DEMOCRATIC HOUSE STEERING AND POLICY COMMITTEE FORUM
SAVING MEDICARE FOR TODAY AND IN THE FUTURE
October 2, 2012
Leader Pelosi and members of the Committee, thank you for holding this important Forum and for honoring me with the opportunity to appear before you.
I am Judith Stein, founder and executive director of the Center for Medicare Advocacy, Inc. Founded in 1986, the Center is a national, nonprofit, nonpartisan organization headquartered in Connecticut and Washington, DC, with offices around the country. I have been representing Medicare beneficiaries since 1976. My organization has represented tens of thousands of Medicare beneficiaries − more, I believe, than any other organization in the country. I know the value of Medicare, and its challenges as well as anyone.
Medicare was enacted in 1965 because private insurance failed older people. For over 47 years, Medicare has provided guaranteed benefits that have enhanced health security and financial stability when people need it most – when they are older or disabled and also sick or injured. It has been so successful that this population is now almost uniformly insured − although only 50% of people 65 or older were insured when Medicare began.
I've seen Medicare coverage save lives and bring peace of mind to families. I also know how Medicare has changed since I began my work representing Medicare beneficiaries. While coverage has been enhanced over the years, Medicare has also become ever more complex and difficult to navigate as private plan options have been introduced, swarmed in and out, and premiums have been income-based. While we are regularly told that "one-size fits all" does not serve people well, this was simply not the case for the traditional Medicare program. In fact, for decades the guaranteed, universal Medicare program fit most very well.
Today, the myriad Medicare choices, complex decision-making, and plan variations baffle many, often leading to inertia, and poor planning. Generally, people who have received their health insurance through employment and are becoming eligible for Medicare are not accustomed to choosing insurance. Many people simply do not choose at all, and those who do, often stick with their initial choice, even as their plan offerings and their health needs change. Further, most people want choice of doctors, hospitals, and other health care providers, not insurance plans. Ironically, private Medicare plans reduce physician and health care provider choices far more than the traditional program.
Unfortunately, Congressman Paul Ryan proposes, and the House has twice passed, yet another effort to privatize and fragment Medicare – this time on a grand scale. The Ryan Plan would provide each beneficiary with a set annual allowance, or voucher, with which to purchase an insurance plan in the private market. While we have not seen details about the Ryan voucher system, the outlines we have seen would increase costs to beneficiaries. Regardless, of its details, the Ryan Plan would not impact the current deficit, since we are told it would not begin until 2022 at the earliest. (The 2011 Ryan Plan called for the change to Medicare to commence in 2023.)
To attain cost-savings when it does begin, the Ryan Plan assumes Medicare costs would be reduced by requiring beneficiaries to spend their limited vouchers to purchase health insurance, and by requiring private plans and traditional Medicare to compete for enrollees in the private insurance market − the same market that failed older people in the past.
The certitude that competition in the private market will reduce Medicare costs is belied by past experience and numerous studies. As former Medicare and Medicaid Administrator Bruce Vladeck has said, "private plans have not saved Medicare a nickel." When the private Medicare+Choice program was tried under Mr. Vladeck's leadership, Medicare paid private plans 95% of what it cost to cover a similar beneficiary in traditional Medicare. The idea was to test the truth of the belief that private plans could provide health insurance more cost-effectively than traditional Medicare. While dozens of private plans entered the Medicare market, they left in droves when it became clear they could not, in fact, compete with traditional Medicare. By way of example, all Medicare+Choice plans left my area of Connecticut.
In 2003, Congress authorized the Medicare Advantage program, which paid private plans approximately 14% more than the traditional Medicare per beneficiary cost. Not surprisingly, private plans reentered the market, but at a terrible cost to the Medicare program, all beneficiaries, and taxpayers. The Congressional Budget Office estimated that these payments would amount to $150 billion over a ten year period. As Harvard researchers report in the August 1, 2012 issue of the Journal of the American Medical Association,
… reliance on beneficiary shopping to discipline the market has been problematic. Beneficiaries are often slow to switch plans due to cognitive impairment, choice overload, consumer inertia, or other influences. For example, Medicare Part D plans, which also operate in a bidding system, have found it profitable to price low initially, attract many enrollees, then increase prices over time. Moreover, beneficiaries do not enroll in Part D plans that offer them the best coverage for their premiums and medical conditions. These market failures would likely be even greater in a market-based Medicare system in which choosing plans would likely be even more difficult than in Part D. The market requires beneficiaries to trade restrictions on care or limited physician networks for premiums, which is counter to how many seniors view Medicare. Song et al, 308 JAMA 459, 460 (August 1, 2012)
Further, if traditional Medicare is forced to compete with private insurance, private plans will work to minimize their spending and woo the healthier, least costly beneficiaries. If older, more vulnerable, more expensive beneficiaries remain disproportionately in traditional Medicare it will not be sustainable and will wither on the vine. This increased fragmentation of Medicare and Medicare's 49 million customers will also reduce its bargaining power, thereby limiting its ability to help drive down health care costs. Yet reducing health care costs is a key to reducing the federal deficit.
Certainly Medicare could be made more financially viable. Reducing payments to private Medicare plans is one sure way to start this important effort. However, the Ryan Plan does not propose this path. Instead, its "Path to Prosperity" would increase the age of Medicare eligibility and provide individual, defined contribution vouchers to older people − gutting the community Medicare program that has ensured access to health coverage for generations. This approach would increase costs and reduce coverage for people with Medicare and their families. Yet, according to the Kaiser Family Foundation, about half of people with Medicare live on incomes of $22,000 or less – just under 200% of the federal poverty level. They simply can not afford the additional costs projected under the Ryan Plan, costs which are tantamount to imposing a health insurance tax on older and disabled Americans.
The study reported in the JAMA article discussed above, concludes that had the Ryan Plan been in effect in 2009, a beneficiary would have paid an average of $64 more per month in additional premiums to stay in traditional Medicare and 90% of beneficiaries in private Medicare Advantage plans would also have paid more. (Song et al at 459). On the other hand, the study also found that health care reform will slow traditional Medicare costs and reduce cost-shifting to beneficiaries. The Ryan Plan repeals health care reform, but keeps the same reductions in Medicare spending.
The Ryan Plan is based on the belief that private is better. But Medicare controls health spending better than private insurance. Competition among private health insurance companies has not driven costs down either in the private Medicare Advantage program or for individual and employer-based policies for those under 65. As discussed above, Medicare has included private plans for decades, but they cost Medicare more than the same coverage under the traditional Medicare program. Medicare administrative costs are a fraction of those for private insurance. And, over the next ten years, Medicare spending is expected to grow at rates of 3.1% compared to 5% for private insurance plans. Thus, the traditional Medicare program, which the Ryan Plan would dismantle, shows greater promise for controlling costs than turning the program over to private insurance companies. In fact, as researchers from the Urban Institute report in the New England Journal of Medicine,
Over the past decade, spending growth per enrollee slowed in Medicare and Medicaid, and per-enrollee growth rates in the next decade are projected to be very close to the expected growth in GDP per capita. These data do not support the need for major restructuring of either program.
Holahan et al, New England Journal of Medicine, 393, 394 (August 2, 2012)
One last reality check: Mr. Ryan's plan would affect current and near-term retirees, despite promises to the contrary. The Ryan Plan would immediately repeal health care reform, which greatly improves Medicare coverage for prescriptions and preventive care, saving people with Medicare a total of about $4 billion on drugs and increasing their access to preventive care. Repealing health care reform would retract these benefits. It would also reinstate the wasteful overpayments to private Medicare Advantage plans that were rolled back by the Affordable Care Act. Since all beneficiary premiums are set as a percentage of the costs of the entire Medicare program, these overpayments would translate into higher out-of-pocket costs for everyone with Medicare.
We welcome the opportunity to examine Medicare's challenges and successes. But for the 49 million American families who rely on Medicare now, and for all those who will someday, we look for a debate based in fact not preferences. And we recognize our responsibility to add constructively to the conversation. It's fair enough for those who favor the Ryan Plan to ask, "Well what would you do?" Thus, the Center for Medicare Advocacy offers six key recommendations to keep Medicare solvent while it continues to provide fair, defined health coverage. These recommendations, unlike the Ryan Plan, do not shift costs to beneficiaries, and do not unnecessarily restructure the Medicare program. They promote choice and competition while shoring up the solvency of the Medicare program.
1. Stop Paying Private Medicare Plans Anything More Than Traditional Medicare
Medicare currently pays approximately 7% more for beneficiaries enrolled in private Medicare Advantage plans than for comparable beneficiaries enrolled in traditional Medicare. (Prior to the Affordable Care Act (ACA) it was 14%.) Despite these extra payments, beneficiaries in private plans who are in poor health, or who have chronic conditions, often have less access to coverage than they would under traditional Medicare.
A large portion of the overpayments made to private plans actually goes to insurers rather than to benefit Medicare beneficiaries. Although the Affordable Care Act (ACA) changed the payment formula for Medicare Advantage plans, some plans will continue to be paid as much as 115% of the average traditional Medicare payment rate for their county when the new rates are fully implemented. MedPAC estimates that by 2017 Medicare Advantage payment benchmarks will average 101% of traditional Medicare. ACA also provides additional payments for plans that receive high quality ratings, increasing the likelihood that some MA plans will continue to be paid more than under traditional Medicare.
Reducing private MA payments to 100% of traditional Medicare, as MedPAC proposed before the enactment of ACA, will increase the solvency of the Medicare program and curb costs for taxpayers. Private plans simply should not receive higher pay than traditional Medicare.
2. Negotiate Drug Prices with Pharmaceutical Companies
The Medicare prescription drug law, passed in 2003, prohibits the Secretary of Health and Human Services from negotiating prices with pharmaceutical companies. These companies gained 49 million customers when Medicare began covering prescription drugs, but they did not have to adjust their prices in return. Requiring the Secretary to negotiate drug prices for Medicare would save taxpayers billions of dollars – potentially about $200 billion over ten years. Taxpayers currently pay nearly 70% more for drugs in the Medicare program than through the Veteran's Administration, which does have direct negotiating power. Savings realized from reducing Medicare drug costs could be used to improve benefits for beneficiaries and reduce the deficit.
3. Include a Drug Benefit in Traditional Medicare
Currently, beneficiaries must manage the complicated process of selecting a private plan each year to obtain prescription drug coverage. Offering a drug benefit in traditional Medicare would give beneficiaries a choice they do not now have, encourage people to stay in traditional Medicare, and save money for taxpayers. It would also provide an alternative to unchecked private plans that leave many with unexpected high out-of-pocket costs. A drug benefit in traditional Medicare would also insulate beneficiaries from expensive and sometimes abusive marketing practices. Further, traditional Medicare's lower administrative costs could free up money for quality care, which would result in lower drug prices for beneficiaries, and save taxpayers over $20 billion a year. Finally, including a drug benefit in traditional Medicare would simplify the often overwhelming process of picking a prescription drug plan by allowing one-stop shopping in traditional Medicare.
4. Extend Medicaid Drug Rebates to Medicare Dual Eligibles and Low Income Beneficiaries
Dual eligibles (people eligible for both Medicare and Medicaid) comprise one-fourth of all Medicare drug users, and are among the most costly beneficiaries. Because Medicare, rather than Medicaid, covers most of their drugs and because Medicare cannot negotiate drug prices, their drugs are not eligible for the same rebates as they would be under the traditional Medicaid program. Before Medicare Part D began, drug rebates were in effect for these individuals. Extending rebates again for dual eligibles would save at least $30 billion over ten years. Rebates should also be available for people who qualify for the Part D Low-Income Subsidy.
5. Lower the Age of Medicare Eligibility
People between 55 and 65 who are not disabled are currently unable to enroll in Medicare. Lowering the age of Medicare to include this healthier population would add revenue from people who will likely need fewer services than older enrollees but will pay the same premiums and co-insurance.
6. Let the Affordable Care Act (Health Care Reform) Do Its Job
The Affordable Care Act includes many measures to control costs as well as models for reform that will increase the solvency of the Medicare program and lower the deficit while protecting Medicare's guaranteed benefits. The Congressional Budget Office estimates that repealing or defunding ACA would add $230 billion to the deficit while ignoring the real issue of rising overall health care costs, which contribute heavily to the growing national debt. ACA includes strong measures to allow CMS to combat fraud, waste, and abuse that will bring down costs, as well as a variety of pilot and demonstration projects that aim to bring better care and quality to beneficiaries. Allowing ACA to do its job will create a foundation on which to build by improving care and holding down costs for taxpayers.
"Protecting" Medicare by shifting costs from the federal government to beneficiaries and their families through the creation of a private Medicare voucher system is a perversion of Medicare's purpose. Medicare was enacted to protect older, disabled people and their families from illness and financial ruin due to health care costs. The Center for Medicare Advocacy's recommendations promote financial solvency without doing it at the expense of beneficiaries.
The Ryan Plan would enrich insurance companies while leaving beneficiaries with inadequate purchasing power in an increasingly expensive health care market. It would end Medicare and begin a new private system that would be more expensive and more costly for older and disabled people. It would limit people's choice of physicians and health care providers. Simply stated, you can't save Medicare by ending it.
Once again, thank you for this opportunity to speak to you about Medicare's future.
Judith A. Stein, Esq.
October 2, 2012
 For example, a recent study finds that less than 10% of people with Medicare Part D enroll in what would be the most cost-effective plan for them. (National Bureau of Economic Research, "Plan Selection in Medicare Part D," (June 2012).
 Medicare Payment Advisory Commission (MedPAC). According to the Centers for Medicare & Medicaid Services, in 2012 Medicare Advantage plans are paid on average 7% more than similar beneficiary services would cost in traditional Medicare.
 Congressional Budget Office; Health Care Affairs, (9/20/2011).
 Kaiser Family Foundation analysis of Medicare Trustees Report 2012.