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FUTURE OF MEDICARE

COMMISSION MEETING

Washington, DC

Tuesday, January 5, 1999, and Wednesday, January 6, 1999

MEMBERS OF COMMISSION

SENATOR JOHN BREAUX, Statutory Chairman

REPRESENTATIVE BILL THOMAS, Administrative Chairman

STUART H. ALTMAN, Ph.D.
SENATOR J. ROBERT KERREY
REPRESENTATIVE MICHAEL BILIRAKIS
REPRESENTATIVE JIM McDERMOTT
COLLEEN CONWAY-WELCH, Ph.D.
SENATOR JOHN D. ROCKEFELLER, IV
REPRESENTATIVE JOHN D. DINGELL
DEBORAH STEELMAN
SENATOR WILLIAM H. FRIST
LAURA D=ANDREA TYSON, Ph.D.
ILLENE GORDON
BRUCE VLADECK, Ph.D.
SENATOR PHIL GRAMM
ANTHONY L. WATSON
SAMUEL H. HOWARD

BOBBY JINDAL, Executive Director

THE NATIONAL BIPARTISAN

COMMISSION ON THE

FUTURE OF MEDICARE

Transcript of

Wednesday, January 6, 1999

Commission Meeting

The Commission met at 8:10 a.m., Senate Dirksen Building, room 106, Senator Breaux presiding.

Present: Senator John Breaux, Representative Bill Thomas, Stuart Altman, Representative Michael Bilirakis, Colleen Conway-Welch, Representative John Dingell, Senator Bill Frist, Illene Gordon, Senator Phil Gramm, Sam Howard, Senator Bob Kerrey, Representative James McDermott, Debbie Steelman, Bruce Vladeck, Anthony Watson, and Bobby Jindal.

Senator BREAUX [presiding]. Will the meeting please come to order. I thank the members who are here for their being prompt at a relatively early hour to begin.

Obviously, the day is swearing in for all Members of Congress, and the agenda is very heavy. We have a Democratic caucus that I have to be at at 9 o’clock, and I think other Senators as well, for the Republicans as well as Democrats, and so we’re going to try and get started early, and thank everybody who was able to be here on time.

I’m sure we’ll be joined shortly by the other Commission members.

Today is principally devoted to a discussion of a premium support concept. Yesterday I think we had good discussions, and a good dialog on particularly the fee-for-service improvements, and recommendations on how to bring about a new and improved Medicare fee-for-service traditional system.

Today we will look at a premium support concept, and have it explained, and then have a dialog and questions and suggestions about how to make that work.

We want to finish up, as we said yesterday, with a summary of where we were with the Medigap supplemental insurance concerns. We’ll do that right now, and I’d ask Bobby to conclude on what we were talking about yesterday on the Medigap.

Mr. JINDAL. Thank you, Mr. Chairman. Yesterday when we talked about Medigap, we started off by trying to make five points on supplemental coverage.

I’ll just end by resummarizing those five points:

The first was that supplemental coverage is very common, and therefore must be considered whenever we consider changes to the Medicare Program.

And we discussed this in the context of considering all sources of spending on behalf of beneficiaries’ health care.

The second point was that it’s important to consider the different types of supplemental coverage when thinking about any potential changes to the Medicare benefits packages. Those changes will impact each type of beneficiary differently, depending on their supplemental coverage and other variables.

The third was to look at the differences between individually purchased and employer-sponsored supplemental coverage, both in terms of first-dollar coverage as well as prescription drug coverage.

I think we made some points that employer-sponsored coverage, on average, tends not to have first-dollar coverage as often, and it’s also more likely to have more comprehensive prescription drug coverage.

And we also talked a little bit about the utilization impacts of first-dollar coverage.

Finally, we talked about what data is available, and what data gaps do exist; what kinds of further studies and analysis would be helpful in looking at supplemental coverage and its impact on Medicare and Medicare beneficiaries.

So those were the main points from the presentation yesterday on supplemental coverage.

Senator BREAUX. Any comments or thoughts before we proceed to premium support?

Bruce?

Mr. VLADECK. This is just a question. It seems to me that I recall one of the earlier discussions, perhaps at the Reform Task Force or somewhere, of this issue.

We saw some data, had some information about what’s happening to the number of folks who have employer-sponsored Medicare supplemental benefits, and some expression of concern about that market.

I hear anecdotally all the time, various expressions of concern about what’s happening in the self-pay, individual Medigap market.

Do we have any sense of trend data or any projections of what’s happening on either pieces of those?

Mr. JINDAL. Sure.

Let’s start with the employer-sponsored coverage market. You may remember that Frank McArdle came and talked to the group, the Reform Task Force, and did talk about the fact that for a variety of reasons, there was some pressure on employers to either change or even to reduce that coverage.

One of the reasons he cited was the change in accounting standards.

In 1993--I won’t go through all the details, but in 1993 there was a change that required employers to include the present value of that cost on their balance sheets. And that was putting pressure on companies to change their health care benefits.

Interestingly, what he said at that time--and we’ve got some numbers to back that up--what he said at the time was that what was more likely to happen was large employers were making changes for employees they were signing up now, rather than employees who were currently retiring--in other words, they were trying to grandfather in either current retirees or even in some cases, active employees, because of these negotiations.

We looked at the Hay Group which has done a survey of employers, providing probably some of the more comprehensive trend data. They’ve said since these accounting standards took effect in 1993, about 5 percent of employers had dropped retiree coverage.

They say another 3 percent are considering dropping coverage. What’s much more common is that many employers are looking at things like giving their employees incentives to join managed care plans or increasing employees’ contributions to maintain the coverage they have.

So that you’re not seeing a huge decrease right now in the short term because you do have employers grandfathering in current retirees and active employees, but you do see out in the future that there are things like more incentives for employees to join managed care plans.

In terms of the individual purchase market, a couple of the trends that we discussed yesterday, we do continue to see the adverse selection happening, especially in those plans that offer prescription drugs.

So in some localities, in particular, you are getting that spiral where they get more and more expensive and it gets harder and harder for newer beneficiaries to purchase coverage.

You also see the decrease, a slight decrease in supplemental coverage as more individuals have in recent years joined Medicare+Choice plans and have gotten some of those same benefits in the Medicare+Choice plan.

Senator BREAUX. Jim McDermott?

Again, we have a very fine recorder who is attempting to record everything we say, so use the mikes, and let’s not step on each other as we speak.

Jim?

Mr. MCDERMOTT. Thank you, Mr. Chairman.

In 1985, three-quarters of the retirees from medium and large companies were covered by retiree insurance, and by 1993, the number had dropped to 50 percent.

I noticed on the staff memo on page 4 that it notes that the Physician Payment Review Commission found that the lack of supplemental coverage is associated with reduced access to care, and that some portion of the increased utilization associated with supplemental coverage appears to be due to appropriate utilization.

I would like to know whether you have any elaboration on that, whether you have any other data of the actual health care effects of the lack of having supplemental insurance?

Is there any data at all?

Mr. JINDAL. One of the things we did note yesterday is that there isn’t very good comprehensive data on the 65-and-older population in terms of the impact of first-dollar coverage and health care outcomes.

When you do look, most of the studies have been on the pre-65 population. They tend to come primarily from the RAND study; that’s the most comprehensive dataset.

So, no, there is no very good or comprehensive data on the health impact of this utilization. Most analysts do--the limited studies that are available do suggest that at least some portion of that is appropriate utilization when you compare first-dollar Medigap coverage versus people in fee-for-service-only without any supplemental coverage.

Most analysts do conclude that part of that utilization increase is appropriate, but that part of it is also due to overutilization.

What we have tried to do is try to contrast the difference between individual-purchased supplemental coverage, and employer-sponsored coverage, because there you’ve got another benchmark where you don’t have first-dollar coverage, but you do have some protection, so you do have lower deductibles and you do, on average, have out-of-pocket protections.

And so by looking at the difference between those two populations--once again, it’s not a precise difference--but that does give you at least a beginning of understanding that some portion of that utilization may be due to the differences in the cost sharing between those two programs.

So when you go from first-dollar coverage, for example, to an, on average, $300 deductible and 20 percent cost-sharing on outpatient services, with stop loss, you see that the difference in utilization is still about $500 per person.

Mr. MCDERMOTT. Is it basically intuitive that there must be some effect, or are there hard criteria by which they make that judgment?

I guess some of it’s over and some of it’s under?

Mr. JINDAL. For the pre-65 population, there have been studies.

Mr. MCDERMOTT. Like the RAND study?

Mr. JINDAL. Yes.

So, for the pre-65 population, there certainly have been studies that have shown some of that utilization does not impact health outcomes.

But to our knowledge----

Mr. MCDERMOTT. Nothing like the RAND study done for people over 65?

Mr. JINDAL. No.

And that’s one of the data gaps we identified yesterday.

Mr. MCDERMOTT. Thank you.

Senator BREAUX. Senator Gramm?

Senator GRAMM. Well, Mr. Chairman, I know there are a lot of people who are very concerned about this whole issue and about Medigap insurance.

I want to try to work with people on it, but I have to admit that I am a little bit torn on the whole issue.

I believe that it’s clear to a blind man that the Medigap structure, the supplemental structure we have now, produces a tremendous misallocation of resources, both in terms of the quantity of resources consumed, and the mix.

Having said that, one of the constraints I have is limiting people’s freedom to choose to buy products that are available on the market.

Now we have distorted that market by passing laws that have forced the market to move in certain directions.

So, I think, first, we need to review that. Second, the most important thing we can do to eliminate this problem is make the current system of Medicare fee-for-service more rational by putting the copayments up front where they affect behavior, by setting an overall cap on them so as to eliminate the attractiveness of insurance.

But I have a problem with simply passing a law that says to people that you can or cannot buy a product, or that the product has to be focused in one way or another.

Now, I understand that we have done that in the past, but I think there is a problem in the method. I think we need to work on it, but I think we need to be careful about a solution where we simply dictate to people what they can and cannot buy.

Senator BREAUX. Any other comments?

Debbie and then Bill.

Ms. STEELMAN. It seems to me that one of the things that was clear yesterday is that in our hybrid systems that we have, the Medicare plus Medicaid system, and then we have the Medicare plus supplemental systems.

In those systems we have people who are not able to have a hybrid system. And those low income people who have no supplemental at all----

Senator BREAUX. Or Medicaid.

Ms. STEELMAN. That clearly is a place that I’d like to see some options developed to focus on.

How much would it cost to help those people, and in what ways could they be helped? Do you do direct purchases? Do you do subsidies for insurance? What do you do for those people?

Clearly it seems to me that that’s a population that we’ve got to focus on.

The second question then is, what is the biggest problem those people face? It seems to me that it’s pharmaceutical coverage.

Clearly, I think there’s a utilization issue, as Dr. McDermott has raised. If they don’t have some help, for example, on the hospital deductible, that group is looking at a $750 deductible.

That group would clearly put off hospitalization, even if it was needed, for that kind of money.

That gets to Senator Gramm’s point about rationalizing these copays and deductibles in the Medicare Program.

So we’ve got to consider those things together, both the Medicare changes, and the supplemental changes, and what targets for assistance have to be our priority.

If you’ve got an awful lot of people out there with supplemental coverage, it does seem to me to be equally important not to displace that, and not to do anything that would cause the trends that I think Dr. Vladeck has already cited in employer-sponsored coverage to worsen.

So I think our next conversation should be around what are the options for addressing that?

Senator BREAUX. Would that problem still exist under a premium support type of concept, or would it be lessened because the package may include these things?

Ms. STEELMAN. Obviously, in a premium support system, you’re enabling beneficiaries to put all their resources, whether it’s from their employer or their own pocket, or from their own taxes and other taxes, you’re allowing those all to be directed toward one product.

So the problem that I’m describing only exists for those beneficiaries who remain in fee-for-service.

Nonetheless, those beneficiaries who remain in fee-for-service, are numerous and have to be--we can’t be derelict, we have to do something about it.

Senator BREAUX. Bill Thomas?

Mr. THOMAS. One of the concerns I would have would be to take a look at the recent history, especially of the nineties, and then indicate that you know with some certainty, what’s going to happen with employers vis-a-vis their employees and their retirees.

If you went through the nineties as an employer and you decided that you were responsible for somebody who had worked for you who no longer worked for you for an 18-month period under the COBRA structure, and somebody proposed legislation which said you’re now responsible for a 10-year period, notwithstanding the fact that they will not have worked for you for 9 years and they’re obligated to be carried, you begin to look at the package that you’re offering.

When you were dealing with specific packages and you thought it was for a fixed period of time, and you found out that, in fact, you’re obligated over a longer period of time, when you were carrying them on your financial record in a certain way and government dictates you must now carry them in a different way, you’re going to see a significant desire to move away from an unknown cost in the future by a stroke of a pen.

If you move to a premium support model and the mix to assist on a product purchase, I think you create a comfort level in which employers are much more willing to participate with both employees and with retirees, if they have an understanding of what their obligation is going to be.

So, to a certain extent, in moving toward this other model, which would be primarily a dollar commitment to buy a package, I don’t know that you’re going to see a continued downward trend in employer participation.

You may see an increase, once they have a clear understanding of what their obligations really are going to be.

Senator BREAUX. All right, I think we’ve had--Stuart, do you have a comment?

Mr. ALTMAN. Well, I just want to make a distinction between health care--not an obvious distinction, but every once in awhile, we tend to lose it--Bill, after you’re faced with a dollar commitment, when all gets said and done, you can just deal with it with a retirement package.

The problem that people run into, which is clear, is that you often can’t buy, even if I gave you as an employer, a dollar amount, an average dollar amount, given the nature of the health insurance business and your particular health needs, unless there is this averaging process so that it’s a dollar commitment.

So, if we were to make Medicare a true package that people could feel comfortable with, without supplementation or maybe if you wanted to supplement it, whether the person puts dollars into the health insurance or puts it into their retirement is irrelevant.

And the reason why health insurance grew as a post-retirement, is the adverse selection problem.

And so we need to--the current Medigap plans, I mean, the idea that people can talk about it as being an adequate plan is a joke. It is a joke, and I think you would agree with this.

The joke part of it isn’t only the fact that it’s filling in the wrong stuff and leaving vacant, other stuff, is that it makes no sense at all to buy the drug coverage. You pay as much for the premium as you get if you use the total benefit.

Senator GRAMM. That is because it’s prepaid medicine and not insurance.

Mr. ALTMAN. It’s prepaid at the worst level. You’re paying over $1,000 to go from the one to the other, and you get a benefit that goes from $250 with a maximum expenditure of $1,250.

Mr. THOMAS. But they throw in the foreign travel emergency.

Mr. ALTMAN. You do get foreign travel, that’s true. [Laughter.]

Except in certain countries.

Senator BREAUX. It would be interesting to see how many people would buy the policy who actually go and use it.

Mr. ALTMAN. If there is nothing else we do, we have to deal with a restructured program. Whether it requires every--to have prescription drugs or change the fundamentals of that business, it’s not a question of denying, it’s a question of making it a decent package.

Now, I favor putting it into some basic benefit at a minimum amount and begin that process.

But the current system--and it’s going to get worse and worse as drugs become more and more important.

Senator BREAUX. I think we’ve had a good discussion. I think Bobby has a number of good suggestions and comments, and I do want to move on to premium support.

But, Debbie, you have a comment you’d like to make?

[Discussion off the record.]

Ms. STEELMAN. I was just going to follow-up to that question.

How do you make the distinction of what belongs in the Medicare package and what belongs in a Medigap reform, and how would you deal with the fact of the displacement issue: That if you put something in the Medicare package it may already be covered by employer-sponsored plans, or Medigap or Medicaid?

When we have finite resources, we might like to direct more assistance to low income or moderate income beneficiaries.

Mr. ALTMAN. Debbie, you and I are going to have a difference of opinion on this as long as we continue.

Ms. STEELMAN. You’re kidding me.

Mr. ALTMAN. I favor the Bill Thomas approach, and he’s not going to like my using his name, but I like the speech he gave yesterday.

And that is, we’re talking about a hundred-year--when we make this change at some point in the future, we’re talking about a major change in the program.

I’m sorry, I can’t worry about the fact that currently 29 percent get an employer-based system that’s going to go down to 15 percent.

We need to make this plan work. And we need to make it look like----

Ms. STEELMAN. How are you going to make it work on $500 of drug coverage?

Mr. ALTMAN. That’s--the issue is that the employers will wraparound a new system when it gets designed. We need to talk about that system, but I can’t design the system that’s imperfect because of a percentage of the population----

I don’t know what that--we can discuss what the right system looks like, whether it’s $500, $1,000, that is--but I’m not going to, in my own mind, design a Medicare system that is inadequate for 70 and growing 80 percent of the population because 15-20 percent have coverage. That’s all.

Ms. STEELMAN. Let me say that the idea you’ve put forward does not meet the criteria you just listed. So we have to----

Mr. ALTMAN. Consistency is not part of being a professor. [Laughter.]

Senator BREAUX. All right, it’s been a good discussion, and we’ve gotten some helpful suggestions, and we’re going to try to incorporate what we’ve heard today. Anybody who has additional suggestions on this particular issue, we’d like to have them.

There is work to be done on the whole question of Medigap for the traditional fee-for-service system, that’s clear.

OK, let’s move on to starting at 8:30 a.m., and give us a good time here to talk about the last topic on the agenda, which is consideration of a premium support system.

Let me make just a couple of comments before I turn it over to staff.

We have, prepared by the staff, a side-by-side comparison which you have in front of you. It’s a chart that sort of looks like this, which you all are familiar with, I think.

It was an attempt to compare the various structures of Medicare fee-for-service and Medicare+Choice, and the Federal Employees Health Benefits Plan, as well as CalPERS.

The purpose of doing this was to attempt to try and look at various approaches, not to pick one and say, this is what a premium support plan should be patterned after, but rather to look at trying to come up with an approach that combines some of these existing approaches, and how that might fit into the concept of a new premium support approach for Medicare.

Bobby is going to walk through some of these issues that are presented. We want to have a good discussion.

What we’re talking about, the issue, I think--and I’ll close with this--can be presented under the premium support concept, in, I think, four major areas:

The administration of it; how would it be administrated? Who would administer it? And how would the program be run from an administration standpoint, and what HCFA’s role would be, as an example, would be an important question.

The second category would be what would the government contribution be? How much would the government contribute to this?

How would that be determined? Is it flexible? Does it increase as health care costs increase, and what have you?

The next, third category, potentially, is, do beneficiaries share the premium? What should it be? How should it be determined?

Does that increase or decrease and does it have flexibility or not?

The final category, I think, is how would the benefits be defined? Obviously, this is a very critical point, to determine what benefits would be available under a premium support system, and how do we determine what that would be?

So, just with that sort of opening statement, let me ask Bobby to come in now. Bobby, everybody has this.

I don’t want to spend the whole time just reading it back to them, so I think you have an approach that would be effective.

Mr. JINDAL. Thank you, Mr. Chairman. I want to thank the members for providing their comments and suggestions.

This is the second round of this document. You may remember that at the last meeting, at the December meeting, we went through one suggestion of a premium support model with scoring.

After that meeting, many members seemed interested in getting away from the scoring issues for a minute to look at actually how would you design a premium support program.

And what we have tried to do here is outline--as the Senator said, try to outline how four different programs are operationalized under those four different categories----

So what I’d like to do is walk through each of those categories and very, very briefly summarize the information here.

The intent would be that we could then have a discussion on which of these choices members think make the most sense.

Like I said, at the last meeting, we did lay out something as a starting point, but that was only a starting point.

Mr. DINGELL. Mr. Chairman, you know, I think----

Senator BREAUX. Microphone, John.

Mr. DINGELL. Thank you, Mr. Chairman.

You’ve done a fine job, and I want to express my respect for you and Mr. Thomas, and all my fellow Commissioners.

I think we’re overlooking something that is very important.

We’ve been talking about all these solutions and all these problems, and I’ve gotten a fine understanding of the problems and I’ve gotten a fine understanding of what it is that’s being suggested here with regard to income--into the support system that we’re talking about now.

But we don’t have the vaguest idea what the costs of these different things are. And until we’ve done this, we’re going to keep on sort of wandering around in the outer marshes, trying to figure out what is acceptable without having any sound financial underpinnings.

We’ve talked about all the things that we can do here, and what the problems are, but we’ve not figured out how the costs are going to work out so we can come up to a judgment as to whether we can, in fact, save enough money with these changes or not.

I’m of the very much concerned view that these proposals for--that we’re about to begin to discuss are going to essentially cost just about the same amount as the current system, and we’re going to wind up with the same problem that we’ve got; in other words, having something that’s going to either need more revenue or massive cuts in benefits.

I think that until we’ve begun to get some intelligent estimates as to cost and benefits, and what has to be done to bring this system into some kind of balance, we are not going to have the vaguest idea of what it is that we’re recommending in terms of its real acceptability.

Some smart fellow out there is going to come forward at some time in the future and say, well, this was a great proposal, wonderful proposal, but it cost as much as the other proposal, or it costs more, or it doesn’t save enough money on the basis of any intelligent costing, that’s it’s really an acceptable alternative for the current system.

The suggestions that have been made with regard to the current system, I don’t see making either enough savings or adding sufficient efficiencies that they’re going to solve our problem in any reasonable amount of time.

I think that the proposals that I’ve heard here might give us another 5 or 10 years at most, and might give us only 1 or 2.

Until we’re prepared to address those questions and essentially tell ourselves the truth, and tell everybody else the truth, we’re not going to carry out our functions and we’re not going to resolve our problems.

Senator BREAUX. Well, let me respond to the gentleman.

It is a valid point, but I remember the last time we talked about this, we spent a lot of time talking about the costs. Remember all the charts we had back here.

Then people said, that’s all fine, we know what the costs are, we want to know what the substance is.

So, today, we’re attempting to lay out in a little bit more detail, how a program like this would work.

I mean, at the last meeting, we talked about cost, and we’ll do more of that. I mean, we could not report anything that doesn’t, I think, meet the criteria of what the Commission is charged to do, principally, which is to restore the solvency of Medicare.

I agree, we’re not going to be able to report anything unless we have accurate, the best possible estimates on do we save money, how much does it cost? We did a little bit of that the last meeting, as I said, on premium support.

Members told me that they wanted to hear a little bit more about the structure before we started talking about the costs.

And so today we’re going to look a little bit more at the structure. Cost is always going to be a principal concern. I agree with you on that point.

Mr. DINGELL. With all respect, Mr. Chairman, I was there. I was not impressed at that particular meeting that I learned either about the cost or the structure, at least enough that I could say that we are ready to recommend or that we have the kind of package that would enable us to recommend something.

Senator BREAUX. I agree with that. We’re not at that point yet. We’ve got a lot of work to do on whether it’s a fee-for-service, new and improved system, or whether it’s a premium support system in terms of cost, effectiveness, and does it work.

But until we can get to that point, we have to at least understand what the proposal is. And that’s what the attempt is to do today.

Bill?

Mr. THOMAS. Analogies are always dangerous, but the gentleman from Michigan could appreciate the fact that if someone was paying $400 a month for an automobile which broke down frequently--I mean, you owned it, but you had to pay $400 a month to maintain it----

Mr. DINGELL. That would be a foreign car. [Laughter.]

Mr. THOMAS. And you never----

Senator BREAUX. Not a Michigan car.

Mr. THOMAS. All right, I’ll change my example. You were paying $500 a month for an American car, and--[laughter]--and it broke down all the time, and that was what you were spending your $500 a month for, and you continued month-to-month paying $500 to keep that car going, when you could have taken the $500 and purchased a new one with some assurance that you could get where you needed to go, or that if something went wrong, you had an understanding of what it was and the cost would be less.

To a certain extent, part of this discussion is an agreement that what we have now is not as good as it could be, with our understanding of changes that have occurred and the way things go together, including modernizing HCFA, at the very least, to allow them to participate in what we now know is going to be a changing world.

So that if we set up a structure which could be changed more easily by people in the future, or where the adjustments don’t have to go to the very base of our politics in which bumper stickers say vote for one party or the other to save the program, which is pretty ludicrous in terms of where people are.

I think, in terms of talking about this program, all of those would have been positives and made it easier to make the changes, especially if you could create a system in which the changes are absorbed by the system itself, rather than being imposed by the political process on the system.

And it may be possible to save money in that structure as well.

Senator BREAUX. Let’s shop for a new car.

Bobby?

I appreciate the discussion, but, by golly, I’d like to get something in front of us to discuss.

Mr. VLADECK. I think it’s important, Mr. Chairman, that on the record, that the concern is that the adjustment inflexibility in a premium support policy, if you’re not very careful, comes at the expense of the beneficiaries.

Senator BREAUX. Let’s talk about that. Let’s get it in front of us.

Mr. VLADECK. That’s precisely what we’re concerned about, Bill, is that this system constantly changes and constantly adjusts by hitting the beneficiary while protecting the public purse.

And if we don’t satisfy ourselves on that issue, then you could end up with an $800 car that doesn’t run at all, and that’s the concern about this issue.

That’s why we need numbers.

Senator BREAUX. Bobby Jindal, you’ve got a presentation.

Mr. JINDAL. And we will get to the issue of beneficiary and government contributions.

The first issue, however, as we walk through this, is administration and overview. What I’m going to do is, I’m not going to read each of these rows, but I would like to summarize very briefly on each of these rows, how these four different programs are different, and then possibly we can start a discussion on how the members would like to see this premium support system structured, either one of these four choices, or maybe something different than what’s presented here.

If you start on page 1 on overview--once again, I’ll go through just the first part, which is administration, and then we can stop at that point.

Under structure, if you start in the left and read across, Medicare fee-for-service, it’s the traditional fee-for-service program, it’s the government-operated program. We talked a little bit about it yesterday in terms of characterizing it.

You’ve got a full range of choice among providers. It does not discriminate among providers in terms of volume or quality or other criteria, for the most part.

In Medicare+Choice there are a wide variety of plans. As you are well aware, the Balanced Budget Act authorized new options.

Depending on whether these options are actually made available in particular geographies, beneficiaries can join HMO’s, point-of-service plans, as well as these other options listed here.

In FEHBP, the beneficiaries have approximately 300 plans to choose from, 10 of which are national plans run by seven insurers.

Most of the beneficiaries do tend to end up choosing a handful of large fee-for-service or PPO’s, managed fee-for-service options.

Finally, in the CalPERS system, beneficiaries have the choice between HMO’s and two state-run PPO’s.

In total, there are about 20 plans that run in the system, and so when you read left to right, you see there are different types of choices and options available to beneficiaries in each of those four programs.

On the second page, we look at demographics. If you just look at the demographics of these different programs, Medicare fee-for-service has over 33 million, well actually the total Medicare Program has 33 million aged enrollees, 5 million disabled, and as you can see, 99,000 under 65 ESRD.

Of those beneficiaries, 6.8 million are in the Medicare+Choice Program. FEHBP has 9 million participants, of which 1.2 million are retirees.

CalPERS has a million participants, and of those, 108,000 are actually Medicare beneficiaries.

If you look at geographic coverage, on the third page, you’re looking again left to right.

On the third page on geographic coverage for Medicare fee-for-service, the Medicare Programs available in all states, all territories, and all localities. It is a universal program.

With Medicare+Choice, the number of plans available depends on geography. Some metropolitan areas have a large number of HMO’s. As we’ve heard here before, some states and some localities don’t have a range of plans and choices.

In FEHBP, in every state and locality, there are at least 10 managed fee-for-service plans that are offered by seven insurers.

And in metropolitan areas, you do tend to have higher HMO penetration and have up to about 25 plans.

With CalPERS, you’ve got the two state-run PPO’s and four employee-run PPO’s that are available statewide, so there are six options available statewide.

In addition, there are many more HMO choices that vary. There are obviously more HMO choices in urban areas.

Mr. DINGELL. Bobby, would you tell us one thing which I think is important.

In which areas in California are there areas where the only provider is a state-run PPO? Are there areas out there where there’s a good number of plans that won’t enter.

Mr. JINDAL. There are certainly areas where the only options are the six PPO’s, either the two state-run, or the four employee-run, and they do tend to be rural areas.

So in those areas, you’d have one of six choices, and those would be the PPO options, but you wouldn’t have an HMO option.

Those first three variables were what we put under program overview.

The second component, still under administration, on page 4, is the program administrator, in terms of who is actually running the program.

On our Medicare fee-for-service----

Mr. MCDERMOTT. Mr. Chairman, could I----

We went by the demographics very quickly and I just want to ask a question or at least try and get some understanding.

Do we have data some place that compares the cost of taking care of somebody under 65 and somebody over 65, and taking care of somebody disabled as part of this, as compared to these other programs?

I see that CalPERS and FEHBP have some responsibility for groups like that, but I don’t know whether they’re a selective group or anything about what the comparison of the cost is.

Because I think that to compare Medicare with CalPERS or even the Federal Employees Health Benefits Program has some inherent weaknesses if you don’t look at the difference in what the health status is of the people you’re covering.

Senator BREAUX. Yes.

Mr. THOMAS. We have some data on the disabled especially.

Mr. JINDAL. Sure. I know certainly that we do have data on the terms of the difference of the costs. The disabled, in Medicare, for example, we do know cost as much as six times the average beneficiary, in terms of the average aged beneficiary.

But in terms of looking at the different programs, FEHBP and CalPERS, certainly the pre-65 versus the older-than-65 population would have different costs.

And one of the things we’re careful to do is look at the growth in cost rather than the absolute cost in comparing them.

When you look at the FEHBP population, for example, when you look at that retiree population, that looks most like other retirees in terms of Medicare beneficiaries with employer-sponsored coverage.

When you look at the profile in terms of health status, age, and other things, the only area in which it is very different is a higher income population.

When you look at things----

Senator BREAUX. Let me interrupt, Bobby.

And the point of this discussion at this point is not to I think particularly debate the merits of any one of these programs individually, but to see which best features of any of these programs could be pulled into a new concept under a premium support plan.

It’s not to argue that CalPERS is perfect or FEHBP is perfect or Medicare or Medicare+Choice is perfect, but to get a comparison of how each one of these programs address these areas, ultimately to try and pick the best of each of these into a new proposed premium support system.

So I mean, each one of these, I mean it’s appropriate to point out they got problems, but what we’re trying to do is find the best features from each one of these to see if we can incorporate it into a premium support type of proposal.

Mr. MCDERMOTT. I think, Mr. Chairman, that’s why I was raising it. If you have senior citizens who require more hospitalization, then you have a much bigger problem with home health care than you do in a situation like CalPERS where you’re dealing primarily with acute illness where people go in, spend 3, 4, 5 days in the hospital, maybe are at home for 1 or 2 days, and go back to work, rather than dealing with the long-term kind of rehabilitative things that happen in the Medicare Program.

That’s why it’s tough, in my view, to say that you’ll take the best of what works in CalPERS, let’s say, for home health care, to try and apply that to senior citizens is going to be a tough fit.

Because there are questions of health care status that are going to keep people longer in home health care.

That’s one of our biggest problems right now, but there are others that we could illustrate with.

Mr. DINGELL. Jim, aren’t you saying we’re comparing apples and oranges here?

Mr. THOMAS. Could I, could I ask a question? I want to agree with you in a way, Jim, and that is that you can look at a structure, absent the clients in the structure, and then talk about how that structure works or doesn’t work.

And one of the discussions that we’ve had before in BBA 1997 and that we will continue to have is whether or not we take discreet populations with a known cost and include them knowingly and spread them across the entire structure, or talk about where we know discreet groups and their costs, whether we create a reinsurance structure or use government as a last resort so as not to distort a pool.

That is a separate discussion that I think is going to continue, for example, on the Medicare+Choice.

The question was do you allow ESRD patients to go ahead and operate in Medicare+Choice or do you make sure, that as a discreet identifiable high cost population, to handle them in a different way.

The decision was to handle them in a different way, and not so with disabled.

I think it’s possible to deal with particular known discreet cost profiles in different ways regardless of the structure.

Senator BREAUX. Phil?

Senator GRAMM. Bobby, let me just ask you a couple of questions.

Maybe I am confused here, but are we not looking at allowing choices in addition to whatever the final reform is in the basic package?

In other words, is not the end result we are looking for here the potential that people could stay in the existing system if they chose to, or that they could opt into other systems that would have different characteristics and in fact that there would be, to some degree, a competition among those systems and with the existing system.

Isn’t that what we are looking at?

Senator BREAUX. I would only answer that it would not be a question of staying in the existing system, but staying in what would be hopefully a new and improved fee-for-service system.

Senator GRAMM. A reformed system, yes.

But the point is, and I think this is an answer to many of the questions that are being raised, if we set up an alternative that was similar to FEHBP, for example, no one’s going to be forced to choose it.

And presumably, since people will have the opportunity to come back, if they’re not happy with it, if they do choose it, if it is not better in terms of the mix of medical care they get, they won’t choose it, and won’t stay in it.

Mr. ALTMAN. Won’t stay in what, the whole system?

Senator GRAMM. No, FEHBP alternative.

Stuart, here’s what I'm saying.

Mr. ALTMAN. I'm having trouble.

Senator GRAMM. If we set up a system with greater choices, let's say we add an FEHBP system, a premium support system, and you now have a choice.

You can take your premium support and you can use it in any choice you take, or you can stay in the conventional Medicare.

My argument is that many of the points that are being raised as concerns neglect the fact that if people are happier with the current system than the alternatives that are offered, they’ll simply stay in the current system.

We all know that, for example, HCFA has sought many of the powers that would allow them to do what many of the private companies running medical care programs under FEHBP do.

I mean, it seems to me that this is simply an argument against choice, and the point is the beneficiaries cannot be worse off because they can stay where they are.

As we have talked about in the past, if I have a choice of staying in the current system, or going into a premium support system where they limit my ability to go see a bunch of specialists, but they pay for a substantial part of my pharmaceuticals, and I opt to go into it, and I stay in it, every year, I have an opportunity to come back, but I stay in it, I would say by revealed preference that I’m quantifiably better off.

Mr. ALTMAN. Would the gentleman yield for a question?

Senator BREAUX. Let me make a comment. I mean, we’re debating and I want to have all the debate we possibly can, but I also want to have the product presented to us in order to have the debate.

You know, if we ask him questions about what’s being presented in the outline, let’s do that. But to debate the whole concept about which one’s the better choice, I’d like to have the product in front of us before we do that.

We’ll have plenty of time to ask these questions and make these points.

Senator GRAMM. Mr. Chairman, I agree with that.

The only point I am making is that choice per se is a positive. Some of the early discussion on this was cast in terms that we are going to force people into these choices.

And my point is that people can stay within the existing system, if they choose, even if we have an FEHBP-type system. I cannot understand why, supposedly, it’s bad if FEHBP-type programs, premium support programs, are doing many of the things that HCFA wants the power to do themselves.

Mr. VLADECK. Senator, this is really on the presentation issue in response, because Senator Gramm’s entirely right with one exception, and it’s not in the matrix at the moment, Bobby, and it’s additional requests for presentation.

The history of FEHBP suggests that unless you are very careful about design, and we haven’t addressed it, the kind of phenomenon that Senator Gramm talks about, that we’re all trying to get to, can create horrible adverse selection problems that can threaten the structure of the entire system.

And so one of the things we need, and probably not today, it’s not fair to ask at the last minute, is some further background on the history of the management of risk selection of cross plans in FEHBP and in CalPERS because within the last 20 years, FEHBP has almost collapsed twice because of that issue.

These are technical design issues, and you can fix them, but if you don’t, if you give people choices, but you’re not careful about what you do about risk adjustment and risk selection, the whole structure can come crashing down.

In the matrix, we need to add more considerations.

Senator KERREY. My problem is we’re never going to get to any potential restructuring unless we at least get it laid on the table and look at it.

If at every point in the presentation, we use the opportunity to add negative comments, I mean, I’ll guarantee you permission to consider any kind of alternative is going to be withdrawn.

I mean that’s the problem. We’re not even a quarter of the way through being able to understand what the side-by-sides look like.

Senator BREAUX. All right, thank you very much.

Bobby?

Mr. JINDAL. And we do briefly talk about risk adjustment on item 16, but we will provide you with more background information on that.

Item 4 in terms of the administrator in the fee-for-service system, we have HCFA paying for the services and interpreting the statutory requirements, working through their carriers and intermediaries.

In Medicare+Choice, you have HCFA contracting with the plans and monitoring their performance. HCFA’s responsible for doing open enrollment and distributing information on these plans.

In FEHBP, you have OPM actually acting as somewhat of a purchasing board, soliciting proposals from plans, negotiating benefits and premiums, and running the annual open enrollment.

The one big difference with FEHBP is that it’s much more of an aggressive negotiator in terms of negotiating premiums with the plans that respond. It also runs the annual open enrollment and disseminates information to employees.

So in a way, it also acts as a purchasing board for the----

Mr. VLADECK. Bobby, how does the fee-for-service PPO part of the CalPERS work?

Could you tell us a little more about that?

Do they just contract with private insurers or is there a separate arrangement?

Mr. JINDAL. In terms of the ones that are self-funded as opposed to the four state ones.

Mr. VLADECK. How are those options administered?

Mr. JINDAL. Sure.

Senator BREAUX. Go ahead and respond.

Mr. O’GRADY. Dr. Vladeck, they’re basically set up. They are run by the state board, but they do subcontract out. They have one subcontractor that does their drug coverage, another does their utilization review. That’s sort of a, you know, they farm it out in different ways to third-party administrators.

The populations in the two plans do look very different as do the premiums in the two plans.

Mr. VLADECK. But the basic price negotiations with providers, the basic administrative structure, is that a specialty contractor or is that generally subcontractor--I just don’t understand what the organizational structure is.

Mr. O’GRADY. In terms of how they handle--I mean, what they do is they----

Mr. VLADECK. You have an insurance company in effect. Who----

Mr. O’GRADY. What they do is they basically contract. I think normally it’s been Blue Cross/Blue Shield for the general kind of overall, Medco for the drug coverage, someone else does their kind of utilization review, peer review sort of stuff.

Mr. VLADECK. And pricing negotiation’s done by those contractors?

Mr. O’GRADY. I believe so, yes.

Senator BREAUX. Ms. Conway-Welch?

Ms. CONWAY-WELCH. Bobby, briefly, we are assuming that you’re able to evaluate a plan on an annual basis and change plans if you want to on an annual 12-month basis.

That has created some havoc with TennCare in terms of just the 12-month period.

Could you also look at what would happen with an 18-month or a 24-month, a somewhat longer period?

Mr. THOMAS. Just very briefly, you have to appreciate the politics of again in BBA 1997. Currently Medicare beneficiaries can change on a monthly basis, every 30 days. It’s almost impossible to follow records through the structure.

And in looking for a model, most people felt that on an annual basis, it made some sense enrolling through an annual basis, and we have in fact, in law I believe, fully implemented in 2003 that it will be then an annual enrollment basis.

To go beyond that, I think, would require someone else being out front with a model that shows that locking someone in over an 18- or a 24-month period into a plan that they don’t like somehow has virtues over the 12 months.

Senator BREAUX. Bob?

Mr. MCDERMOTT. So you’ve taken away choice basically. The choice that the old people have today, senior citizens, is we put it out far enough so they don’t know about it, but ultimately they’re going to run up against it in 2003. That’s basically what we’ve done with that issue.

Mr. THOMAS. No, I think it’s choosing between chaos and freedom.

Senator BREAUX. Senator Kerrey?

Senator KERREY. Mr. Chairman, I’d be very much interested in knowing if Bruce is the only one in this group that’s actually had the experience of administering, had the joy of confronting Congress as we try to improve your efficiency.

And I’m wondering, very much interested, as you look at the administrative options, just that alone, just the governance issue I’m talking about here.

Do you see advantages in any of these other structures to the way we currently organize, the legal organization of HCFA?

Mr. VLADECK. Well, one of the reforms that was on Bobby’s list yesterday, and I don’t think got discussed at all, and is related to the question I just asked about CalPERS administration.

One of the things that is not available to HCFA as an administrative choice would be to say contract with a private health insurer that is doing very well in terms of having a good network and is a good utilization review and so forth to administer the fee-for-service benefit in some defined geographic area.

What contractors can do and what they can’t do is now very rigidly specified in the statute.

So when we talk, for example, about being able to negotiate prices or to bill provider networks, it is feasible to have HCFA do it itself, but it might make a lot more sense in a lot of communities to not, to contract out those sort of functions and sort of responsibilities.

And I think there is an analogy to the way CalPERS is doing it. And I think that it certainly needs to be explored from an administrative point of view.

Clearly, and as Mr. Thomas has pointed out on a number of occasions, and Ms. Steelman pointed out yesterday, as well, the current organization has been developed and evolved to carry out the current legal authorities.

And if you create a whole lot more authorities in terms of flexibility about pricing and dealing with providers and so forth, you not only need to change the shape of the organization, but you need to change some of the tools that are available to it.

And I think again, the CalPERS model of contracting out and say, for example, HCFA is now exploring a demonstration project to basically contract with a laboratory PPO, so instead of buying laboratory services directly, you have a PPO with a limited network and ability to negotiate prices to buy laboratory services in some geographic area.

And that will be conducted as an experiment and so forth.

But the flexibility you ought to have not only the insured deals with the program, but who represents the insurer or how the insurer is organized.

And again, I think CalPERS, probably more than FEHBP, offers some very interesting----

Senator KERREY. But HCFA currently has a Board of Directors that consists of 535 Members of Congress, does it not?

Mr. VLADECK. That’s right.

Senator KERREY. And those 535 Members of Congress, by the way, are responsive to the needs and concerns of individuals in their home states or home districts.

So I might be for getting rid of fraud and abuse, but against getting rid of, against HCFA’s response if it interferes with the operation of my hometown hospital.

And thus I may, on the one hand, hammer HCFA to do more about fraud and abuse, and then support legislation making it more difficult for you to actually go after fraud and abuse.

I mention that as one example.

The point that I’m trying to get to is whether an alternative governance has popped into your mind from time to time, either during your service or post-service of HCFA, an alternative way to establish governance that would enable HCFA to be more flexible and take action to save taxpayer money.

One of the things we’ve talked about, as a matter of fact, I note in the newspaper this morning, that you made a statement saying that we need more revenue in the system.

And I see two problems with that. One is that taxpayers don’t trust that they’re going to get their money’s worth, in part because of the way it’s currently governed, in part because of the way it’s currently organized, and in part because there’s a lack of transparency to know how the money’s being spent.

And there may be other factors as well that contribute to that, but I’m trying to get to your sense of what would be a better alternative organization for just Medicare as it currently exists under HCFA.

Mr. VLADECK. Since you pose the question in these terms, Senator, I can tell you that this is something I no longer feel obliged to say at all, but I’ve thought a lot about the accountability issues.

Medicare is very important. It can have enormous consequences not only for beneficiaries but for providers. I think there’s a real basic philosophical and legal and constitutional issue about accountability and direct accountability to the U.S. Congress is still the strongest mechanism we have.

We have a long history in this country of interstate, you know, independent boards and commissions and all that kind of stuff to insulate them from that kind of short-term congressional stuff.

People have talked about a Federal Reserve model or things of that sort.

But I get nervous when you take something that’s so important to people and try to put it out of the direct reach of the legislators who are still our best mechanism for accountability in this political system.

Senator KERREY. Well, I mean, Congress can always change the law. Congress can change the law of any governance, and there’s even a process that enables us to change the Constitution if we choose to, if we don’t like something that’s going on that we want to change.

So the lack of accountability and the issue of accountability I think is an important issue, but I’m not suggesting that we eliminate accountability.

What I’m trying to do is try to press you to discover if you’ve considered any alternative ways to organize so that we can take advantage of what the marketplace is doing.

The marketplace is looking for ways to deliver health care more efficiently, looking for ways to reduce costs, looking for ways to increase quality of care, doing it all the time.

I mean, there’s nobody in America that wants higher cost health care and lower quality health care.

And what I see in the current structure is it’s very difficult for HCFA to do all that because, you know, you’re under the constant gun, to put it mildly, or HCFA is under the constant gun, to put it mildly, to satisfy lots of different considerations, many of which are in conflict with the things I’ve just described.

I mean, somehow there must be a way to organize HCFA in a way that it can be more flexible in giving permission to people to do things, to individuals or institutions, that could save a great deal of money.

And right now what we’ve got, it seems to me, is essentially a top-down structure that makes it very, very difficult to do that.

Senator BREAUX. Let’s complete Bobby’s presentation. I have to go to a caucus and will return and I think Senator Kerrey as well. And then as soon as you finish this, I want to get into the suggestions, at least an outline of suggestions on a premium support system, and what it would encompass.

Mr. DINGELL. Are included in that, costs, Mr. Chairman?

Senator BREAUX. We will absolutely have a discussion of costs, as well.

Mr. JINDAL. Let me quickly try to finish the administration section.

No. 5 is the selection of the administrative board. Medicare fee-for-service is headed by the Administrator of HCFA, who is appointed by the President, confirmed by the Senate.

Medicare+Choice, the same administrator, administered by civil service staff.

At FEHBP, the Director of OPM is appointed by the President, confirmed by the Senate, run by civil service staff.

CalPERS has a mix of members on the board. Some are elected by beneficiaries, some are appointed by the Governor or specified in statute, for example, the state treasurer.

The sixth point is one that we just briefly touched upon with Dr. Vladeck’s comments in terms of the plans operated by the board. In CalPERS, you actually have it running two plans.

FEHBP does not operate any plans itself. Rather, it acts as a purchaser and of course with Medicare fee-for-service, there aren’t plans.

No. 7, as we turn to regulation, in terms of regulation of plans, if you look at Medicare+Choice, HCFA sets regulations in terms of financial solvency and appeals process.

In addition, most plans have to follow state, HMO, or insurance standards.

FEHBP: Once again, OPM sets those standards and again state laws govern most HMO’s.

One difference is that FEHBP doesn’t actually have a limit on the number of HMO’s that may participate in its program.

There are some limits on the number of national plans in terms of the fee-for-service plans.

In CalPERS, again, the CalPERS sets the standards, state law applies. There’s not a limit on the number of plans in CalPERS, but CalPERS again is a tougher negotiator in terms of letting plans participate versus FEHBP.

Eight, in terms of exclusion and termination of plans. In Medicare+Choice, HCFA must prove patterns of fraud or abuse.

With OPM and FEHBP, OPM usually does not terminate plans. It may do so if a plan’s enrollment drops below 300, but even then OPM may make exceptions.

In CalPERS, the board actually may, and does take action to free enrollment or to terminate a plan if the board’s not satisfied with a premium bid or other aspects of performance.

And once again, CalPERS is more likely to exercise that authority.

In terms of regulation of providers----

Ms. CONWAY-WELCH. Bobby, may I ask just a quick question?

Under the FEHBP model, OPM can make exceptions to the rule if the plan’s under 300. Can we get some information on what those exceptions are?

I assume if it’s in a rural area and nothing else is available, and also if there is any data on the cost of that exception?

Mr. JINDAL. Sure.

Now remember, even in the rural areas, they’d still have the 10 national plans.

Ms. CONWAY-WELCH. Right. But that makes that question even more important.

Mr. JINDAL. Sure.

My impression is that FEHBP is much more reluctant than CalPERS would be to freeze or exclude a plan, but we’ll find that information out.

In terms of regulation of providers, in Medicare fee-for-service, the standards are set by statute and regulation. In addition, there are state licensure requirements.

Again, with Medicare+Choice, the same requirements, the standards are set by statute and regulation. Plan providers generally have to meet the same requirements as fee-for-service providers.

In FEHBP, the plans set the requirements for the providers. Providers do have to meet state requirements, but the plans are free to negotiate and choose which providers they contract with.

And the same thing in CalPERS. The plans once again can contract with the providers and set their own standards in addition to the state licensure requirements.

The 10th point under administration, regulating provider payments.

Under Medicare fee-for-service, you’ve got Federal statutes setting the requirements and formulas.

Under Medicare+Choice, HCFA sets payments for the plans based on formulas and statutes and then the plans negotiate with the providers.

In FEHBP, the plans are free to negotiate with the providers using their own policies.

The same in CalPERS. Once again, the plans are free to negotiate with the providers based on their own policies.

And the final point under administration, No. 11 on page 8, in terms of selection, exclusion, and termination of providers.

Medicare fee-for-service, we touched upon this yesterday. All providers who meet qualifications standards must be allowed to participate. Although HCFA does have the authority to exclude providers for conviction for fraud and patient abuse, this is a relatively rare event.

One of the things we touched upon yesterday is you do have broad participation in the Medicare fee-for-service plan.

In Medicare+Choice and in FEHBP and in CalPERS, plans can select the providers to be in their networks, and they can choose to contract with them based on their own criteria.

This is the last aspect of the first topic, administration. I think, as you go through this, you can see some of the main differences between the four plans, the fundamental difference being between FEHBP and CalPERS, both of those entities in a premium support structure act as purchasers, vis-a-vis, the plans with which they negotiate, one difference being that CalPERS does operate two plans whereas FEHBP does not.

And by going through each of those variables, I think we’ve touched on some of the differences between each of the four different programs.

If we turn to eligibility on page 9, and the 12th thing, Medicare fee-for-service eligibility is set by Federal statute. You’ve got listed there the requirements an individual has to meet for eligibility in terms of age, quarters of earnings or disability.

Medicare+Choice is the same as fee-for-service.

For FEHBP, one has to be employed or retired from the Federal Government or a dependent.

CalPERS similarly, one must be retired or employed by the State of California or a dependent.

Local governments do have the option of buying into the CalPERS system. You can be employed by the local government or local entities.

No. 13 on page 10 is the enrollment process for beneficiaries.

Medicare fee-for-service: Beneficiaries are automatically enrolled in fee-for-service unless they elect to choose a Medicare+Choice plan.

Medicare+Choice, as we just discussed with the Balanced Budget Act, annual enrollment will be phased in starting in 2003 and beyond.

For FEHBP and CalPERS, they already have annual open enrollment. So once you make your choice, you have an option once a year to change that enrollment choice.

Mr. DINGELL. Bobby, could you address this Medicare+Choice?

You said at 2003, you’re going to have something happen.

As I understood it early on, if you agreed to get in, you couldn’t get out.

Then we changed it so you could get out once, and then you’re stuck.

How does this enrollment process work with regard to----

Mr. JINDAL. Well, what’s happening now is you can enroll and disenroll monthly. What’s going to happen in 2003 is that you will then have an annual commitment. You’ll still have an option for one change during the first 3 months of any year, but once you make that commitment, you will stay in that plan for the full year.

Mr. DINGELL. For the full year. You can then run in and out of Medicare FFS and Medicare+Choice?

Mr. JINDAL. That’s right, once a year.

Mr. DINGELL. Is that going to impose some kind of adverse selection or is that going to create some problems?

Mr. JINDAL. Well, in one of the things we talk later----

Mr. DINGELL. I apologize for taking time.

Mr. THOMAS [presiding]. But you can do it monthly now so, yes, you still have the problem, but you have less of the problem.

Mr. DINGELL. I’m just trying to understand, I’m trying to understand because we’ve had complaints on this, and I’m not quite sure I understand it. That’s my concern.

Mr. THOMAS. Right. But currently, you can move in and out monthly, which is very disruptive. The idea----

Mr. DINGELL. I’m not an advocate for that change.

Mr. THOMAS. A degree of stability with a period of testing in which someone would feel comfortable going in, but still could have a choice of coming out, is phased-in program. It doesn’t just move to yearly in 2003.

There are a series of extended timeframes for 6 months, and it gradually grows then to that 12-month period with still an option if having made the initial decision, of that 3-month window, to stay in or out.

It’s an attempt to create a reasonable timeframe for orderly change.

The adverse risk selection, I think is less of a concern since everyone is obligated to take anybody. The problem comes when you move from--in my opinion--when you move from the Medicare+Choice back to the fee-for-service, and you’re looking for, currently, a Medigap policy to give you a better overall package.

Mr. DINGELL. That’s one of my concerns.

Mr. THOMAS. And we’ve required them within that earlier timeframe, to come back in, but it simply wouldn’t work if you were allowed to say stay out into the Medicare+Choice world for 3 years or more and then come back in with a required commitment to come back into the exact same Medigap plan.

So you have kind of a fail-safe that there is a Medigap plan available to you, but not necessarily the specific one that you were in before.

And if we changed Medigap to look more like other programs, that problem would actually diminish. It’s a problem with the way Medigap is structured, rather than the opportunity to make choices.

Mr. DINGELL. Thank you.

Mr. JINDAL. That truly completes the administrative aspects of the four different programs.

The second set of issues with the four different programs----

Mr. ALTMAN. Excuse me, Mr. Chairman. I’m sorry.

There’s so much here, and it’s so--wouldn’t it make some sense for us to take one chunk at a time? There’s a lot of material here.

I don’t even know how--and I work with complex things. If you throw all of the issues at us at once, we’re not going to make--wouldn’t a 10-minute discussion about each subsection, and the move on, Bobby, would then--then you can----

We’ll spend an hour and a half just going through these things.

Mr. THOMAS. Well, actually, no. We’re on page 10 of 16, so we’re mostly through it.

Then we could go back and choose.

Mr. ALTMAN. All right.

Mr. THOMAS. Senator Breaux wanted to try to get through--the chairman wanted to get through, on the record, the structure, so that we could then spend the rest of the time talking about what it was that we wanted to talk about.

Mr. ALTMAN. All right, but there’s a lot of stuff here.

Mr. THOMAS. We’ve discovered that when we start and then talk about where we started, we rarely ever get where we intended to go.

So let’s just run through it very quickly. In fact, if you want to, as we sometimes do, since it’s in front of us, Bobby, you might indicate what it is and just very briefly move on so we can get to the end quickly.

Mr. JINDAL. OK.

Mr. ALTMAN. Thank you.

Mr. JINDAL. On page 10, we start talking about premiums and cost sharing in terms of the establishment of the overall--the total premium, both government and beneficiary combined.

Obviously, fee-for-service, you don’t have a premium. Medicare+Choice, combination of factors, and we’ve detailed how the calculation is done on here and on the next page.

Both FEHBP and CalPERS, the overall premium is set by the competition between the plans, and negotiation between the plans and the purchasing board.

Once again, the one difference is that CalPERS is the more aggressive negotiator.

No. 15, on the next page, establishment of the government contribution for Medicare fee-for-service, the contribution is set in Federal statute. The only real premium is on the part B costs where 75 percent is paid for by the government, 25 percent by the beneficiaries for part B services.

Medicare+Choice, again, we’ve listed the formula there for the government contribution. It’s recently been changed by BBA, and you can see the formula there. It traditionally was linked to the cost of the fee-for-service plan, and now there’s a slightly different formula.

For FEHBP, the formula is set by Federal statute, and the government contributes 72 percent of the national weighted average premium, but no more than 75 percent of any particular plan’s premium.

For CalPERS, the state actually negotiates with the employee unions and the state’s contribution is then set through that negotiation. It sometimes is actually higher or equal to the cost of a number of the plans offered in that system.

Mr. DINGELL. What happens then?

Mr. JINDAL. When it’s higher, the difference is actually refunded to the employee.

Mr. ALTMAN. But what’s an average? I mean, is it 80, 90, 40? I mean, I know it negotiates, but where has it been over the last couple of years?

Mr. THOMAS. They try to shoot for 100 percent.

Mr. JINDAL. I think that when you look at the recent performance, most of the HMO plans would be underneath that contribution. Some of the PPO’s----

Mr. ALTMAN. People pay nothing?

Mr. JINDAL. That’s right. It’s much more likely, and that’s why the CalPERS board has to be a much more aggressive negotiator, and that’s why, for example, CalPERS recently froze the enrollment of one plan because they felt like the premium bid was too high.

Mr. ALTMAN. That’s what I thought. So that in a way, the words, premium support, is a little bit of a misnomer. I mean, it’s full support; I take it back, it’s total support.

Mr. JINDAL. There are a couple of exceptions to that, however. The local employees that are bought in, don’t necessarily get the same level of support as the state employees, and also employees choosing some of the more expensive PPO options would still pay then a marginal premium.

In terms of 16, it’s a topic that we briefly talked about before. Explicit adjustments in a government contribution for geographic variation, risk adjustment or age. Medicare fee-for-service, clearly, the prices vary to providers somewhat with geographic adjustments, but there aren’t the other types of adjustments.

Medicare+Choice does adjust for some of these factors that are listed here.

And, as we know, HCFA is working on this risk adjuster for 2000.

FEHBP, there are no explicit adjustments in terms of geographic adjustments or risk, however, the fact that the plans bid regionally, and there is a maximum government contribution, does result in an implicit geographic adjustment.

CalPERS, there are no explicit adjustments, either. There is, however, a different rate increase in urban versus rural areas.

No. 17, in terms of beneficiaries premiums, again, we’ve talked a little bit about Medicare fee-for-service. The only premium they pay is 25 percent of part B.

Medicare+Choice, the premium would simply be the difference between the cost of the plan and what the government contribution is, based on the formula above, including the part B premium that they continue to pay.

In FEHBP, the beneficiaries’ premium would be the difference between the government contribution and the plan premium, with the note that they always have to pay at least 25 percent of the cost of the premium.

With CalPERS, as we’ve just noted, sometimes beneficiaries don’t have to pay a premium when the state contribution exceeds or equals the cost of the plan.

Page 13--and that concludes the discussion of premiums and cost sharing in these different programs.

On page 13, we turn to the third topic, benefits; 18, whether these benefits and services are standardized.

In fee-for-service, clearly there is a great degree of standardization in types of particular benefits, both in Federal statute and in terms of HCFA’s regulations. We do talk a little bit here about some of the variations allowed by carriers and contractors, but for the most part, there is standardization.

In Medicare+Choice, they must cover the same benefits and services as fee-for-service. They may be required to offer additional benefits, depending on the profit rate and what they’re charging.

For FEHBP, the benefit types, but not the benefit levels, are set by statute. What that means, for example, in statute, OPM does require that specific things like--the core benefits like hospital, surgical, in-hospital medical, and other services listed here are offered, but then it negotiates with the plans.

The plans will come back and offer specifics on deductibles, copayments, scope and duration, and the board must then approve those plans’ offerings.

With CalPERS, there is much more standardization than even in FEHBP. With CalPERS, the HMO plans have to bid on the standardized benefits set by the board.

With the PPO plans, there is a little bit more variability than with the HMO’s.

So, again, here are the big differences: In FEHBP, you’ve got the core benefits defined in statute, but then the plans submit their specifics and negotiate with the purchasing board.

On the next page, in terms of plans’ variation and flexibility of benefits, as I’ve just talked about, you don’t have much variation in Medicare fee-for-service and Medicare+Choice, we talked about they’re required to cover the fee-for-service benefits, and there are also limits on the plans’ cost sharing.

With FEHBP, and, again, with CalPERS, we talked a little about the fact that in FEHBP, plans may vary supplemental benefits, cost sharing, and coverage specifics, but the board must approve those beforehand.

For example, they will look at issues like adverse selection, they will look at issues, like, do they think their employees are getting a good deal for the premium being charged.

CalPERS, again, has more standardization for the HMO’s, and more variability for their PPO’s.

No. 20, for the process of updating benefits in Medicare fee-for-service, Congress and the President must agree to amend the Medicare statute, generally to add new benefits in fee-for-service.

Medicare+Choice, the benefits must include any expansion in fee-for-service, but plans are free to add supplemental benefits each year.

In FEHBP, benefit changes can be initiated by plans. They can do that and then negotiate those with OPM.

Also, OPM can initiate benefit changes through its annual call letter, which is its equivalent of RFP or request for proposals from plans.

In CalPERS, again, the board sets benefit changes for the HMO’s, and they must approve any specific benefit changes proposed by the PPO’s in that system.

That concludes the third section on benefits and the difference in standardization among those four plans.

The fourth and last section starts on page 15, in terms of utilization review requirements as part of the discussion on quality. Medicare fee-for-service claim processors are responsible for reviewing services, except for in hospitals where you’ve got the PRO’s responsible for doing that.

In all four of these systems, all beneficiaries must be provided with an external review.

Medicare+Choice plans must establish programs to review service use.

In FEHBP and CalPERS, plans may establish those kinds of utilization review requirements, and certainly in the managed care plans, you do tend to see more of that kind of review.

In the last page, No. 22, we’ve got quality control requirements. Medicare fee-for-service: You’ve got institutional providers required to have internal quality review; claims processors also are authorized to review for quality.

We talked a little bit yesterday in the modernizing fee-for-service discussion, on the current restraints, the current activities in traditional Medicare, as well as some of the potential things being done in the private sector.

In Medicare+Choice, plans are required to have internal quality assurance programs. Plans are also required to report on HEDIS and the Consumer Assessment of Health Plan Surveys.

Finally, with FEHBP and CalPERS, with FEHBP, plans are encouraged to get NCQA and JCAHO accreditation. HEDIS will be used in 1999.

FEHBP for HMO’s, may reserve or may hold back 1 percent of their premiums, based on performance, and may also adjust the profit margins for the fee-for-service and PPO plans based on quality.

In CalPERS, again, NCQA accreditation is encouraged, and quality indicators on HEDIS are sent to every enrollee annually.

One last thing, with FEHBP and CalPERS, as you all know, there is encouragement for private sector entities outside of those two purchasing boards also to rate and evaluate the plans. I know we’ve talked before about Checkbook and some of its activities in FEHBP.

There is encouragement for other organizations to provide that information to consumers directly, since they’ll be the ones choosing among these plans.

That is the fourth and last section on the side-by-side.

Mr. ALTMAN. Well, this is very comprehensive, and clearly is a good job of telling us what exists today.

My issues are really--I’m sorry Senator Gramm isn’t here, because the way I look in the future, if we were to change the program, we are not talking about a program that looks anything like--even if we were to adopt one of the two other models, the FEHBP or the CalPERS.

What I mean by that is, what is the largest plan, as a percentage of total in the FEHBP, what percentage of the population does it have, and then what percentage of the total population does it have?

Mr. JINDAL. The largest plan, I think, would be the Blue Cross/Blue Shield plan.

Mr. ALTMAN. And that’s about how much?

Mr. JINDAL. Sixty percent.

Mr. ALTMAN. It’s 60 percent of what number? How many people in the----

Mr. THOMAS. About 9 million.

Mr. ALTMAN. So you’re dealing with a little over 5 million.

Currently you have in Medicare, what?

Mr. THOMAS. 38 million.

Mr. ALTMAN. So roughly it will be about 40 million plus as we move into the future.

Currently, Medicare fee-for-service is 85 percent. Say that were to go down to 70 percent, so you’re dealing with almost 30 million.

So, we’re dealing with differences that are orders of magnitude.

I’m not saying this necessarily to argue that we shouldn’t do it, but I think there are a lot of questions that the current environment can’t answer, and we need to think about them.

The second issue is geographic dispersion. Medicare is all over the place and there are Federal employees all over the place, but there’s a high concentration in a few areas.

Is that a fair statement to make? The distributions are not the same?

Mr. JINDAL. It is, but when you look at the distribution of the retirees in FEHBP, it’s not as concentrated as you might suspect. I mean, you’ve got a slightly higher concentration in urban areas, but they are actually nearly as dispersed as Medicare beneficiaries.

Mr. ALTMAN. That’s helpful.

The third issue----

Mr. THOMAS. I think the number argument is a better argument to make than distribution.

Mr. ALTMAN. I’ll back off on the second one.

I’m just trying to figure out what that world is going to look like.

To me, the most complicated, though, is the fact that government runs the Medicare fee-for-service, and government has certain advantages and certain disadvantages and will always have certain advantages and certain disadvantages as it plays out its--no matter how it administers itself, where in this case, none of these plans have those advantages and disadvantages.

And that’s the most complicated aspect of it.

It won’t be the same--Senator Gramm talks about, well, we can always go back to the existing Medicare Program. Under a premium support system, there will be no existing Medicare Program.

We hope it will be different. We want it to be different. That’s why we’re doing this, in a way.

It will probably have a smaller percentage of the total than the current 85 percent that it now has.

Whether we give it the same administrative capacity to regulate rates and requires the providers to take it or totally drop out of the program, we have to decide that.

Whether we will ask the providers to adhere to a set of standards that current Medicare does, which very few private insurance companies have the capacity to do?

I think there are a lot of--if we were to move forward, if somebody could be thinking about these worlds--as I said, not necessarily that’s a bad thing.

Some of the things we’ve decided we don’t like about the current Medicare fee-for-service, but it is a little scary to say, well, we’re going to continue to have the existing Medicare Program, so if we don’t like these other ones, you can always go back.

You can’t go back. There won’t be any going back. Going back will not be the same as going back to the existing Medicare Program.

Is that a fair statement?

Mr. JINDAL. I think it’s fair to say. I mean, well, I think what the Senator was trying to say when he said go back, the traditional government-run program would certainly be a choice in the premium support system, but certainly you’re right, that depending on what the Commission recommends in terms of some of these other changes, it won’t be the exact same program that exists today.

Mr. ALTMAN. Well, one of the biggest ones would be if you really go to a premium support system, and, let’s say you decided it was 75/25 with different benefits, the premiums are going to have to start rising based on market conditions. They’re not going to be the current system, unless you’re going to continue fee-for-service under the current way, and all the others will play by a different set of rules.

I don’t think you mean that. Is that a fair statement?

Mr. THOMAS. It depends. That’s why when you talk about these various structures, some of the aspects that you--if you continue to talk about a modernized Medicare structure on fee-for-service, it would look a lot more like a CalPERS model where you have an aggressive surrogate negotiator.

Mr. ALTMAN. Yes.

Mr. THOMAS. For the beneficiary.

Mr. ALTMAN. Right.

Mr. THOMAS. And so you can extrapolate, I think, to a certain extent, notwithstanding the fact that the numbers--and you’ll always have the numbers problem.

But the role that’s played by the structure can at least, I think, be seen to a certain extent in certain of these models, not the way it is today, but the way, apparently, we’ve been talking about in terms of modernized Medicare structure.

Mr. ALTMAN. No, but CalPERS--I think that’s a good point. CalPERS does, as you said, play the role closer to what current Medicare does in aggressive----

Mr. THOMAS. But that role could be the fee-for-service model role----

Mr. ALTMAN. But you see, CalPERS----

Mr. THOMAS [continuing]. In a premium model.

Mr. ALTMAN. CalPERS does it for more than just one plan. Isn’t that what I understood? CalPERS plays an aggressive role across the board.

Where in this case, the CalPERS-type aggressive role would only be for one part of the plan.

I’m----

Mr. THOMAS. A plan that has a certain profile.

Mr. ALTMAN. Again, it’s a question.

Ms. STEELMAN. It seems to me that the questions that Senator Kerrey, Dr. McDermott and Dr. Altman, put on the table, are where the rubber hits the road.

I have a process question. This side-by-side put forward the way different authorities are applied in different circumstances, none of which are Medicare or its population.

Mr. ALTMAN. Right.

Ms. STEELMAN. So, how do we get to the next level of the discussion which is how do we apply any of these ideas to this population, and how should they be modified and how can they fit together with the current system--that current system being either modernized, or the hybrids that we know?

And in what way then do those hybrids have to change as well?

Mr. ALTMAN. That’s exactly it, thank you.

Ms. STEELMAN. So how do--process-wise, how do we have that discussion at our next meeting? What is the paper that we need, or do we just need a blank slate and stop cutting off conversations at a hour in duration?

Do we just need to start at noon and we’re going to go all night until we get it done? What do we do?

Mr. ALTMAN. I would suggest that I think that’s exactly the question I was just moving that way into that same issue.

I would think we would be better served by some smart people thinking about this and putting it on paper, and whether the staff and the staff plus some outside people.

That’s my frustration a little bit. Much as I think this was helpful, there is a whole set of questions, some of which I know and some of which I don’t even know what I don’t know about this new world that would--we just haven’t seen.

And somebody needs to be thinking about that. Maybe somebody is already thinking about it, Bobby. You guys are ahead of us.

That’s really where I was aiming. What are the kinds of issues that Debbie pointed out that really go beyond what the current environment gives us?

Mr. THOMAS. One of the things that I think is useful, though, Stu, about this, is for many people to see how it’s being done, so that although there’s no perfect match on any one column, of course, you might be able in going through and picking various options in different columns, create a structure that might better look more like a model that we would suggest.

And there are different ways to do that. We could sit here and vote on each one as we go, or you could try to create a comprehensive structure and offer it, and then discuss the pros and cons of a comprehensive model.

Mr. ALTMAN. Well, one way to do it, which I think is sort of--you and I were just doing in a way--somebody raises an issue, and you say, yes, but that issue has been dealt with by CalPERS, they do that; versus, somebody else raises an issue, no, that has not been dealt with by anybody and we’ll have to deal with it.

So if you put the issues there, like, for example, regional. Last time is sort of a throwaway, but an interesting discussion, nevertheless. There was a model presented which would have this new world have one rate, regardless of what part of the country you came from, whether you came from a first-rate, high quality medical system like Boston or some other place.

And obviously there would be all kinds of differences. That’s an interesting discussion.

Now, we have two--some different approaches here, but it seems to me the magnitude of the current--the future environment, makes any of the current environments only partially explained.

Mr. THOMAS. Or a system which has a significant local negotiating structure which incorporates completely in the costs, the local structure during the negotiations, versus an imposed one on artificial formula which the current system has that work someplace and don’t some other places.

Mr. ALTMAN. I just want to put on the record one thing: Much as I have been a critic of the AAPCC for the better part of 25 years, it is not a rigidly imposed formula.

Ironically, the AAPCC was designed so that the government did not dictate the payment rates to areas, and allowed the areas to dictate their own payment rates.

Mr. THOMAS. But if you start with an artificial 95 percent of fee-for-service, you have after that, what could be a perfect model.

Mr. ALTMAN. Well, all I want to say is that the irony of all ironies is that the criticisms of the AAPCC was an attempt by government not to impose--I just--as I said, I’m not the world’s biggest fan of the AAPCC, but I think one needs to understand what it does, and that is, it maps, however, imperfectly, the fact that we have big differences in this country in terms of style of practice and pricing.

And I would favor a regional negotiation. It seems to me that’s another way of mapping it. But the AAPCC was not an artificial formula that was created independent of local conditions. That’s all.

Senator BREAUX. Jim?

Mr. MCDERMOTT. Mr. Chairman, one of the suggestions at the top of this presentation was that we would circle the preferred option in each row.

Maybe we ought to do that, and get it back to the staff and let them do some combination. I think we need to move on.

Mr. THOMAS. Certainly, we would appreciate input. If those people who do have preferences would indicate those preferences. But that doesn’t negate Stu’s concern about how you wind up putting it altogether, because sometimes if you simply do the addition, there are some preferred structures that don’t completely fit in a reasonable way, and so you’re going to have to shave corners as you put them together.

Mr. MCDERMOTT. Mr. Chairman, I look around the table right now, and you and I are all that’s left of the elected members.

Mr. THOMAS. And I’m going to have to leave soon.

Mr. MCDERMOTT. So am I.

Ms. STEELMAN. Great, we can get something done. [Laughter.]

Mr. ALTMAN. We finally got rid of those so-and-so’s. [Laughter.]

Debbie, this was a cool move on your part. [Laughter.]

Mr. MCDERMOTT. I want to make a suggestion. I’m sorry I didn’t make it yesterday when the membership was mostly all here.

But I don’t think that this Commission can finish by March 1, especially with what’s going to go on in the Senate. And there are a whole lot of other things.

I think that we should not finish by March 1 if we set an arbitrary deadline and just run ourselves against a wall and try to jam something out of here.

I think that would be the wrong process by which we arrive at this. I would say we ought to ask for a reporting date for May 15. And you might ask why I picked May 15?

That’s the date that the Medicare+Choice plans have to tell HCFA what extra benefits they’ll be offering seniors in the year 2000, and whether they’re going to continue in the program.

And I think that it is very--given the chaos that we’ve seen already with 500,000 people coming out of managed care and so forth, that we ought to at least and with--as I said yesterday, the HMO organization, Ms. Ignagni’s group, asking for more money, I think that there needs to be some period for us to think through what we design, given what the experience is of the present.

Now, I know you can say this is all going to be new after we put this together, but I don’t want us to ignore what we’ve been through and what we may have learned through this period from the 1997 Budget Act to the present.

I say this seriously, not because they think we ought to delay or because I don’t want to get it done or because there isn’t other things that I think we could be doing, but I think as a Commission, we haven’t had time to chew over a proposal that maybe we can actually reach consensus on.

I mean, I’ve resisted my inclination to think this was hopeless from the start because of the complexity, but I still think there’s some possibility, but I don’t think it’s something we can force to the artificial deadline of March 1, because of the fact that, you know, the political reasons why some of it didn’t get done last year, because of election and so forth, we need to take a little bit of time.

And I would make that as a serious recommendation. I think the chairman, you, and Mr. Breaux, ought to think about it, and maybe poll the members of the Commission and try and make some decision about whether we’re going to, because we’re trying to jam a meeting in at the end of January.

Now in practical terms, the Senate is going to be absorbed with other issues. And for anybody to think that a Senator is going to be able to spend much time thinking about this issue over the next 2 weeks or 3 weeks, before that meeting, I think is overly optimistic to say the least.

So that’s why I make the suggestion and I hope that it will be considered by the chairmen.

Mr. THOMAS. Any comments by any members?

Ms. GORDON. I certainly agree.

Mr. ALTMAN. I do too for what it’s worth, us chickens that are here. [Laughter.]

Ms. STEELMAN. My only comment, having chaired something similar to this, but certainly different in that there were no Members of Congress on it, we didn’t have a deadline. And what we anticipated would be a 1-year process turned into a 2�-year process.

So, I think that deadlines are very valuable things.

There’s always more important things to deal with on your schedule in any given day.

Deadlines force this to become a priority.

Mr. MCDERMOTT. I was not saying no deadline. I was just saying move the deadline to May 15 so that we can see what’s actually happening. We’ll get a better picture.

This morning’s paper has that health care costs are going up 7 percent. We are right in the middle of people setting their premiums for the next year, and I’d like to see how that looks.

I’m not saying, no deadline, because I know you need deadlines.

Mr. THOMAS. What rationale to pick any particular deadline is going to be, in part, artificial, and you jumped to May.

I thought, based upon Dr. Vladeck’s and your comments in the paper, that April 15 would be more appropriate. [Laughter.]

Mr. MCDERMOTT. There’s no reason to get like that, OK. [Laughter.]

Ms. STEELMAN. It does seem to me that we need to accelerate our meeting schedule and our true dialog schedule under any circumstances.

Mr. MCDERMOTT. I’m for that.

Mr. THOMAS. The only concern I would have, and obviously I’ll sit down with the Senator as soon as we possibly can at the end of this meeting and talk about that, is that you then create a wave that’s pushed back.

The idea of having these meetings that we’ve moved to this point I think could be fruitful simply because of the compression of time and the focus that we’ve had.

If in fact we’re not successful and in fact events don’t allow us to have the meetings that we’ve suggested, the idea of meeting twice a month, to me, isn’t necessarily bad.

Ms. STEELMAN. I think we need that under any circumstances. We need that no matter when we report.

Mr. THOMAS. Exactly.

So I do think it’s a serious proposal. I take it as a serious proposal, and I’ll sit down with Senator Breaux and we’ll talk about getting a communication out to the members to get a feel for whether or not they think it’s possible or appropriate.

Any additional comments on the matrix in front of us?

As Sam has suggested, those individuals who believe that they can see particular choices that make some sense, based upon the model that they have in their heads, should be presented to us, so that we can see if there is a significant amount of agreement between choices.

Because that may in fact produce a structure that we could propose at the next meeting, which has a significant number of members in support, just by putting it together conceptually.

I have a feeling there’s got to be some whittling and shoving and nudging to get it all in the same plan.

But to the extent that that is something that the staff and the chairman can do at the next meeting, we might have a document in front of us that would allow us to make some specific suggestions or at least decisions moving toward conclusion.

Mr. ALTMAN. Now for better or for worse, but I think personally a lot for better, you, as chairman of the Health Subcommittee, worked hard to fashion a Medicare choice plan in the environment of a Federal responsibility of Medicare.

And that took account of the fact that this is a major Medicare national program.

And it seems to me, the starting point ought to be Medicare+Choice, and the changes from Medicare+Choice that would be--we need something, some base from which to start.

Fee-for-service obviously doesn’t make sense because that makes another option, but I’m talking about within a premium support so we can play it against the fee-for-service.

And I guess if I had to choose--and that doesn’t mean I--I’m just trying to find an anchor point here and I’m just suggesting that Medicare+Choice be the anchor point from which you say, OK, these are the things I would do, suggest differently from Medicare+Choice because Medicare+Choice is, after all, on the books.

Mr. THOMAS. Yes, just one quick response to indicate how I’d react to that. On your very first page on structure in the overview, as we were trying to move through the Medicare+Choice structure and what to do in providing new options, and the provider-sponsored organizations, without the National Association of Insurance Carriers, structure of a solvency model so that we could actually determine responsibility, we would not have been able to put this package together.

And to have a government entity try to define a solvency structure was an extremely difficult undertaking that the fee model would have been a much more desirable structure for determining new approaches.

What then Congress could have dealt with are what I call the external factors of antitrust, of other outside areas that we could change to allow for new choices to be made, but not be forced to actually structure the new choices.

That alone would be a change from the model.

Mr. ALTMAN. Well, I’m sure they’re a lot, but all I’m saying is that you really had to think through this in a way, you and the small group that put this Medicare+Choice together.

And, you know, it’s the kind of stuff that wouldn’t necessarily hit any of us, but it hit you, and that’s fine.

I mean, I’m not arguing against what you said. That’s a good point. That’s one of the cases you say, if I had an option, I would much rather have used the fee approach. I couldn’t at that time, but this is what I would substitute.

Fine. That’s good information.

I’m just trying to work from something that’s easier to understand, rather than having four floating models.

Mr. THOMAS. Instead of a total abstract model, start with some reality, and then indicate how you could change that.

Mr. ALTMAN. That would be my first one.

The second one I would follow, what Debbie and I were trying to say before, and that is have maybe a small group, somebody sit down and say, OK, what are the questions that we need to ask that are not in the existing system that would be fairly important, given the nature of this new size and the population.

Mr. THOMAS. And one of the problems that we’re going to have that we just have, say at the outset, is that as we move away from the current structure, there is just not a lot of data out there that gives us a comfort in dealing with seniors in other models, since there really is not a significant number, other than I think the second largest senior population is in FEHBP, as a model.

And it’s a relatively small number and a profile that I think arguably is different than the average Medicare beneficiary, from their background selection, education, health profile.

Mr. ALTMAN. See, as I was saying to my friend, I was saying, well, gee, you know, May 15, you know, if we don’t raise rates, maybe some millions of people would lose their managed care option benefits because people are going to go out of the business. That’s going to be what would exist.

And I say, no, if you have an FEHBP-type or premium support, that wouldn’t happen. You’d just have a massive increase in premiums.

Mr. THOMAS. Jim?

Mr. MCDERMOTT. Can I clarify one thing? And I guess from the presentation, it was not clear to me.

And that is the whole question of whether or not when, in this premium support program, when people bid on it, will they be bidding on a core package of benefits, all of them have to produce at least that much?

Is that the concept that you have?

In other words, is it a defined benefit package that everybody is going to have to bid on, and then they can add other things on top of that?

Or?

Mr. THOMAS. On page 13, let’s just use this structure as an example.

Mr. MCDERMOTT. That’s the one I’m looking at is the beneficiary, the establishment of the premium. Oh, you’re saying on page 13?

Mr. THOMAS. On page 13 of the model at least has the four choices structured on the benefits, so one of the questions that would logically be asked is, what would you like the model to look like?

Mr. MCDERMOTT. Are you asking me? [Laughter.]

Mr. THOMAS. No, but single payer’s not on here, Jim, so you’ve got to deal with the matrix. [Laughter.]

Within the four choices available, which one comes most closely.

Mr. MCDERMOTT. I see, so you’re not saying----

Mr. THOMAS. We have a limited number of crayons.

Mr. MCDERMOTT. Yellow, red, and blue, right. That’s all I get?

So you’re saying that when they bid, and they say they will offer a plan for seniors, they are not necessarily comparable in the benefits that are in each one of those plans.

There will be no comparability beyond a very narrow--I mean, obviously, you’re going to have doctor and hospital, right? We would agree to that. And then we----

Mr. THOMAS. It depends.

Ms. CONWAY-WELCH. Provider and hospital.

Ms. STEELMAN. I think the question, if you have a defined benefit package, what is it?

No. 1, all four models definitely have one, all four on this grid definitely have defined benefit packages.

They define it at various levels of specificity.

HCFA defines it quite explicitly through law, regulation, carrier, manual, instruction, et cetera. Most of those are uniform nationwide. Some are not. It depends on how far you want to carry what a benefit package is.

Mr. MCDERMOTT. And so that’s what I’m asking. How much are you moving back from that?

Ms. STEELMAN. Well, see, that’s a design question, and there are very, very smart people who differ on the level of specificity.

But I think the FEHBP experience historically is that the innovation involved at more detailed levels of the benefit package has been positive, and was not a significant contributor to any adverse selection issues.

Adverse selection issues were caused by major top line differences in the benefits.

So along that spectrum, you have to come to a place, it seems to me, where innovation and adaptation exist.

And at the other side, you don’t want a benefit package that differs so much that you’ve created just a ridiculous game for beneficiaries to pick and choose from.

So it seems that’s a spectrum that we have to discuss through.

Mr. MCDERMOTT. When you mean a top line issue, you mean something like mental health, either mental health is in or out, not how many visits or that kind of specificity, but----

Ms. STEELMAN. I tend to define by services, not indications.

Mr. ALTMAN. It’s my understanding, first of all, I think we can make more of this, I’ve minimized the 47,000 questions we have to ask. It seems to me there’s less variation here than really exists.

Everyone of these, as Debbie pointed out, has a core benefit package. The only one that has, as I understand CalPERS, it’s pretty specific.

Mr. JINDAL. For the HMO’s, yes.

Mr. ALTMAN. And the others beyond that, but they’re fairly specific.

Clearly Medicare fee-for-service is specific, and even FEHBP has core benefit areas.

How different really are the benefits, one plan to the other?

And when you talk about major flexibility, I don’t, what kind of flexibility have we talked about? What did they do, go from 10 hospital days to 1,000?

No, it was small. They were incremental.

My understanding was, quite frankly, that they did use it to change. When Blue Cross was about to go out of business in the FEHBP model because of adverse selection, it consciously changed its benefit structure to attract a younger population by adding obstetric care in a most-favored-nation to get rid of, to change the age distribution.

So I wouldn’t say that the benefit structures were not designed to change it a bit.

Mr. THOMAS. Stu, I think the question is slightly different than that. It’s not that great, but there are two factors that we have to deal with.

One is trust. The problem that we had with Medicare and the political arguments made over changing Medicare was that you wanted to deny seniors various things.

That instead of going to an actuarial equivalent on Medicare+Choice, you have to lock in the actual specific statutory benefits, and then try to make that work in a choice world.

So it’s not so much, in my opinion, what the benefits are, but the way in which those benefits can be reviewed and changed to be made appropriate.

Now sure you have very specific benefits in CalPERS, but the board can change them.

It can arbitrarily change them based upon what they think is the need of their constituency.

What you have to do on Medicare, and therefore by reflection on Medicare+Choice, is change an underlying statute, go through the political process to change the specifics.

And what you have to do in FEHBP is to look at those specifics and change them, so it’s the dynamic of change that I think is more important than the specificity of the benefits.

Mr. ALTMAN. But there are three, three decisionmaking bodies in FEHBP and in CalPERS. There is the state, or in the case, the Federal Government; there is the board; and there are the plans.

And what I hear you saying--and I’m listening--is that under Medicare fee-for-service and Medicare+Choice because of the derivative nature of it, you need to get a statutory change in law in order to change a benefit.

Mr. THOMAS. Right.

Mr. ALTMAN. Under the other two plans, you have moved some of it to the plans, but a large amount of it is really at the board level.

As I understand when the gentleman came who operates the board of FEHBP, he made it clear that he didn’t just allow, they didn’t just allow plans to change benefits.

Mr. THOMAS. Oh, no.

Mr. ALTMAN. If a plan came in and said, oh, by the way, we’re going to only cover 5 hospital days, consistent with covering hospital, they would just not have accepted that.

So it isn’t so much that we don’t have a structure----

Mr. THOMAS. It’s not passive.

Mr. ALTMAN. It’s not passive, but you’re saying one of the big differences--and I think it’s up for discussion--is in one case is a statutory change; the other one, it’s a board.

I see those plans as not having anywhere near substantial flexibility to wake up one day under FEHBP and massively change the benefits.

Mr. THOMAS. Not at all.

But in cooperation between the board and the plans, they can make change far more rapidly than you can with statutory changes. I think that is a fundamental difference.

Mr. MCDERMOTT. Mr. Chairman?

Mr. HOWARD. This has to do with that. The current Medicare Program has not allowed for the evolution that takes place over time. That’s the current problem with the statute approach.

Whereas as the FEHBP program has allowed for an evolution to take place over time.

Mr. ALTMAN. I don’t buy that.

Mr. HOWARD. Part A is still separated from part B. I mean, it’s still A and B.

Ms. STEELMAN. What don’t you buy about that?

Mr. ALTMAN. I don’t buy it. The one area that some of us want to change, which is to add prescription drugs, is being denied by just the same people that want to give the flexibility.

And so I think that Medicare has changed a lot. You get home health care. It didn’t exist in 1965, 1970, 1975.

You look at the whole structure of outpatient services, fundamentally different. They provide a whole different set of benefits.

I don’t think the benefits----

Ms. STEELMAN. But you would agree that the ability----

Mr. THOMAS. Hold it, hold it. We’ve got the reporter having difficulty. One at a time.

Mr. ALTMAN. I just want the record to say that the Medicare Program has been a lot more flexible in terms of the ability of individuals to get benefits than this picture of a structured non-flexible system. That’s just not true.

Is it perfectly flexible? No.

Can it be more flexible? Yes.

Ms. STEELMAN. I think we’re speaking in relative terms.

Mr. THOMAS. Relative terms.

Mr. MCDERMOTT. Could I ask one question?

Mr. THOMAS. Sure.

Mr. MCDERMOTT. Just give you a specific example, you’ve got a couple of HMO’s that operate and so forth. There’s a new medication on the horizon for treatment of arthritis, an oral medication, expensive.

Mr. DINGELL. It’s expensive as all get out too.

Mr. MCDERMOTT. Expensive, yes. I’ll say it into the microphone. Now, how, under this system, would you anticipate a change being made, never mind the medication, let’s say on a procedure, hip transplant or hip replacements.

How would that be decided? If one of the plans said we’re not going to do it for people over 80 years old or over 85, how would that decision be made?

Would that be made at the board level or at the benefit level of the plan? Or would anyone know, going into the plan, if they went for this plan, that they’re not going to have access to that treatment in advance?

Mr. THOMAS. Well, I appreciate your hypothetical but any plan that arbitrarily begins limiting who gets what, when, and how in a market system’s going to lose folks in the plan real quick.

I understand your desire and the direction you want to go with your hypothetical, but I think we need to talk about how decisions are going to be made, how the board would be structured, what the relationship between the board and the plans would be under models that we now have.

How would that decision be made under Medicare?

How is that decision made under Medicare+Choice?

How is that decision made under FEHBP?

How is that decision made under CalPERS?

And which model seems to be most appropriate for where we want to go, rather than a pure hypothetical?

Debbie, did you want to say something?

Mr. MCDERMOTT. Right now we have a safety valve. If somebody’s in a plan, and they are denied something, they can say, I’ll go back into Medicare fee-for-service and get it done there.

And if we say, no, no, you’ve got to stay in this HMO now for a year, then you can make your choice, people should know, or at least reasonably they could say, I didn’t know this wasn’t covered.

Mr. ALTMAN. Jim, but Medicare also denies service.

Mr. THOMAS. Yes, they deny at Medicare as well. You can jump between either program and you’re going to be denied. If your argument goes back to desiring a 30-day enrollment and disenrollment period, we’re back to pre-1997 arguments.

Mr. WATSON. That’s not a realistic question you asked. That’s a social policy political question.

HMO’s would never decide who could get treatment or not based upon age or other criteria.

We all have medical panels, and they are always drawn from outside of the HMO, who evaluate either new technology or new drugs, and recommendations are made as to is that treatment superior to past treatment, and almost always it is adopted if it is.

So that question would never be posed in such a way. And believe me, you’re asking a political question that would be decided in a legislative way about health care rationing.

Mr. THOMAS. And one of the real failures of the system, in my opinion right now, is not to use the statistical data that is out there to create models for best practices, so that information can be disseminated in a far better way as to what best practices are.

And we need to make sure that, from a legislative point of view, that is done, so that we have a better understanding of what’s out there.

Illene?

Ms. GORDON. Mr. Chairman, in our present fee-for-service plan, coverage varies from state to state on some issues, depending on what the decision of the medical director in that state is.

I know we’ve had many problems with that where maybe a person could not get coverage, could not get--for example in Mississippi at a certain level. But they could go across the state line to Louisiana and get that coverage.

So, you know, that certainly varies in the fee-for-service system right now.

Mr. THOMAS. My understanding is that when you cross the state line into Louisiana, there are a lot of things available to you.

Ms. GORDON. A lot of pluses. [Laughter.]

Mr. MCDERMOTT. You’re only saying that when the chairman isn’t here. [Laughter.]

VOICE. A person is here, Bobby.

Mr. JINDAL. I do feel obligated to speak up for my state’s honor. [Laughter.]

Mr. THOMAS. All right, does it seem appropriate, as Sam has indicated, people can go ahead and put their preferences down, but as we collect those, does it seem appropriate that for the next meeting, if it’s at all possible, we could begin to put together a model so that you can react to a structure that at least, working with all of the folks we need to work with, looks like it might fit?

Mr. HOWARD. I would endorse that.

Mr. DINGELL. And I think that’s a fine idea, but I’d suggest you are probably going to need more than one model, and I would also suggest that you ought to have some picture as to costs and you ought to have some picture as to costs as to particular components so that we can, if we want to do this, we can begin to do some intelligent construction, say, well, we can offer this, but we can’t offer that, and this is too much, and that’s needed, and we’re going to have to pay this cost, even though it is an awful expensive thing, people need it.

Mr. THOMAS. So some moving parts with costs identified.

Ms. STEELMAN. I very much endorse that idea, Mr. Dingell, but on the cost question, it seems to me I’m putting my old OMB hat on. It’s hard enough to estimate these costs, even with the 5- and 10-year windows that Congress is accustomed to dealing with.

But when we’re looking at 20 and 30, clearly on the Modeling Task Force, we decided at those ranges, the best we can deal with is magnitudes.

I think we ran into real trouble at our last meeting when we tried to portray dollars.

So in terms of your cost question, I guess I’m looking for some guidance as to what it is that would be helpful.

Are we going to try to do a 5-year window, a 10-year window, in which case numbers might be possible.

If you’re looking at a 20-30 window, we have to come up with some sort of substitute, it seems to me, for pure dollars, because it’s sort of an exercise in fiction at that point.

Mr. ALTMAN. Well, let me just support Congressman Dingell in the strongly and following way.

We talk about premium support on the one end, and we hear this great reluctance to talk about any revenue expansion beyond GDP growth that would generate whatever the existing tax base is.

I, for one, would like to know what that revenue base will generate as a percentage of the reasonable premium, as a percentage.

Now, it makes a big--you know, we’re talking about the capillaries of--important as they are, and maybe a few veins here.

I want to know what the person looks like before I worry about the other.

And in that sense, if this will only generate 50 percent of the premium, which means, implicitly, 50 percent would have to be paid by the beneficiary, that makes--I don’t much care about what the fine print looks like; it’s a non-starter, from my point of view.

If it begins to look like 75-80 percent, it becomes interesting. So, along--we don’t want to talk about revenue expansion. Fine, we won’t talk about revenue expansion. Let’s put it back on the people that don’t want to talk about revenue expansion.

What will the existing revenue base, based on those two models that your committee came up with in terms of our base, generate as a percentage?

And that’s the most important cost estimate we could have.

Ms. STEELMAN. So you can have Jeff as another football at our next meeting?

Mr. ALTMAN. Jeff looks like a football player, which I would not want to tackle. I just want to know what those numbers look like. I would never----

I mean, I think that we’re due those numbers.

Ms. STEELMAN. I think we’re----

Mr. ALTMAN. At some point. If you don’t want to do it next time----

Ms. STEELMAN. I think we need very substantial guidance from the Commission.

Mr. THOMAS. Part of the problem is assumptions that can be debated, that are being debated, that are sometimes fundamental to institutions, Congressional Budget Office versus OMB or HCFA, over which reasonable people can differ.

So I think what we really need to talk about are kind of windows or----

Mr. ALTMAN. Ranges.

Mr. THOMAS. Ranges.

Mr. ALTMAN. I’ll accept a range.

Mr. THOMAS. Rather than a degree of specificity.

Mr. ALTMAN. Absolutely.

Mr. THOMAS. That lets us plug in one number and plug in another, because both of those exercises are fixtures.

Mr. DINGELL. I’ve got to go, myself, too.

Mr. ALTMAN. Range is fine, but if the range is between 45 and 55, there’s a big difference.

Mr. THOMAS. I understand that. We’ll use the Stu factor as a bottom line structure.

So, at the next meeting, we’ll put together a package and we’ll have some numbers to look at, and we’ll react to that.

Ms. STEELMAN. Who is we?

Mr. THOMAS. The chairman, the staff, and anyone else who wants to participate by virtue of the way in which they mark up their documents.

Senator BREAUX. I apologize for----

Mr. THOMAS. And the usual outside help that we can’t afford to buy.

Senator BREAUX. I apologize for being away. I understand from Bobby we’ve had a good discussion. I know everybody is still here and no one’s bleeding.

No one has voted yet, obviously, but we have a process, and I would just entertain some questions. But it is my intent to schedule another meeting at end of this month.

I don’t know if we talked about that, but sometime, and we’ll get with everybody to find out what is the most convenient date. I think we’re talking about January 26-27 timeframe.

Check with your schedules because that’s the timeframe we’re targeting. Members would be here, and hopefully our other Commissioners could be here as well.

I would hope--and maybe this has been discussed--as to try to compile a document to present so we can actually start making some decisions.

I know there has been some discussion perhaps on extending the time of the Commission. I strongly do not feel it is now time to start looking at that as a necessity. I would want to meet the timetable.

Congress said do it by March 1. I think that’s something that is still achievable. If we get closer to that date and find out we need another few days, or a couple of weeks to do that, we can make that decision at that time.

The worst thing we can do is to put this off. Congress picked March 1 for a very important reason, so that we can get them this report in order to have Congress address this before we get into the election cycle, and we all know the problems associated with that.

With that, I want to thank everybody for being here, and for their participation, and we’ll be back in touch with all of our members. This will adjourn this Commission meeting.

[Whereupon, at 10:15 a.m., the Commission meeting was adjourned.]

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