July 12,2000

Finance Committee Staff Releases Outline of Medicare Proposal

WASHINGTON -- Following a closed, bipartisan meeting of the members of the Senate Finance Committee today, the committee released basic details of a Medicare program modernization and drug benefit proposal.

Key elements of the proposal include:

• A new voluntary, universally available, expanded option for health insurance in Medicare that would include enhanced hospital coverage and a drug benefit. Seniors could opt to stay with their current Medicare coverage or move to the Expanded Option program.

• Reforms and stabilization to the Medicare+Choice program to improve payment levels to plans and to initiate a plan competition model.

• Key modernizations to the Medicare program's governance and to establish improved measures of the program's financial solvency.

At this time, the Congressional Budget Office has not finished "scoring" the proposal, therefore dollar amounts for premiums and deductibles have not been set. A summary of other key elements of the proposal is attached.

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 Senate Finance Committee Staff Medicare Modernization and Drug Benefit Proposal

1. How would the program work?

Seniors would be offered a new expanded option for health insurance, or they could choose to stay with their current coverage. If they chose to stay in the current fee for service program, there would be no changes to their coverage.

Under this proposal, a new, modernized fee-for-service plan, called Medicare Expanded Option, would be made universally available to all Medicare beneficiaries. Seniors would have the choice of remaining in the current Medicare fee-for-service plan. There would be no changes made to the existing Medicare program. Instead, the Medicare Expanded Option plan would be offered to beneficiaries as an enrollment alternative on a voluntary basis.

2. How would the program differ from traditional Medicare?

The new option offered to seniors would have improved benefits.

The Medicare Expanded Option plan would incorporate two significant basic benefit improvements that would distinguish it from current coverage in the Medicare traditional plan:

• federally guaranteed outpatient prescription drug coverage; and

• enhanced inpatient hospitalization benefits -- 365 days of full paid coverage per year after deductible is met.

3. How much would the new program cost?

The new expanded option would have a monthly premium, one deductible for Parts A and B benefits, and a separate deductible for prescription drugs. (Those numbers are pending until we have cost estimates.) As is the practice with health insurance today, seniors would assume some cost sharing on most categories of benefits.

The federal government (taxpayers through general revenues) would contribute some $40 billion (the amount called for in the Senate Budget Resolution) over the next five years to pay for a significant portion of these enhanced benefits. Beneficiaries would contribute the remaining share through a monthly premium and by assuming some cost sharing on most categories of benefits to help contain program costs, to help ensure that services are utilized appropriately and to minimize fraud and abuse.

The Medicare Expanded Option plan would include a single annual deductible for Parts A and B services and a separate drug deductible. In general, about 20% of beneficiaries face hospitalization in a given year. This proposal would eliminate the very high deductible ($776) beneficiaries face today in those circumstances and replace it with a more moderate annual deductible for Parts A and B services combined.

To assist in managing program costs, with a special exception for low-income beneficiaries, these deductibles could not be filled in by another insurer, though insurers could create Medigap products to provide supplemental coverage for coinsurance costs under the Medicare Expanded Option plan.

4. How will lower income people afford this program?

Significant new subsidies would be available to low income beneficiaries to defray these higher out-of-pocket costs and to make sure access to needed health care services is maintained.

5. What does this program do for seniors with very high drug expenses?

Seniors with higher annual drug expenses would have more coverage. The federal government will pay a higher percentage of a senior's drug costs as those costs increase.

6. What other reforms would be made to Medicare?

Needed program reforms would be instituted to modernize and improve the Medicare program for beneficiaries, taxpayers and insurers. These improvements include:

Fee-For-Service Modernization

Medicare personnel and contractor (intermediary and carrier) reforms would be implemented to improve the administration and operation of the Medicare traditional plan. These improvements would also strengthen administration of the Medicare Expanded Option plan. The personnel reforms would permit the federal government to attract the professional talent, particularly in highly specialized insurance, clinical and systems areas, that is necessary to effectively administer a modernized Medicare program. Contractor reforms would expand the array of companies that would be able to compete to provide lower-cost, high-quality administrative services to the Medicare program relating to billing, beneficiary education and service, quality assurance, and anti-fraud and audit functions.

Medicare Solvency and Financial Performance Standards

New reporting standards would be included in the annual Medicare Trustee's Report to show the entire range of spending in the Medicare program and the changing levels and relative shares of different sources of revenue flowing into the program. This will permit greater understanding of the longer-term fiscal obligations and funding commitments of the Medicare program.

Medicare Governance Reforms

A Medicare Competitive Benefits Office would be established within the Department of Health and Human Services to manage Medicare+Choice health plan competition reforms and to oversee contracts and management of the drug benefit.

The Secretary of the Department of Health and Human Services will be required to ensure the general availability of prescription drug coverage nationwide to beneficiaries.

In all contracting approaches, the Secretary will be required to administer the drug portion of the Medicare Expanded Option plan in a manner that emphas private sector benefit management techniques, such as formulary, mail-order, generic substitution and voluntary discount-card programs, and that fosters continual innovation in the availability of prescription drugs for the Medicare population. The Secretary is prohibited from imposing regulatory controls on the prices of drugs.

7. How does this proposal address the problems facing the Medicare+Choice program?

To stop the withdrawal from Medicare of HMO plans and to stabilize the Medicare+Choice program, payments to Medicare+Choice plans would be enhanced by adjusting current funding levels nation-wide.

These short-term stabilization improvements would be followed by longer-term health plan competition reforms. After stabilization, the terms under which Medicare+Choice plans participate in the Medicare program would be changed to an approach that is more compatible with how private health plans provide coverage in the under-aged 65 health insurance market. A new competitive bidding approach would be adopted for Medicare+Choice plans that would permit plans to compete for beneficiary enrollment based on premium competition (in addition to benefits), including new options for premium rebates to beneficiaries.

When the Medicare Expanded Option plan is implemented, Medicare+Choice plans will be allowed to offer private plan options based upon the minimum benefits reflected in either the traditional or Medicare Expanded Option plans. If the basis for the private plan offering is the Medicare Expanded Option benefit package, payments to the Medicare+Choice plan will include amounts attributable to outpatient prescription drug coverage.