the faculty at Dartmouth, and I was as much 
taken by that research as you are, that the evidence of huge 
variation in spending per person and negatively correlated huge 
variation in quality strongly suggests that you could move some 
money from high spending less effective care to lower cost, 
higher-quality care, save money while improving outcomes. And 
that is, obviously, the magic bullet that we are all looking 
for.
    I am a huge fan of experimentation that is well designed. 
My own academic research focuses on opportunities to use really 
good experiments to figure out what is going on in the 
healthcare system. And when you have a number of entities 
volunteering to participate, and you randomly choose some to 
start the pilot and others to be the control group, I know that 
that is my academic hat on--which I have a very hard time 
taking off--but that provides an opportunity to really 
understand what is going on under the hood of the healthcare 
system. Why is it that we are spending so much more in some 
places and not getting the value that we want.
    We have seen a bit more experimentation in MA plans because 
they have a little more flexibility, being paid in a different 
way. But I don't think that we have nearly enough robust 
scientific evidence on what drives quality. We have a little 
more on the patient side and a little less on the provider 
side. So I would love to see more well-designed studies----
    Mr. KIND. And I think one of the smarter things we did 
under the Affordable Care Act was establish the Center on 
Innovation. That is allowing the pilots and the experimentation 
to go forward. And if we can get past the political din of just 
repeal everything and instead focus on what exists today and 
what is working and what isn't--because, Lord knows, this is an 
ongoing project, continuing to reform the healthcare system as 
we learn more.
    And Mr. Guterman, I know Mr. Thompson asked you your 
opinion about the private voucher plan that my Republican 
colleagues keep putting into their budget proposal. I don't 
know if you have had a chance to study that. But there are 
certain truisms that make Medicare work, and one is it is 
universal, everyone is in whether you are young, younger 
senior, or older senior, healthier or sicker, you are all in. 
Plus it does cover pre-existing conditions. And, let's face it, 
all seniors have a pre-existing condition at some point in 
their life.
    But their proposal to establish a private voucher as a 
response to the Medicare system, do you have an opinion on 
that?
    Mr. GUTERMAN. Yes. I think the major way a voucher system 
saves money is to make Medicare beneficiaries pay more for more 
expensive plans. And I don't think that is the way we want to 
reduce Medicare spending is by passing the additional spending 
on to Medicare beneficiaries.
    And, as I said, the private market hasn't particularly been 
anxious to insure Medicare beneficiaries, except under the 
times when Medicare Advantage plans have been, you know, pretty 
substantially overpaid by the Medicare program, even compared 
to traditional Medicare, which acknowledges that it has a long 
way to go to make itself more efficient.
    So I think if you look at it from the perspective of trying 
to bring the best of private plans, the best----
    Chairman TIBERI. Mr. Guterman, I need you to wrap it up 
real quick here.
    Mr. GUTERMAN. Okay.
    Chairman TIBERI. You are over.
    Mr. GUTERMAN. Is to make the traditional Medicare program 
stronger and to bring payments down to a level playing field 
level so that private plans can actually show what they can do, 
in terms of responding to incentives for efficiency.
    Mr. KIND. Thank you.
    Chairman TIBERI. Thank you.
    Mr. Buchanan is recognized for 5 minutes.
    Mr. BUCHANAN. Thank you, Mr. Chairman, and I want to 
congratulate you on your new chairmanship and your first 
meeting. And I would also like to thank our witnesses.
    I represent southwest Florida, and I happen to be the only 
Member, Democrat or Republican, in Florida. But in our district 
we have 205,000 recipients of Medicare, probably one of the top 
2 or 3 in the country. And of course, Florida is number two in 
the country for Medicare recipients.
    I am concerned about the bigger picture, just looking at it 
as a guy that has been in business for a lot of years. I am 
pretty good with numbers. It is a critical program. You see it, 
of course, not just in Florida, but all the way across the 
country in so many different aspects. Where do you get quality 
health care at 65? If you had to buy it at 63 in my area it is 
$2,000 a month. So it is very, very critical.
    But I am concerned--and I would also mention my mother-in-
law is in town, she is 96. She had sisters who lived to 102 and 
104. And one of the gentlemen mentioned, 10 to 12,000 people a 
day turning 65 for the next 30 years.
    Read some of my notes, the different notes that you read, 
but the average person puts in a dollar and takes out 3 to 4 
dollars in benefits. When you have the alarm, in terms of the 
growth, and then you look at the different estimates, in terms 
of being insolvent in the next 8 to 10 years, our deficit at 19 
trillion--it has more than doubled, there is plenty of blame to 
go around. The last 8 or 10 years it has gone from 8 to 9 
trillion to 19 trillion.
    So, when you take a look at this, there has to be some kind 
of a structural change or something at some point on a 
bipartisan level. Otherwise, we are kidding ourself [sic]. I 
mean we could look around the edges and do a few things here 
and there, but we have to do something material.
    And one thing I can just tell you. Healthcare costs in 
general--maybe it has been a little bit better in Medicare for 
certain reasons, just keep going up. Health care in my 
community, unless you get a subsidy, is going up 20 or 30 
percent a year. It is one of the biggest issues, I think, for 
small business or anybody that is under 65 trying to get health 
care without a subsidy.
    So I guess my question is, based on what I mentioned that 
when you look at $19 trillion in debt, the normal cost of money 
over the years is 4 to 5 percent. That is as much as $1 
trillion in interest at some point. And they are claiming in 
the next 3 or 4 years, if interest rates go up to where they 
have historically been, we are looking at that. So it puts more 
pressure in terms of Medicare.
    So, getting back, Mr. Moffit, maybe to your point 
initially, you talked about structural changes. Looking at the 
big picture, what do you think are two or three things going 
forward that could make a huge difference? Maybe you could lean 
on those, or talk about those for a minute.
    Mr. MOFFIT. Well, I do think that----
    Mr. BUCHANAN. Do you agree with what I mentioned? Do you 
agree with my points?
    Mr. MOFFIT. No, I think that is the really critical point. 
The Congressional Budget Office is the scorekeeper for Members 
of the House and Senate. They have just recently told you that 
we are facing major fiscal challenges, which are actually 
dangerous because for the first time they do not get control of 
our deficits and our debt, we could have a fiscal crisis in the 
United States. I mean that is what Mr. Keith Hall recently said 
to everybody.
    Now, the central issue here is what is really the major 
driver. They are very clear about that. It is primarily the 
growth in major healthcare spending, as well as other 
entitlements and the aging of the population.
    With regard to Medicare specifically, right now we have 
about slightly more than three workers basically supporting 
every Medicare beneficiary. But 2030 we will have 82 million 
beneficiaries. We will be going from 55 million today to about 
82 million.
    Mr. BUCHANAN. But what is your recommended structural 
change----
    Mr. MOFFIT. My recommended structural----
    Mr. BUCHANAN. You touched on it, but go through that again, 
real quick.
    Mr. MOFFIT. Well, I have three, but beyond what Dr. 
Guterman and I agree on is I think we have to raise the age of 
eligibility. I would raise it to age 68, and gradually do it 
over a 10-year period. I think that is perfectly reasonable to 
do that, because the demographics of America have changed. 
People are living much longer, and that would make sense.
    Second, I think that we ought to expand means testing in 
Medicare. The President himself has recently come out with a 
proposal. His budget proposal would require upper income 
seniors to pay more, going forward. And eventually, under the 
President's proposal, 25 percent of all seniors would be paying 
above the existing standard rate. I don't think we have to go 
to 25----
    Mr. BUCHANAN. And your third point is what?
    Mr. MOFFIT. My third point is to basically intensify the 
competition within Medicare among both plans and providers. And 
I feel that the best way to do that is precisely what the 
Budget Committee is proposing, which is moving toward a defined 
contribution system, or a premium support system, which will 
intensify the competition among plans and providers.
    Mr. BUCHANAN. Thank you. I will have to yield back.
    Chairman TIBERI. Thank you. The gentleman's time has 
expired. I will recognize the gentleman from Georgia, Mr. 
Lewis, for 5 minutes.
    Mr. LEWIS. Thank you very much, Mr. Chairman, and I, too, 
want to congratulate you on becoming the chair of this 
Subcommittee. It's good to be on a Subcommittee with you once 
more.
    Mr. Guterman, I would like to know, do you think or do you 
believe that Medicare is in good financial standing?
    Mr. GUTERMAN. That, of course, is a very controversial 
issue. I think----
    Mr. LEWIS. Well, we need--maybe we need a little 
controversy this----
    Mr. GUTERMAN. I think Medicare has some work to do to shore 
up its financial standing for the future as more and more 
people are elderly. But I think it can be done. I think one 
thing we ought to do is investigate ways to bring more revenue 
into the Medicare system because we are producing more elderly 
people, and so we ought to be devoting more resources to 
supporting those people.
    There's also tremendous opportunity to slow the growth of 
Medicare spending by improving the quality of services and by 
improving the effectiveness of the medical services that are 
provided. Also providing more community supports for folks to 
keep them out of the hospital and out of the healthcare system, 
which this country really doesn't devote much resources to, and 
other countries devote much more of the resources to doing 
that, and they have much lower health spending.
    So I think there are ways to make sure that Medicare stays 
strong into the future. Also, if I may add, the idea of 
intergenerational conflict, which is always brought up by 
citing a number of people working who support the number of 
older people. I would point out that every one of those working 
people aspires to and most will become elderly. And so we're 
not talking about preserving the Medicare program for the 
population of currently elderly. They're already there. We're 
talking about preserving the Medicare program for the people 
who are currently paying into the program. And we ought to pay 
more----
    Mr. LEWIS. Mr. Buchannan, my colleague from Florida, stated 
that people are living longer, relatives living to be in their 
80s and their 90s, how do we take care of this segment of our 
population?
    Mr. GUTERMAN. Well, I think----
    Mr. LEWIS. More of us are living much longer because their 
healthcare----
    Mr. GUTERMAN. That's absolutely right. I mean it's not a 
bad thing that people are living longer.
    Mr. LEWIS. No, it's not.
    Mr. GUTERMAN. It is a challenge because we need to rethink 
how our health system works, because it used to be our health 
system could focus on people who had an acute episode of 
illness, and then that illness would go away. Now people are 
living longer, they're living with more chronic conditions, 
some of which used to be fatal conditions, but medical finds 
have made them into chronic----
    Mr. LEWIS. Well, Congress and CMS strove to improve the 
care, to help people live better lives as they age.
    Mr. GUTERMAN. Right. Yes. CMS has been doing a whole range 
of things to try to figure out how to better coordinate care. A 
number of the policies that are being developed by the Center 
for Medicare and Medicaid Innovation are addressing that issue. 
And, in fact, CMS has been working on that issue for years. 
When I was in CMS during the Bush Administration, we developed 
many chronic care initiatives that have since been refined over 
time and hopefully will end up finding the most effective ways 
to deal with our elderly population.
    Because we all aspire to be there one day and we're going 
to need the Medicare program, and so are the working people of 
today. And so we need to, instead of pitting currently working 
people against retirees, we ought to recognize that we're 
talking about the same group of people, just different points 
in time.
    Mr. LEWIS. Would any other witness like to respond?
    Mr. GUTERMAN. I'm sorry?
    Mr. LEWIS. Dr. Baicker, Dr. Moffit.
    Ms. BAICKER. Yeah. So I think you're highlighting a 
fundamental problem, which is an out-of-balance system where 
it's vital that we ensure the program is available for the 100-
year-olds of tomorrow, and we all share the wish that we all 
live to much older ages. But I think something fundamental 
about the system has to change to preserve the financial 
stability of it for generations to come because as Mr. Moffit 
pointed out, as the number of workers per retiree changes, it's 
not about conflict; it's about accounting balance, that you 
just run out.
    You either have to impose higher and higher and higher 
taxes on the working age population as they shrink and the 
retired population grows, or you have to change the benefit in 
some way. So I share the view that something more fundamental 
needs to change to preserve and strengthen the program for the 
future.
    Mr. LEWIS. Thank you. I yield back.
    Chairman TIBERI. Thank you, Mr. Lewis.
    Where am I here? Ms. CPA Jenkins, the gentlelady from 
Kansas, is recognized for 5 minutes.
    Ms. JENKINS. Thank you, Mr. Chairman. And I, too, would 
like to congratulate you on your chairmanship here of the 
Health Subcommittee. I know you will take the health and 
wellbeing of Americans very seriously in your new role. I might 
suggest that you could start today by avoiding many cases of 
hypothermia and frostbite if you could turn the air 
conditioning up a little bit, if you could do that.
    Thank you for this hearing. Thank you, witnesses, for being 
here with us today. Medicare plays a very important role for 
many Americans and certainly the Kansans, folks that I have the 
privilege to represent. This past year over 485,000 Kansans had 
health coverage through Medicare. We are holding this hearing 
today because we have to face the facts, and in July the 
Medicare trustees released a report indicating Medicare would 
be insolvent within 15 years if no action was taken to fix the 
problem.
    As has been noted by Dr. Moffit, increases in healthcare 
spending along with changing demographics as the baby boom 
population gets older has created a very serious fiscal crisis. 
And we have to continue to work on solutions so that we can 
save Medicare for those who have paid into the system currently 
and for future generations. And I am proud that last year this 
Committee already took efforts to strengthen Medicare payment 
and that whole process for doctors which has been a positive 
impact for seniors and the entire program. But we really have 
to continue to work toward sensible reforms for these programs 
so that seniors are not vulnerable to any future consequences.
    Dr. Baicker, one question that I have relating to the 
Medicare Advantage program is how it benefits rural America. I 
represent 25 counties, predominantly rural. In particular, 
perhaps you could explain how Medicare Advantage provides 
additional healthcare choices and benefits for those living in 
rural America.
    Ms. BAICKER. You're highlighting a really important issue--
that the network of providers available to people in rural 
areas looks very different from that in urban areas. And so 
getting real plan choice for them can be more challenging when 
there aren't so many different providers and there may not be 
so many plans operating.
    The advantage of that is that innovative plans can find 
ways to deliver services in rural areas that the traditional 
Fee-for-Service plan can't. So we've talked a little bit about 
tele-medicine. I think there's a strong case to be made for it, 
not just in rural settings, but there are lots of homebound 
seniors who would benefit from being able to have more 
sophisticated services available to them in their homes or who 
don't have access to specialty care. But I think it's 
particularly vital in rural areas where the nearest specialty 
hospital may be far away and the nearest specialist may be very 
far away.
    We have huge advances in technology that enable higher-
quality care than would otherwise be able to be delivered, and 
we need programs that can capitalize on that innovation to 
deliver novel benefits, especially in rural areas, but I really 
think everywhere as well.
    Ms. JENKINS. Okay. Great. Thank you. Another concern I have 
is in Kansas we have a particularly low Medicare Advantage 
pickup rate with approximately 65,000 Kansans, only 11,000 in 
my district, enrolled in Medicare Advantage last year. Could 
you speak to why we may be seeing these low numbers and what we 
can do to increase them?
    Ms. BAICKER. I don't know the particulars of your district 
and I would be happy to get back to you with more information 
about the insurance marketplace in that particular area. But in 
general, I think having plans compete on equal footing so that 
both beneficiaries and the plans can reap the rewards of 
providing higher-value care can be a motivator to draw more 
plans in and to have more beneficiaries pick up the care.
    Right now beneficiaries who pick a plan with a lower 
payment required than the benchmark or than Fee-for-Service can 
reap some of the benefits in the form of better financial 
protection, more flexible benefits. But they can't get any 
money back if they choose a higher-value program, and that 
might be an avenue for increasing the appeal for beneficiaries, 
which would, in turn, increase the appeal for plans to come in.
    Ms. JENKINS. Alrighty. Thank you. Mr. Chairman, I yield 
back.
    Chairman TIBERI. Well done, Ms. Jenkins. Thank you. We are 
going to now go to a two Republican-one Democrat order. So with 
that, the gentleman from Minnesota is next in line. Welcome 
again, Mr. Paulsen. You're recognized for 5 minutes.
    Mr. PAULSEN. Thank you, Mr. Chairman. It's great to have 
you as the Chair of the Committee, and I'm happy to be on this 
Health Subcommittee now.
    This has been great testimony, so I appreciate your time 
being here as well. On Monday I held a roundtable with several 
hospitals and organizations in Minnesota to talk a little bit 
about the regulatory environment they're dealing with, talk 
about Medicare programs.
    And quite honestly, the lack of focus on outcomes in that 
environment and quality measures that they think really do need 
to be there, and they expressed some concern about some 
providers that are leaving the program and that patients are 
concerned about the quality and the cost of care that they're 
seeing.
    Medicare was designed as an acute care program 50 years 
ago, so a long time ago, and clearly now obesity and other 
chronic conditions are driving a lot of the increased cost in 
the Medicare system today. And so, Dr. Moffit or Ms. Baicker, 
what would be the impact on the financial stability of the 
Medicare system if we improved the outcomes for patients that 
have multiple chronic conditions or we intervene sooner to help 
those patients from becoming obese or developing other co-
morbidities.
    Mr. MOFFIT. Well, I'll take a stab at it, but I'm going to 
defer to Dr. Baicker. But the real fact of the matter is that 
about 75 percent of all the healthcare spending in the United 
States right now is directed toward dealing with chronic care, 
chronic illnesses. And we have a tremendous increase, 
unfortunately, in diabetes. It is all over the place.
    I'm on the Maryland Healthcare Commission right now and in 
my capacity I'm in the business right now of examining some of 
the impact of certain chronic conditions on certain populations 
in the State of Maryland. And I can tell you diabetes and heart 
disease is becoming a serious issue. So yes, if we can manage 
effectively diabetes, for example, and other chronic 
conditions, in fact, we would really start to save some serious 
money.
    I would just simply add that with regard to the Medicare 
Advantage program, which is, in fact, a defined contribution 
type of program, private plans competing against one another 
have actually pioneered in many respects the kinds of delivery 
reforms that have proven--that have become very popular more 
recently. These are things like care coordination and case 
management and a heavy emphasis on preventive care.
    We're going to need more of that as time goes on, but I 
don't think there's any question. We are in a different kind of 
disease era right now, and therefore we do need more effective 
tools both through insurance and through the healthcare 
delivery system to control those costs, but I'll defer to Dr. 
Baicker.
    Mr. PAULSEN. Ms. Baicker, real short, and then I'm going to 
ask a followup question real quick.
    Ms. BAICKER. I think you're right on point that the 
greatest return to care management is in managing chronic 
conditions. It's patients who need a lot of care where we can 
both improve quality and reduce spending if it's managed better 
and preventing the onset of those conditions. So I think your 
point is key.
    Chairman TIBERI. I'm just going to mention I've got a 
couple pieces of legislation that are bipartisan that we've 
introduced that I think the Subcommittee can look at and 
certainly the full Committee. One is the Treat and Reduce 
Obesity Act, which focuses strictly on obesity and making sure 
seniors have access to drugs that were not initially eligible 
under Medicare Part D, but can have a huge impact right now on 
cost. And the other is the Better Care, Lower Cost Act that 
Peter Welch and I will be reintroducing soon that talks about 
chronic condition management and increased cost that we've seen 
in the Medicare system there that we can focus on.
    But let me go to one other question, because this came up a 
little earlier in regard to this voucher, regarding premium 
support, and maybe, Dr. Moffit, you can comment. Because I do 
know that the former Congressional Budget Officer--Director, 
Alice Rivlin, in the Clinton Administration has made it very 
clear in saying the premium support is not a voucher. But can 
you elaborate? Does moving to a system that has premium support 
eliminate the Medicare guarantee? Is it a voucher, Dr. Moffit?
    Mr. MOFFIT. Congressman, let's get serious about this. 
There is absolutely no proposal in the House or the Senate that 
I am aware of that would create a voucher program for Medicare. 
A voucher is a certificate. It is a certificate or a piece of 
paper which is redeemable in cash value for a particular good 
or service. Nobody is talking about sending senior citizens 
certificates to go out and negotiate with private healthcare 
plans on their own.
    What we are talking about is a defined contribution system. 
Every Federal worker and every Federal retiree is in that 
defined contribution system. If you were to tell them that 
they're in a voucher system, they would probably be very 
surprised, as would senior citizens who are enrolled in 
Medicare Part D. And to some extent even Medicare Part C is, in 
effect, a defined contribution system, but it's not a voucher.
    So I think if we're going to have a serious debate in this 
country about Medicare reform, the first thing we ought to do 
is to recognize the integrity of the language. People know what 
vouchers are. If your airplane, for example, is delayed, 
sometimes they will give you a voucher and you can use it at 
any restaurant you want.
    But the fact of the matter is there is nothing comparable 
to that being proposed by any Member of Congress that I am 
aware of, Republican or Democrat, or has been proposed for the 
past 20-some years where this issue has been discussed, which 
is actually talking about a voucher system. We're talking about 
a defined contribution, and most all of our Federal employees 
are involved----
    Chairman TIBERI. The gentleman's time has expired. Thank 
you, Mr. Paulsen.
    Mr. Blumenauer is recognized for 5 minutes.
    Mr. BLUMENAUER. Thank you, Mr. Chairman. And it will be fun 
to engage in this conversation, and I appreciate your starting 
it because the testimony here today, I think, was very useful. 
Maybe it's rehashing things that we've gone over before, but 
it's important, I think, to be able to have these things in 
mind.
    Chairman TIBERI. Thank you. Thanks for your sincerity. Will 
you put a good word in with Dr. McDermott for me?
    Mr. BLUMENAUER. I will consider that. Absolutely. But part 
of it, I think, Mr. Chairman, is how we proceed to go forward 
and being able to focus on areas where there is consensus. We 
have a lot of value rattling around in this system. We have not 
extended ourselves to be able to deal fully with cost control. 
We have a tidal wave of geezer baby boomers like me who are 
getting ready to tap in.
    I have, I must say, real concerns about what we're going to 
do if we're going to start raising the retirement--the age of 
eligibility, what happens for those senior citizens between 65 
and 66, 67, 68. They're not going to be less expensive to care 
for.
    And if you pull them out and put them on their own in the 
private sector, which is costing more and has had greater 
increases, what are we doing to the pool? You actually may 
coincidentally make it more expensive to deal with Medicare 
because you take out some of the people who are the least 
costly and you put them on their own to navigate it. I don't 
know that we would get very far with something like that, but 
we can debate it.
    But I'd like to think about how we combine the programs, 
how we make Medicare Advantage truly have performance metrics, 
because there's a wide variation. I represent if not the 
highest penetration of Medicare Advantage, maybe the second or 
third in the country. And I will tell you they're not all 
alike, and I want to make sure that the performance metrics 
that we put in with the Affordable Care Act are real. I've 
enjoyed working with Congresswoman Black in terms of finding 
some areas of value-based design. These are areas that we can 
squeeze more value and better performance.
    We need to update and modernize hospice benefits. I mean 
this is something that has a transformational effect. Finally, 
we have end of life care payments and we're putting more value 
on it. There's a potential here to squeeze hundreds of billions 
of dollars out of the system over the next decade while we give 
people better care.
    So I'd like, Mr. Chairman, to be able to focus on a little 
deeper dive. This is great information, I think, for us all to 
listen and think about, go back and forth with some of the 
proposals that we have.
    But I think before we wade into things that the topline 
people will battle over, we can do that. But there's lots of 
consensus I think here for things, expanding the pilots, 
modifying the benefits, looking where value really exists and 
being able to build on some of the bipartisan interest that 
we've had on this Committee and elsewhere to be able to deal 
with it. Because, yes, we're going to probably need more 
revenue when we have tens of millions more senior citizens.
    I know Medicare traditional Fee-for-Service has held the 
cost down, and there is tremendous potential with Medicare 
Advantage. But we haven't tapped into it, and they still 
continue to pay more than Fee-for-Service even though when we 
set it up originally back even before we were here, it was 
perceived to be a 5 percent premium reduction because it should 
be more efficient and more effective. And I'm not willing to 
have to inflict a cut, but I want to get more value out of it, 
and I think we ought to be able to do a deeper dive to be able 
to understand it.
    So I appreciate the testimony. I appreciate the discussion 
on the Committee, and I'm looking forward to seeing if we can 
take three or four areas that we all probably agree have great 
benefit, show the performance, reward areas of the country that 
actually have better performance, don't penalize them, and make 
those structural changes. Thank you.
    Chairman TIBERI. Thank you. That's great.
    The gentleman from Texas is recognized for 5 minutes.
    Mr. MARCHANT. Thank you, Mr. Chairman, and congratulations 
on your chairmanship. I really look forward to serving with 
you.
    I got home last night, turned the TV on to watch all of the 
election results, and----
    Chairman TIBERI. Brave man.
    Mr. MARCHANT [continuing]. Seemed to be a lot of 
commercials on TV here in Washington about changes in the 
Medicare plan. Ms. Baicker, can you tell me what those 
commercials are about? It's cutting Medicare, call the 
Administration, tell them not to cut Medicare Advantage 
benefits and plans.
    Ms. BAICKER. I didn't watch those commercials.
    Mr. MARCHANT. Yeah?
    Ms. BAICKER. And as your colleague said, brave man. So I 
don't know what they were speaking to directly. I know there is 
real concern out there about the continued availability of 
different options for beneficiaries through the MA plan. Having 
no idea what the commercials are about, I think maintaining a 
competitive playing field for those plans to participate is 
really important to beneficiaries.
    Mr. MARCHANT. Well, I think those commercials are directed 
at the Administration, so maybe they're missing the mark. 
Unfortunately, if I want to get any kind of news, I have to 
view them now.
    So, Mr. Guterman, do you have any idea?
    Mr. GUTERMAN. Yeah, I----
    Mr. MARCHANT. Because this is beginning to trickle down to 
my district. I'm going to get emails and phone calls about it 
now, and so I feel like I need to understand a little better--
--
    Mr. GUTERMAN. Thank you. Living in the Washington area, I'm 
very familiar with those commercials, and also being on the 
verge of becoming a Medicare beneficiary myself, I'm also 
familiar with the vast amount of mail that I get on Medicare 
Advantage.
    I believe that the issue is that Medicare Advantage plans 
are concerned with potential ``cuts'' in Medicare Advantage 
payments. But I would point out that those cuts are actually 
bringing Medicare Advantage payments more in line with 
traditional Medicare in terms of what traditional Medicare 
spends. Because over the last 10 years, Medicare Advantage 
plans have been paid substantially more than even traditional 
Medicare costs.
    And traditional Medicare has never been seen as the paragon 
of efficiency. So a cut is a relative term because they may be 
getting less than they would have wanted to be able to expect 
in future years, but the average payment for Medicare Advantage 
plans is still above what traditional Medicare spends per 
enrollee.
    Mr. MARCHANT. Yeah, so the source of this is not a group of 
Medicare Advantage patients that feel like they're going to be 
aggrieved. It's the people that are being reimbursed that feel 
like they're----
    Mr. GUTERMAN. Enrollees in Medicare Advantage plans, 
because of the extra payments that they've gotten, have been 
able to get extra benefits that traditional Medicare doesn't 
cover. But to be sure, that money comes from the Medicare trust 
fund that only goes to support benefits that Medicare Advantage 
enrollees get that traditional Medicare enrollees do not.
    Mr. MARCHANT. Okay. Mr. Moffit.
    Mr. MOFFIT. I want to comment on this business about 
Medicare Advantage being paid more than traditional Medicare. I 
mean there's one obvious fact that should not be overlooked, 
and that is people on Medicare Advantage get more benefits. And 
therefore, that is why it is a higher cost. This is not a 
market failure on the part of the Medicare Advantage program. 
This is a statutory requirement. If a plan comes under the 
official benchmark, they're required by law to provide either 
lower copayments or richer benefits, and that's what Congress 
enacted.
    So I agree that we ought to have a level playing field, but 
I think one way to get a level playing field basically would be 
to bring Medicare Advantage and traditional Medicare into a 
direct head-to-head confrontation in which we would have a 
common payment system that would apply to all. I think that 
would make much more sense.
    But I would ask you all to consider one other point. 
Everybody talks about Medicare Advantage costing more and more 
money. But when senior citizens join Medicare Advantage, they 
also are guaranteed catastrophic coverage as well as the 
additional benefits. They go into Medicare Advantage in many 
cases because they want to have that kind of protection.
    But when they do so and they don't go into the Medigap 
program, right? They are withdrawing from a structural 
relationship between Medigap and traditional Medicare, which is 
right now, everybody agrees, driving costs of Medicare--
traditional Medicare up, the excessive utilization.
    So my plea would be for the Congressional Budget Office or 
the general Government Accountability Office or somebody to 
actually look and find out how much Medicare Advantage is 
actually saving the taxpayers--by making it an alternative to 
the traditional Medigap program. Maybe Dr. Guterman doesn't 
agree with me on this, but I think frankly there's nothing 
wrong with looking under the hood and finding out.
    Chairman TIBERI. The gentleman's time has expired. I'm sure 
he doesn't agree with you.
    So, Mr. Smith, you are recognized for 5 minutes.
    Mr. SMITH. Thank you, Mr. Chairman, and thank you to our 
witnesses for your participation here today. If we could focus 
a little bit, we know that one ought not wait until they need 
the insurance to purchase the insurance, be it prescription 
drug coverage, be it conventional health insurance. But we've 
got the penalty in Medicare Part D that is structured very 
differently than perhaps some other penalties to be exacted by 
the IRS relating to other healthcare.
    Can you reflect a little bit on the effectiveness of the 
penalty in Medicare Part D that does exist and its productivity 
perhaps, just any of the witnesses?
    Ms. Baicker, go ahead.
    Ms. BAICKER. So the point you highlight is crucial to 
understanding what insurance is. Insurance works when healthy 
people and sick people are all in the same pool or people who 
in advance of knowing that they might need healthcare join an 
insurance pool, and then the people who are unfortunate enough 
to need expensive care draw out and the premiums of the people 
who were lucky enough not to need care pay to subsidize their 
unfortunately sicker counterparts.
    And it's always a little surprising to me when people 
describe an insurance plan that they have and say, ``I paid all 
these premiums, and I didn't get anything for it. What was the 
use?'' And I always think, well, I paid my homeowners insurance 
and my house didn't burn down, good. So understanding the 
insurance value of an insurance product is crucial to building 
an insurance marketplace that works. If people don't have an 
incentive to join when they are healthy or before they know 
about their healthcare expenses and premiums don't reflect 
their expected healthcare costs, you get degeneration of the 
risk pool, and you don't have a real insurance product 
available.
    And we can talk at great length, but I won't because I know 
it's your 5 minutes, about the different mechanisms for getting 
everybody to participate whether you want to use the carrot of 
a subsidy, the stick of a penalty, but I share your view that 
it is vital that everybody get in the insurance market early 
for there to be an actual insurance market.
    Mr. SMITH. Okay. Mr. Moffit.
    Mr. MOFFIT. (Off-mic.)
    Mr. SMITH. If you could, turn on your mic.
    Mr. MOFFIT. I really have nothing to add to that. I think 
that that is precisely right, and I think that Dr. Baicker has 
summarized it very well.
    Mr. SMITH. Can you speak to the effectiveness, though, of 
drawing people in or onto a plan and participating in the 
process and how productive that has been?
    Mr. MOFFIT. Joining a plan and participating in the 
process?
    Mr. SMITH. Has the penalty been effective----
    Mr. MOFFIT. Oh.
    Mr. SMITH [continuing]. In encouraging people to join the 
plan?
    Mr. MOFFIT. To the best of my knowledge, Congressman, but I 
haven't made any kind of detailed study of how the behavior has 
followed from that particular penalty. I'm really not 
absolutely certain. But I defer, as I said, to Dr. Baicker's 
understanding of the issue.
    Mr. SMITH. Okay. And perhaps for reflection later because 
time is limited----
    Mr. MOFFIT. Sure.
    Mr. SMITH [continuing]. The comparison of a penalty for not 
signing up at the appropriate time and waiting as compared to 
criminalizing someone who opts for a different approach than 
what the government might have set out.
    Mr. MOFFIT. There is a difference there. I mean frankly we 
have right now a creditable coverage requirement that exists in 
the Health Insurance Portability and Accountability Act, which 
says, in effect, that you can go from one group health 
insurance plan to another, and you're not rated up--basically 
it's the same idea--you're not rated up because you have 
maintained creditable coverage. That's an excellent public 
policy--that's an excellent public policy provision. And, 
frankly, to the extent to which the Medicare Part D proposal 
does that, I think that's perfectly legitimate.
    Mr. SMITH. Okay. Mr. Guterman.
    Mr. GUTERMAN. I agree that in order to make an insurance 
market work you need to have an incentive to join the insurance 
market before you actually need to get paid under the 
insurance. And I would point out that Medicare Part B is a 
similar program. I mean the vast majority of Medicare 
beneficiaries take Part B, but you----
    Mr. SMITH. So what do you think is more effective, writing 
up someone or penalizing them fairly severely, but maybe not 
even enough to really get someone to make a better decision?
    Mr. GUTERMAN. Well, they're very similar if there are 
financial penalties for not joining, and to my knowledge, 
nobody's ever been put in jail for not taking----
    Mr. SMITH. Should someone have to pay a penalty for not 
participating at all?
    Mr. GUTERMAN. They don't have to pay a penalty if they 
never participate, under Medicare Part D and----
    Mr. SMITH. Is that a better public policy than having to 
pay a penalty for not participating?
    Mr. GUTERMAN. I think it's a different circumstance, 
because Part D is a much narrower coverage situation.
    Mr. SMITH. Thank you, Mr. Chairman.
    Chairman TIBERI. Thank you, Mr. Smith.
    Ms. Black, welcome. I know you had a brutal budget hearing. 
Mr. McDermott told us he was leaving, too, and he hasn't come 
back yet. So welcome. This will be much nicer.
    Ms. BLACK. Thank you, Mr. Chairman. I----
    Chairman TIBERI. You're recognized for 5 minutes.
    Ms. BLACK [continuing]. Want to congratulate you for being 
the Chairman of this Committee. I know you well enough to know 
that you're going to study all of these issues and know them 
inside and out. So you're going to make a great Chairman of 
this Committee. And the reason why you don't see Congressman 
McDermott is we have him tied up in the chair there in the 
budget hearing.
    That budget hearing is going to go all day long, but I did 
want to sneak away for just a little bit because this is an 
area that is near and dear to my heart, being a nurse for over 
40 years, and having been in the system and seeing the pendulum 
that swings from side to side and I'm not sure where I could 
say the pendulum is right at this point in time, but there is 
one particular issue that I, as a nurse, think has a great 
value and I wanted to ask all of your opinions on that. And 
that is value-based insurance design.
    I am honored to have my colleague, Mr. Blumenauer, as my 
cosponsor on this, and we actually have a bill that would put a 
pilot project in on the Medicare Advantage side for those 
chronic conditions, and in using the value-based insurance 
design is looking at those services that have a high value to 
them and incentivizing people to use that valued service.
    So for those who are listening and wonder what in the world 
that means, Dr. Fendrick, who is out of University of Michigan 
was the one who originally brought me this idea, and I just 
tagged onto it right away.
    But to give an example, if someone is diabetic and one of 
the highly-valued services for them would be their insulin and 
giving them either a low-cost or a no-cost for that particular 
service would incentivize them to use that service and, 
therefore, save dollars down the line with the kind of 
complications that would occur if they were not taking their 
medication. This is not about saving dollars, although that is 
something we want to obviously do because there are a limited 
number of dollars. This is about quality care.
    And so I would like the panelists, starting with you, Ms. 
Baicker, to let me know what you think about this and whether 
you believe this is a direction we should be heading not only 
for the solvency, but also for quality of care.
    Ms. BAICKER. I'm a big fan of value-based insurance design, 
and there are clearly some challenges in the implementation, 
but that doesn't mean that we shouldn't be trying to take them 
on. To build on the example that you gave of a diabetic 
patient, imagine that patient is considering taking a statin to 
lower cholesterol or not. We know patients are very sensitive 
to copayments and that going from a zero copayment to a $5 
copayment makes a much bigger difference in patients adherence 
than you would imagine, even for really high-value medications. 
That statin may be incredibly high-value for a diabetic 
patient, and you want to make it zero dollar copayment.
    Maybe if you're an innovating insurance company that's 
working with enough flexibility, you want to actually pay the 
patient $5 to take the statin. That same drug may be very low-
value for a patient who has high cholesterol or moderately high 
cholesterol, but no other risk factors, unless a very low risk 
of a cardiovascular--an adverse cardiovascular event, whereas 
the diabetic patient has a really high risk.
    Maybe for the low-risk patient, the copayment should be $10 
or $20. That kind of innovation is not about shifting costs 
onto the patient who's paying the higher copay, but rather 
shifting use of the statin toward the patient with the highest 
health benefit for it. So I'm very much in favor of exploring 
that, and there's some nods to that in existence already. 
There's some experimentation in the Medicare Advantage program 
itself now with value-based insurance design. Safe harbors for 
preventive care are an example of value-based insurance design, 
where when you go to get a preventive care treatment that is of 
sufficiently high value, you don't have to pay copayments even 
if you're in a high-deductible plan. So I think those are very 
much worth exploring.
    Ms. BLACK. Does anyone else have a comment on that? Mr. 
Guterman.
    Mr. GUTERMAN. Yes. Thank you, Ms. Black. I had the pleasure 
of working with Mark Fendrick on the advisory group to his 
Value-Based Insurance Design Center at University of Michigan. 
I'm very in favor of that. It's been long known that when 
copays have to be paid or deductibles have to be met that 
patients use less healthcare, including less healthcare that 
they really should be using. And so structuring the incentive 
so that even patients get rewarded for using cost-effective 
care that will keep them from getting sicker and more costly is 
just an eminently reasonable thing to do.
    Ms. BLACK. Well, I know that the CMS is looking at this, 
and they're actually looking forward enough to say that that's 
something they may initiate themselves and have a little bit of 
a pilot project there.
    But, Mr. Chairman, I believe that even though they're 
moving in that direction, a little push from us in actually 
bringing that bill up and getting a vote on it would certainly 
move this forward a little bit faster. So thank you, Mr. 
Chairman. I appreciate your work.
    Chairman TIBERI. Thank you, Nurse Black, for your efforts 
in this area. This has been terrific. You three have been very 
substantive, and I don't want this to end. So I'm going to 
indulge this process a little longer, and I hope you will agree 
to partake in this, because I think this has been really, 
really substantive.
    So, Mr. Guterman, I enjoyed the exchange that you, Dr. 
Moffit, and Dr. Baicker had with respect to Medicare Advantage. 
So let me kind of frame this for you. I have an 81-year-old 
father who's been on Medicare now for over 15 years. So he was 
on Medicare Fee-for-Service before Medicare Advantage. I voted 
for the Medicare Advantage plan and was painfully reminded of 
it in a commercial attacking me for voting for it and the 
disastrous consequences of Medicare Advantage and the private 
healthcare market for seniors.
    Now let me tell you the real world that I lived through my 
parents. Before Medicare Advantage, my dad was on the Medicare 
Fee-for-Service plan. It didn't provide what he believed was 
necessary coverage, so he was one of those Medigap folks. And 
when Medicare Advantage came around, he and my mom both have 
been on Medicare Advantage plans, and they love it.
    So I do take issue with something you said with respect to 
Medicare Advantage, and that is that Medicare Advantage plans 
are paid more. Some are paid more, but my understanding is 
they're paid more because of quality bonuses that they receive, 
and I mentioned that Catholic plan in my district that has very 
high marks and have spoken to many of their beneficiaries over 
the years.
    As you know, Medicare Fee-for-Service doesn't provide that. 
We as policymakers have no way of knowing the quality that 
Medicare Fee-for-Service provides other than seniors like my 
dad and my mom who speak with their feet and go to Medicare 
Advantage plans because of the more comprehensive nature of the 
services that benefit provides.
    And so my frustration is at the end of the day that we're 
going to make a Medicare system that benefits seniors in total, 
that we continue to berate a system that has been wildly 
successful not in my eyes, but in the eyes of my mom and dad 
who are beneficiaries--and not just my mom and dad, but 
Republican and Democrat and Independent seniors all over the 
place.
    And as I think Dr. Moffit pointed out, when opponents of 
trying to expand seniors' choice say ``voucher'' to think about 
how these awful systems are going to take place to leave 
seniors abandoned, I don't think that's a really good way to 
try to come together to figure out how we best serve patients, 
seniors, in a more cost-effective, value-added, comprehensive 
way when we know that the current system based upon CBO's 
recent report is heading toward the brink of redness. So let's 
talk about that, and I would like you to first talk about that 
because I believe you're sincere in what you believe, and then 
hear from Dr. Moffit and Dr. Baicker. Dr. Guterman.
    Mr. GUTERMAN. Okay. Thank you, Mr. Chairman. I think there 
are a couple of things. The plan that you refer to may well be 
a very high-performing plan. One of the problems that high-
performing plans have in Medicare Advantage is that there's not 
enough distinction between high-performing plans and their 
competitors who may not be as high-performing. We need to find 
better ways of rewarding plans that actually do perform for 
their enrollees and not----
    Chairman TIBERI. Love to have your suggestions on that.
    Mr. GUTERMAN. And, in fact, the substantially higher 
payments that Medicare Advantage plans have received over the 
last decade or so compared to judicial Medicare makes it easier 
for low-performing plans to come into the Medicare Advantage 
market and survive. So we need to find a better way of paying 
Medicare Advantage plans for their value, but not just throwing 
money at Medicare Advantage because it includes private plans, 
so we need to distinguish that.
    Another thing that would help Medicare beneficiaries across 
the board would be to improve the traditional Medicare program 
so that it is more comparable to Medicare Advantage in terms of 
what it can cover and what it can provide. Then they'll be on a 
level playing field, and even if you wanted to go to a point 
where private plans would compete directly with Medicare 
Advantage, which basically they do, because any beneficiary has 
the option of enrolling in a private plan, then they would be 
doing so on a level playing field. And so the distinction 
between high-performing plans and lower-performing plans could 
be more evident.
    So I think that Medicare Advantage does have a tremendous 
amount of promise to improve Medicare across the board. I think 
we need to do a better job of paying them appropriately and 
rewarding the kind of performance we want from plans.
    Chairman TIBERI. That's fair.
    Dr. Moffit.
    Mr. MOFFIT. Well, with regard to Medicare Advantage, when 
Medicare Advantage started really growing, it started to be the 
subject of a lot more intense examination in terms of how it 
was actually delivering medical services. And the good news 
here for Medicare Advantage is that some of the best work in 
the professional literature indicated, in fact, compared to 
traditional Medicare, Medicare Advantage actually scored higher 
on a lot of performance measures.
    We keep talking about quality of care in Medicare 
Advantage, but frankly I think the more serious problem is the 
quality of care in traditional Medicare. If we're talking about 
targeting dollars and getting the best value in return for 
those dollars, where is the evidence that traditional Medicare 
is actually performing in any way similar to the new Medicare 
Advantage program? What have we been doing with the existing 
defined benefit program in which seniors, nine out of ten of 
them, have to go to private plans to actually make sure costs 
are covered?
    When Dr. Guterman talks about a level playing field, I 
agree with that 100 percent. But they are not competing head to 
head. What I'm talking about is paying Medicare Advantage and 
the traditional Medicare program based on a competitive bidding 
system in which the consumer, in which the senior will actually 
make the choice.
    What we really need in this area, especially--but not only 
here in Medicare, but throughout the healthcare system--is more 
transparency not only on the cost and price of services, but 
also performance. And when we do that, we will start to see a 
very positive response on the part of plans and providers, on 
the part of different medical institutions, and we know this 
from limited experience where we've actually done this.
    There are a couple of other things we can do, and I'll just 
mention them with regard to promoting quality of care. We 
talked earlier, Mr. Chairman, about the fact that our biggest 
healthcare challenge going forward is the fact that we have a 
tremendous problem with the growth of chronic diseases. And as 
you know 75 percent was the figure I used, but that was based 
on other independent studies, but roughly 75 percent of our 
costs are basically the cost of chronic care.
    We ought to start thinking about innovating insurance 
designs in which people are directly--I'm talking about the 
patients--are directly advantaged by enrolling in wellness and 
preventive programs where the payment system actually reflects 
that. What I'm really talking about is something like premium 
discounts for individuals who enroll in preventive or wellness 
programs, which can start to cut down on the longer-term cost 
of chronic care.
    There is a professor from Emory University, Professor Zhou 
Yang, who has suggested that we take the existing premiums or 
the premium support notion and at least create a defined 
contribution experiment where we actually adjust the payment 
going on a per capital basis to patients on their behavior, 
their willingness to enroll in preventive and wellness 
programs. There are a multitude of things that we can do that 
we are not doing.
    But I think that really the sky is the limit. I think if we 
really want to see how these delivery reforms actually perform, 
what the outcomes really are, what we should do is put them in 
an environment in which there is intense competition, a 
complete transparency of price and performance and a lot of 
your ancillary institutions, particularly seniors organizations 
and various other institutions can start to judge plans and 
providers on how well they do.
    I think that's the kind of thing we need. We need that kind 
of an environment. We don't have that environment yet. We can 
get there. And, I appreciate what the Administration is trying 
to do, but I don't think that you're going to necessarily get 
higher-quality healthcare through better central planning. I 
think that a competitive environment is frankly a lot better.
    Chairman TIBERI. Thank you.
    Dr. Baicker, any thoughts?
    Ms. BAICKER. Just to briefly highlight an issue brought up 
before, Medicare Advantage plans are bidding for the same 
bundle of service below Fee-for-Service costs on average. And 
then there's a quality add-on, and then there's the return of 
some of the difference between the benchmark and the bid in the 
form of lower cost sharing for the beneficiary or greater 
benefits than the traditional plan provides.
    So when thinking about how much MA costs, thinking about 
the same bundle of services, the bids are lower. There's plenty 
of room for debate about the right way to structure the quality 
bonuses, and I think that they're a crucial component of 
ensuring that beneficiaries are getting high-quality care, but 
it's really not an apples-to-apples comparison.
    Chairman TIBERI. Dr. Guterman, in response.
    Mr. GUTERMAN. Just one response to that. The fact is that, 
on average, right now Medicare Advantage plan bids, which 
represent their costs of the traditional Medicare package, are 
on average below traditional Medicare nationwide. But that 
varies widely from area to area. In 50 percent of the country, 
they're actually substantially above what traditional Medicare 
spends in the same areas, and a lot of those areas are rural 
areas.
    And it's a relatively recent phenomenon that only began 
with the quote cuts in Medicare Advantage over payments that 
began around 2010. So as of 2009, Medicare Advantage bids on 
average were actually above traditional Medicare, and then they 
got 75 percent of the difference between that and an inflated 
benchmark rate. So it's not just the quality payments. It is 
built in----
    Chairman TIBERI. Add-ons.
    Mr. GUTERMAN [continuing]. Over payment in Medicare 
Advantage. And the other point is also that only HMOs are 
cheaper than traditional Medicare. Now HMOs are the majority of 
Medicare Advantage plans, but there are a substantial number of 
other PPOs local and regional and also private Fee-for-Service 
plans--which used to be more predominant that actually still 
cost more than traditional Medicare on average across the 
country. But again, that also varies from one place to another.
    Chairman TIBERI. Would you agree that with the statements 
that have been made here including by me that a senior has 
difficulty in determining the quality of Medicare Fee-for-
Service?
    Mr. GUTERMAN. I think that it's all too difficult for any 
patient anywhere--to determine the quality of provider and plan 
that they are about to get services from or sign up with, and I 
think we have a long way to go. But I remember in the early 
2000s when I was working at CMS that we first put out the 
hospital compare--the first hospital compare website, and 
everybody was agonizing over the fact that we didn't have the 
quality measures that we felt comfortable enough with to say 
these are the definitive quality measures. And the 
administrator at the time, Tom Scully, said these measures are 
never going to get better if we don't start using them.
    Chairman TIBERI. It's all Scully's fault.
    Mr. GUTERMAN. We've come a long way since then, but we're 
still, I would say, in the adolescence of the ability to 
measure quality----
    Chairman TIBERI. So we would all agree, that transparency 
is desperately needed? Any other thoughts?
    Mr. MOFFIT. Well, I just want to follow up on that. In my 
other job on the Maryland Healthcare Commission, we were 
looking at the performance of Maryland hospitals--there are 47 
of them--in terms of their ability to deliver high-quality 
cardiac care.
    Basically what we're talking about is the door-to-balloon 
time when somebody goes in for a catheter, basically when they 
need a stint, excuse me. And the goal is to try to get the 
patient taken care of within around 90 minutes from the door-
to-balloon time.
    Well, anyway, the Commission did an evaluation of all the 
hospitals in the State of Maryland. And after a 6-month period, 
then they published the results. And the results were stunning. 
Some of the hospitals that people thought were going to be just 
terrific turned out not to be so good. And then others that 
nobody expected turned out to be absolutely terrific.
    But what was the effect of the transparency. The effect of 
it was tremendous because when the Commission staff went back, 
just about everybody had improved their performance. Some 
institutions decided that, frankly, measuring up to the 
standards was a little too much and they gave up that 
particular cardiac program. But others actually improved. And 
that's how you get real change. There's nothing like sunlight, 
and it applies especially to Medicare.
    Chairman TIBERI. On that note, this has been wonderful. I 
sincerely thank all three of you for your time today and your 
input, and I hope that you continue to engage because, quite 
frankly, there aren't any more important issues than the future 
solvency of the Medicare program and access to good quality 
healthcare, not just for the current generation, but future 
generations as well.
    So with that, please be advised that Members will have 2 
weeks to submit written questions to be answered later in 
writing. Those questions and your answers will be made part of 
the formal hearing record. With that, the Subcommittee stands 
adjourned.
    [Whereupon, at 11:57 a.m., the Subcommittee was adjourned.]
    [Questions for the Record follow:]
    
    
    
    
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