July 16,1999

Committee to Hold Hearing on the President's Proposal to Reform Medicare

WASHINGTON -- Senate Finance Committee Chairman William V. Roth, Jr. (R-DE) today announced the Committee will meet Thursday, July 22, 1999 at 2:00 p.m. in room 106 of the Dirksen Senate Office Building to hear testimony regarding the President's proposal for the reform of the Medicare program and the modernization of the current benefit package.

The following witnesses are expected to appear before the Committee:

I.A panel consisting of:

The Honorable Donna E. Shalala, Secretary, Department of Health and Human Services; Washington, D.C.

II.A panel consisting of:

The Honorable Dan L. Crippen, Ph.D., Director, Congressional Budget Office; Washington, D.C.

The Honorable David M. Walker, Comptroller General, General Accounting Office; Washington, D.C.

BACKGROUND

The Committee will hear from the Secretary of HHS who will testify to the various aspects of the President's medicare reform proposal.

President Clinton's proposal, released June 29, 1999 was presented as an attempt to: (1) make Medicare more competitive and efficient; (2) modernize and reform Medicare's benefits, including the provision of a prescription drug benefit and cost sharing protections for preventive benefits; and (3) make long-term financing changes to the program to possibly extend the life of the Medicare Part A Trust Fund. Under a key part of the President's proposal, the government would try to foster new price competition among Managed Care Organizations, with Medicare patients given the ability to personally realize savings if they choose plans that can offer services for lower premiums.

The President also recommends increasing cost sharing for Medicare beneficiaries for certain services. Patients, under the President's proposal, would pay 20 percent of the cost of medical laboratory tests, and the annual Part B deductible would begin increasing annually to keep pace with inflation. In addition, many of the curbs on payments to health care providers that were enacted in the Balanced Budget Act of 1997 would be extended through 2009 in order to achieve an additional $39 billion in savings in this proposal. However, a $7.5 billion fund would be established so that adjustments could be made if it was determined that selected provider payment policies were adversely affecting beneficiary access to care.

President's Medicare Reform Proposal Highlights

•Beneficiaries who opt to join private managed care health plans that participate in Medicare would share in any savings if the plans were more efficient than average -- or extra expense if they were less efficient. Savings from choosing lower-cost plans would be passed on to beneficiaries at a rate of 75 cents for every dollar. Those who chose more expensive plans would pay the difference.

Estimated Savings: $8 billion over 10 years, starting in 2003.

•Preventive services offered by Medicare, such as pelvic exams, mammograms, prostate cancer screening and diabetes management, would no longer require co-payments or deductibles.

Estimated Cost: $3 billion over 10 years (with health education campaign).

•Medicare administrators would get new authority to replace some government price formulas now used in purchasing goods and services, such as medical equipment, with competitive contracting.

Estimated Savings: $25 billion over 10 years.

•Buy-in plan would allow those age 62-65 to purchase Medicare benefits for $300 per month.

Estimated Cost: $1.4 billion.

•Continuation of some provider reductions from the BBA, which were set to expire in 2003. This proposal includes out-year policies that would reduce average annual Medicare spending growth from 4.9 percent to 4.3 percent per beneficiary between 2002 and 2009.

Estimated Savings: $39 billion over 10 years.

•The proposal includes a number of administrative and legislative actions that are designed to moderate the impact of the BBA 1997 on some health care providers' ability to deliver quality services to beneficiaries. This includes a provider set- aside. Estimated Cost: $7.5 billion over 10 years.

President's Medicare Prescription Drug Benefit

•Will cost the beneficiary $24 per month in 2002, increasing to $44 per month by 2008. The government matches prescription drug payments up to a $1,000 cap in 2002, which increases to $2,500 by 2008. There is no deductible.

•Offers financial incentives for employers to provide a drug benefit to retirees that must be at least equivalent to the new Medicare benefit. This is in effect, a new federal subsidy of employer retiree health benefits.

•Excludes premiums and co-payments for individuals earning less than $11,000 or couples earning less than $17,000.

Estimated Cost: $118 billion over 10 years, starting in 2002.

Deductibles and Co-Payments

•Clinical laboratory services would require a 20 percent co-payment.

•The annual deductibles for doctor visits and other outpatient services, now $100, would be indexed for inflation. The inflation indexing would likely result in deductible increases of $2 to $3 a year.

Estimated Savings: $11 billion over 10 years.

The President proposes that $794 billion in budget surpluses over 15 years be used to possibly extend the life of the Part A trust fund until at least 2027.

The GAO and CBO witnesses will testify to the costs and other implications of the President's proposal.

This hearing, along with the Senate Finance Committee's ten prior Medicare reform hearings held this year, will serve as an informational framework for the Committee's efforts to address substantive changes to both modernize and improve the Medicare program, and to ensure its continued financial viability.