[Senate Hearing 108-228]
[From the U.S. Government Publishing Office]
S. Hrg. 108-228
DEBATE ON MEDICARE REFORM
=======================================================================
FORUM
before the
SPECIAL COMMITTEE ON AGING
UNITED STATES SENATE
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
WASHINGTON, DC
__________
JUNE 23, 2003
__________
Serial No. 108-14
Printed for the use of the Special Committee on Aging
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WASHINGTON : 2003
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SPECIAL COMMITTEE ON AGING
LARRY CRAIG, Idaho, Chairman
RICHARD SHELBY, Alabama JOHN B. BREAUX, Louisiana, Ranking
SUSAN COLLINS, Maine Member
MIKE ENZI, Wyoming HARRY REID, Nevada
GORDON SMITH, Oregon HERB KOHL, Wisconsin
JAMES M. TALENT, Missouri JAMES M. JEFFORDS, Vermont
PETER G. FITZGERALD, Illinois RUSSELL D. FEINGOLD, Wisconsin
ORRIN G. HATCH, Utah RON WYDEN, Oregon
ELIZABETH DOLE, North Carolina BLANCHE L. LINCOLN, Arkansas
TED STEVENS, Alaska EVAN BAYH, Indiana
RICK SANTORUM, Pennsylvania THOMAS R. CARPER, Delaware
DEBBIE STABENOW, Michigan
Lupe Wissel, Staff Director
Michelle Easton, Ranking Member Staff Director
(ii)
C O N T E N T S
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Page
Opening Statement of Senator Larry E. Craig...................... 1
Panel
Dr. Robert Moffit, Heritage Foundation........................... 2
Ron Pollack, Executive Director of Families USA.................. 3
(iii)
DEBATE ON MEDICARE REFORM
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MONDAY, JUNE 23, 2003
U.S. Senate,
Special Committee on Aging,
Washington, DC.
The committee met, pursuant to notice, at 2:30 p.m., in
room SD-628, Dirksen Senate Office Building, Hon. Larry E.
Craig (chairman of the committee) presiding.
OPENING STATEMENT OF SENATOR LARRY E. CRAIG, CHAIRMAN
The Chairman. Ladies and gentlemen, thank you for coming
today. Normally in this room I would rap my gavel and say ``The
Special Committee on Aging is now in order.'' That would not be
in order today for the purposes of what some suggested is a
debate or at least an enlightened discussion.
Today's debate brings together two of the country's most
prominent and articulate advocates on the Medicare issues. On
one side we have Dr. Robert Moffit of the Heritage Foundation,
a strong believer in a competition-based future for Medicare,
and on the other side we have Ron Pollack, Executive Director
of Families USA, who I think it is safe to say is an advocate
of building upon the traditional Medicare framework.
Ironically, as it turns out, Dr. Moffit and Mr. Pollack
have both been quite critical of the specific Medicare reform
bills now pending before Congress, although for very different
reasons. Needless to say, this development was not anticipated
when this event was planned some weeks ago. I am going to
suggest to all of you who have chosen time in your schedules to
come today, though, that between the two of these gentlemen,
you will get a very aggressive and enlightened discussion.
My own role here today is much easier. I am going to be the
facilitator and the referee. Each debater will be allowed
opening remarks of 5 minutes, and we will determine that order
by a coin toss. Then each debater has the right, at the close
of the opening remarks, to rebut or make additional comments
for three minutes. Next, I will ask each debater a series of
questions I have prepared. Each debater will have two minutes
in which to respond to the questions. Then we will return to
all of you, and we are going to ask that you help us out in the
filling out of a card, and we will select randomly from those
cards as to the questions that will get asked.
So with that, we are going to get started, and for the next
hour I think we are going to have a most enlightened discussion
about the issue of the day, Medicare reform and prescription
drugs, currently being debated on the floor of the U.S. Senate,
and without question, probably one of the larger and more
difficult issues that the Congress of the United States has
tackled in some time.
So with that, we're going to do a coin toss. I am never
good at flipping coins, but I have just done so, and I have got
the exposure, and gentlemen, call it.
Mr. Pollack. Heads.
The Chairman. Well, if he calls heads.
Dr. Moffit. I have no choice.
The Chairman. You call tails. It is tails. With that, Dr.
Moffit, you may start with your opening statement of five
minutes.
STATEMENT OF DR. ROBERT MOFFIT, HERITAGE FOUNDATION
Dr. Moffit. Thank you very much, Mr. Chairman, and thank
you very much for sponsoring this debate. I also want to
publicly thank the staff and the members of the Senate Aging
Committee for sponsoring this great forum, and it is good to
see Ron Pollack again. We see each other quite a bit, you can
imagine.
Beginning in about 8 years, the first wave of 77 million
baby boomers are going to be eligible for retirement. In many
ways they are very different from the current generation that
now is enrolled in the Medicare program. They will have
different expectations. They will have different perspectives.
They will come to their retirement with very, very different
experiences with the health care system.
Medicare is going to be faced with an unprecedented demand
for medical services, and a rapidly advancing medical
technology. The demand for medical services that Medicare will
experience is going to be unlike anything we have ever seen
before in history. The question before the House is whether in
fact the current Medicare program can absorb this demographic
shock? My argument is that it cannot.
Consider a concrete example. A few years ago Judge Robert
J. Gerstung of Baltimore, my uncle, died of a sudden cardiac
arrest. It is a rapid and irregular heartbeat; it usually
strikes people with a history of heart disease. Two years ago
the Food and Drug Administration approved an implantable
cardiodefibrillator, and clinical trials show that death rates
with this device were reduced by 40 percent. Many private
companies recognize the value of the device and they include it
in coverage. So today, Cigna, Blue Cross and Blue Shield, Aetna
and Kaiser, all cover this device. But the majority of patients
who might need it are over the age of 65. Medicare had not
approved reimbursement for this device until very recently.
Finally this month, Medicare approved it.
But while Cigna and Aetna make it available to everybody,
only a portion of the Medicare population, the sickest one-
third of the Medicare patients who can benefit from the
coverage will be able to get it. This will effectively ration
care for this medical device and ensure more deaths, but will
certainly save on Medicare costs.
Does anybody think that for one blessed moment, that if in
fact we have the Government control over the financing and
delivery of prescription drugs or medical technology, the
dynamics will be any different? If there is any doubt about
this, consider the current practices right now in Medicaid,
where prescription drug coverage is being cut back through
price regulation, reimbursement restrictions and formularies in
virtually every State in the union. The argument might be made
by some in Congress that, well, Medicare will not treat seniors
in the future as bad as Medicaid routinely treats poor people
today.
Ladies and gentlemen, do not bet on it, because we are
going to see an unprecedented demand for services. In Medicare
the Government defines every benefit, every medical treatment,
every procedure. You get what they give you; every
modification, every change in benefits is becoming a major
political event. That's why we're having a conversation about
whether to add prescription drug coverage to the current
Medicare program. If it is not a congressional issue, it is
worse. It is a decision that is authorized by the Medicare
bureaucracy through a painful, often agonizingly slow and
mysterious process.
Do we really want to continue to do things this way in the
future? If the Government defines the benefit, then the
Government must also price the benefit, and we know exactly how
that works. Medicare is a system not only of central planning,
but of price controls. Every one of the 7,000 procedures that
doctors authorize for Medicare patients is controlled. Every
one of the hospital procedures is controlled. As my colleague
formerly with the Urban Institute, Len Nichols, once said, one
thing we can be sure of: Medicare controls 10,000 prices in
3,000 counties and does not do a very good job of it. Do we
want to continue doing business this way?
Every benefit, every price, everything is regulated in
detail to the point where tens of thousands of pages of rules
and regulations and guidelines govern the program. Do we want
to continue to do business this way in the future? Then, of
course, if you are a doctor, you live in fear of audits and
investigations.
The Chairman. Dr. Moffit, you should begin your wrap up.
Dr. Moffit. Thank you.
Regardless of what you have been told, the Senate bill
largely continues business as usual in the Medicare program. It
is short on reform and very long on entitlement expansion. At
the end of the day low-income working people are going to end
up subsidizing the drug bills of Bill Gates. We can do much
better.
There is a far superior model. It is the Federal employees
model. Congress ought to transition to that model and be done
with it.
Thank you.
The Chairman. Thank you very much for your opening
comments.
Now let me turn to Ron Pollack, Families USA, for your
opening comments.
STATEMENT OF RON POLLACK, FAMILIES USA
Mr. Pollack. Thank you so much, Senator.
I want to start by making two points, one of which I hope
that all three of us on this panel will actually have an
agreement about, and on the other one, undoubtedly, we will
have a difference.
The first point I want to make is that the exercise to get
a prescription drug benefit is very carefully circumscribed. It
is circumscribed by the budget resolution and, as probably all
of you in this room know, the budget resolution says that there
will only be $400 billion available for Medicare related
changes including a prescription drug benefit over the course
of the next 10 years. Now, over that same period of 10 years,
the amount of money that seniors will be spending on
prescription drugs is over $1.8 trillion. So even if all of the
$400 billion is spent on prescription drugs--and clearly that
will not be the case because there will be some relief for
rural hospitals and other rural providers and some other fixes
in the Medicare program--it means at best only about one out of
$5 spent by seniors could be subsidized by a change in the
legislation that is currently being debated.
A point I hope that we can all agree on is that when we
have limited resources, especially in comparison to the amount
of monies that seniors will be spending on drugs hopefully, we
choose wisely in terms of what those priorities are. I would
suggest to you, and I hope we actually have agreement on this
one point, to the extent that we can only go an incremental
step in terms of subsidizing seniors' drug costs, that we focus
them most heavily on those people in greatest need, the poor. I
have many misgivings about the Senate bill. It is complex. It
has lots of different failures. But one of the things that the
Senate bill does, and certainly does in sharp contrast with the
House bill, is that it really provides some significant new
relief for low-income seniors. I think that is good, and I hope
that is an issue that does not divide conservatives and
liberals. I hope that, on an issue where we are trying to
stretch our resources as best as possible, we focus them on
those with the greatest need. I would be happy to elaborate
further on that.
The point where I think we depart company is on the
question of traditional Medicare versus private plans. I wonder
what it is that makes people think that moving to private plans
is going to be any better than what we have today? Take rural
communities. Eighty percent of the people who live in rural
counties do not have a private plan that serves them. Private
plans do not wish to serve people in rural communities. In
those communities where private plans have served people, they
have abandoned people left and right. Two point four million
people have been abandoned by private plans because those plans
said those communities were not profitable. Why is that we
would want to move people into private plans when, after all,
if you do that,you lose your choice of doctor? Well, maybe you
can get the doctor you want, but at a higher price if that
doctor is not in your network. Why is it that we think it's
good for seniors to give up something they consider precious,
namely the right to choose their physician, their providers? I
think it would be a mistake to go in an opposite direction.
But then I think what's most telling is that you look at
the data, not by some of the advocacy groups either on the left
or the right, but you take a look at what CBO says or what
General Accounting Office says or the Inspector General says.
What you find is the cost of coverage for people in private
plans is considerably more expensive than it is in the Medicare
program. So what is it that has people say that to lower costs
and save Medicare we should move to private plans rather than
the traditional Medicare program that most seniors want.
Eighty-nine percent of seniors are on the traditional Medicare
program. I think we should not push them out.
The Chairman. Right on time. Thank you very much, Ron.
Now, we'll turn to 3 minutes each of rebuttal, and we will
turn back to you, Bob, for any rebut you have in relation to
what Ron has said. He has laid down the challenge. Are we going
to focus on the poor because that is all the money we have?
Dr. Moffit. I think Ron has certainly contributed to the
debate. If he can convince Senator Kennedy to go along with it,
I think we will have a good outcome.
The fact is 78 percent of senior citizens, according to the
Joint Economic Committee, already do have prescription drug
coverage. The generosity of that coverage varies. Some, of
course, is not so good. Other coverage is actually quite good.
So, if we are going to solve the problem, then yes. If we are
going to deal with the Medicare issue and prescription drug
coverage and Medicare, let's target the resources that we have
to low-income people who do not have access to either Medicaid
coverage or to coverage through supplemental insurance or
former employers. I agree with Ron on that. That makes a great
deal of sense.
Congressman Stark, last week, offered an amendment in the
House Ways and Means Committee that the CBO estimated at $1
trillion over 10 years, to solve the problem of 8 to 10 million
Americans without drug coverage. It is not necessary really to
spend $1 trillion. Then the question is, what do we do about
private plans? What is the value of private plans? I am not in
favor of forcing anybody into anything. I am not in favor of
forcing people into private plans, nor do I think that
conventional private health insurance is indeed the best model
for Medicare reform. In fact, as the Chairman knows, I am an
advocate of a Government program. I have supported the idea of
a public/private partnership based on the program that covers
many people in this room and 2 million Federal retirees and 2
million Federal workers, the Federal Employees Health Benefits
Program. It is a system that is based on personal choice.
Nobody is forced to take anything. If you want an HMO, you can
have it. Most people do not choose HMOs. They choose fee-for-
service plans or PPOs and have the choice of doctor that they
want. As far as rural coverage is concerned, it is nothing like
Medicare+Choice. The evidence is overwhelming. In 87 percent of
the rural counties in the country, retirees have at least 6 to
9 plans. The cost of coverage in FEHBP is actually competitive
with Medicare. The Joint Economic Committee found that indeed
comparing the cost increases over time over the past 20 years,
FEHBP, a system of private competitive plans, actually
outperformed Medicare.
The Chairman. Thank you very much.
Now your 3 minutes of rebuttal.
Mr. Pollack. Thank you. Thank you, Senator.
First, I am glad that--I believe I heard you say, Bob, that
we do have some agreement on focusing on low income first.
Dr. Moffit. Yes, we do.
Mr. Pollack. I just want to say a word about how different
the Senate and the House bills are in this respect because it
is important to note. When we are talking about folks below the
poverty line, for a senior living alone, we are talking about
somebody who has an annual income of $8,980, less than $9,000 a
year. Now, under the Senate bill, if that senior has $3,000 in
drug expenditures, then under the Senate bill that senior would
only have to pay $75, a big improvement. In the House bill,
that senior would have to pay $1,114. Now, if that same senior,
same income level, happened to have drug expenditures of
$5,000, under the Senate bill that senior would pay $138. Under
the House bill they would pay $3,114, a huge difference. I
would be happy to take Bob's challenge and talk to Senator
Kennedy about making sure that the Senate provisions with
respect to low-income seniors prevail in conference. I think it
would be a great thing to do.
Now, Bob, you have talked about FEHBP and I am glad you
did. Many people who like the FEHBP system say let us give
seniors what members of the U.S. Senate, or the House, or the
President has, and I am in favor of that. I am not in favor
though of packaging it that way and not actually providing it
that way. How many Senators--and I am not criticizing any
single Senator or all 100 Senators for that matter--how many
Senators have a doughnut hole in their coverage? First, in this
bill, there is a $275 deductible. Then it pays 50 percent of
the copayments, and then there is a doughnut hole which is a
huge hole in which many fall. I do not think anyone who is in
the FEHBP system has that kind of a system.
So, Bob, I would suggest, as long as you are promoting the
FEHBP system, let us do it right. Let's actually provide
America's seniors with comparable benefits that is going to
cost a little more money. My hope is that you and your
colleagues will support providing that additional money so that
we can provide a benefit that is comparable.
But last, I guess I want to say I know that there are some
faults with the traditional Medicare program, certainly there
are, but I would like to stack them up against the private
insurance industry. You talked about new procedures. They are
very slow in approving new procedures. In 1999 there were 9
states that had no private plans with a drug benefit. In 2002,
there are 15 states without a drug benefit. I do not think
going to the private sector is something seniors are going to
appreciate. Thank you.
The Chairman. Ron, your time is up. Your timing is
excellent. Well, thank you both very much for your opening
comments and rebuttals.
I will now ask a series of questions, and after 15 or 20
minutes of that, or a little less maybe, I will turn to the
audience, and we hope you will have filled out the cards and
have your questions available.
As I ask these questions, both of you may respond if you
would, and I will ask Ron the first question because Bob got
the first word out here in his opening comments.
Short of a wholesale rewriting of the legislation that is
before the U.S. Senate today, could you make just two or three,
or would you propose just two or three targeted changes that
you think would greatly improve the current legislation?
Mr. Pollack. I am delighted to do so, Senator. Thank you
for the question.
First let us go back to the issue I raised first about low-
income seniors. I would make some improvements in what we have
today for low-income seniors. First, the Finance Committee bill
that is now on the floor, for the first time treats the very
poorest of the poor exclusively in Medicaid and not in
Medicare. I think that is a mistake. I think we should put
everybody into the same plan. I do not think we should isolate
the poor and separate them. I think ultimately it means they
are going to get treatment as if it is a welfare program. So
the very first change I would make is that change. I know there
is an amendment being offered on the floor to that effect. I
support that.
Second, with respect to the poor once again, there is an
extremely low so-called assets test for eligibility for low
income benefits. Anybody who has income below the poverty line,
below $9,000, probably is not sitting on a Donald Trump set of
assets. Otherwise, they would probably be over the income
level. The problem with the assets test is if you take a look
at all of the States that have an assets test in their low-
income programs, it requires enormous verification, enormous
amounts of time for people to ferret together all the details
about this little amount in their savings account, this little
amount in a burial plot and so on. I would eliminate that
because I think the income test is sufficient and it would
reduce significantly the bureaucracy needed to administer.
There is also an amendment I believe on the Senate floor to
deal with that.
I guess, Senator, to answer your question in a larger
sense, the reality is that----
The Chairman. Wrap up with this if you would.
Mr. Pollack. With $400 billion in the budget resolution,
when seniors are going to be spending over $1.8 trillion, many
of the gaps I think will be very difficult to fill.
The Chairman. Thank you very much. Now we turn to you, Dr.
Moffit. Same question.
Dr. Moffit. My suggestion would be to strike everything in
Title I and replace it with a low income assistance for
prescription drug purchases. I would structure it in the same
way that the American Enterprise Institute has proposed to do
it, which is: provide a prescription drug card to senior
citizens, attach a subsidy to that prescription drug card at
some amount between $600 and $800, and establish a catastrophic
coverage for those seniors. That would target the people who do
not have prescription drug coverage today. If we wanted to add
money later on or if we felt it was necessary to add money
later on for hardship cases, we should do it. But, in any
event, target the funding for drugs that way.
With regard to the other provisions, I think the best thing
for Congress to do would be to start the transition to a
genuinely competitive system where drug coverage is fully
integrated into insurance, set up the structure now under the
Senate bill and the House bill and create a system where you
would have a competitive market, and start the transition in
about 2007. There are several ways to do this. One would be to
give new retirees the option as to whether they want to stay in
traditional Medicare or go into a private system administered
much like the Federal employee system is administered, with a
Medicare administrator. At the same time give opportunities to
employees: You want to have a situation where people who want
to take their private employment based health insurance with
them into retirement can do so and get a premium offset or a
premium subsidy to support that. That would be another way to
go.
The idea is not to separate out the drug benefit, but to
create a system where the drug benefit is fully integrated into
a system of insurance just like normal human beings have in the
private market. That's a much better idea.
The Chairman. Well, doctor, we are going to stay with you
to begin the second question, and we would ask that both of you
respond to it, setting aside bill specifics for a moment.
Many argue that greater competition in Medicare will
improve quality, innovation and long-term cost management,
while others say that the reverse is true. What is your view
and why?
Dr. Moffit. I think Adam Smith was right. I think when you
have competition, you will improve efficiency, you will
increase the quality of services and you will increase the
productivity of services, whether it is in other sectors of the
economy or the health care sector of the economy. The most
important thing is that this sector of the economy be consumer-
driven, not driven by third party payment decisions; not made
by other parties who, in fact, actually do not make the
decisions about consuming care. I think it is critical, if we
are going to try to create a competitive market, that we do not
do what we do today in employer based health insurance. We
create a division between the customer for the service and the
consumer for the service. Ideally the customer for a service
and the consumer of the service should be the same personality.
The Chairman. Ron.
Mr. Pollack. Senator, I believe in competition, but I very
strongly disagreed with the President's proposal because I
think it was anticompetitive. The President's proposal was
labeled as being a competitive model. But what did the
President do? The President said, let us provide significant
amount of additional goodies to private plans. Let us give them
a significant prescription drug benefit. Let us give them a
catastrophic benefit. But let us not provide those same things
to the traditional Medicare program. Well, I do not call that
competition. I call that stacking the deck. Now, if the private
plans can do better than the public traditional Medicare
program, so be it. Then they deserve people going into those
plans. But I do not think people deserve going into those plans
if they are pushed into those plans by virtue of stacking the
deck. Clearly, if a senior citizen knows that they are going to
get very substantial prescription drug benefits in a private
plan but not in traditional Medicare; if they know they are
going to get a whole host of other benefits in a private plan
but not in traditional Medicare; then of course, they are going
to go to a private plan. But that is not a triumph of
competition. That is a triumph of stacking the deck.
So I am hopeful that we are going to see a system where
each of the plans and the traditional Medicare program can
compete with one another. I would suggest to you when that
happens, I think the traditional Medicare program is going to
come out in pretty good shape, and that is because the cost of
the traditional Medicare program is considerably cheaper than
it is for the private plans. Traditional Medicare does not have
to pay for marketing and advertising and the same
administrative costs. They do not have to pay for agents fees.
They do not have to pay for profits. They do not have to pay
for profligate salaries of chief executives of those private
plans. For that reason, I think that the traditional Medicare
program can compete very well in this competitive model.
The Chairman. Thank you. We are going to stay with you,
Ron, to begin the third question round. In your view is drug
coverage provided in the Senate bill too much or too little or
just enough to meet the true needs of our seniors today?
Mr. Pollack. Well, I think it is too little. I spoke
somewhat about that a moment ago.
The Chairman. You did.
Mr. Pollack. I do not think it is anywhere comparable to
the FEHBP system at all. It is not only, I think, too little
and only covers a tiny fraction of the cost that seniors are
going to experience, it is extremely confusing. You and I
talked about this a moment ago, Senator. You have got the
premium, then you have got a deductible. Then you have got a
certain kind of copay. Then you fall within the doughnut hole.
Then you have a catastrophic benefit, and then you have
different levels of subsidies. The subsidies depend on whether
you are below poverty, you are below 135 percent of poverty, or
you are below 160 percent of poverty. It is very confusing. I
believe that most seniors are going to feel that this does not
provide them with enormous relief. For most seniors, between
now and 2006, when the benefit first is implemented, I think we
are going to see that the prices of drugs will have risen so
substantially that they are going to more than consume the
relatively small benefit that most seniors will receive.
So I believe it is too small. I believe we should get
started, however. I do not think we should have gridlock, but I
do not think seniors are going to be tremendously happy. With
one exception and that is, I do think that a reasonable start
was made for low-income seniors, and I treasure that and I hope
we build on that. To the extent we have any resources that are
discretionary, I would put it into that. I hope that is
something where liberals and conservatives really join hand in
hand.
The Chairman. Thank you. Dr. Moffit.
Dr. Moffit. Well, the Senate benefit and the House benefit,
has been described by Bob Reischauer of the Urban Institute, as
plans that do not exist in nature. They do not exist in nature
because you actually could not buy such a benefit. Nobody would
sell it. Consider the benefit structure of the Senate bill. I
mean who would actually go out and buy that thing?
The Senate and the House are trying to set up a stand-alone
drug benefit and try to make it cost effective. That is tough.
Administratively it is very, very tough. This is a complicated
benefit. It will probably result in an explosion of regulatory
detail in the administration of the benefit, and my concern is,
at the end of the day, that it may not prove politically
successful. The unintended consequences are going to hit the
senior citizen population good and hard. The evidence is now
that 37 percent of retirees will be dropped out of their
private drug coverage under the Senate bill, about 32 percent
out of the House bill. This is rotten public policy.
The right way to do this, once again, is to integrate the
drug benefit into insurance and allow people to pick an
insurance package which makes sense.
I want to mention one thing that Ron raised, and that is
the administrative cost of Medicare. You have heard it 50,000
times, that Medicare's administrative costs are very low, I
think between one and two percent. Ladies and gentlemen, if you
believe that Medicare is a model of administrative efficiency,
you are a candidate for membership in the Flat Earth Society.
[Laughter.]
The Medicare program is in fact enormously complex and the
administrative costs are not showing up in the Federal budget.
The administrative costs are pushed over to doctors and
hospitals and home health agencies and other providers who have
to comply with Medicare's regulatory regime and that cost is
huge.
The Chairman. We are going to stay with you for the next
question, doctor. Experts at CMS and the CBO differ
significantly in their prediction of how many seniors will
choose to enroll in the new competitive Medicare Advantage
program, with CMS predicting enrollment upwards of 40 percent,
and CBO predicting only 2 to 10 percent. Whose estimates do you
believe are more accurate, and what is your prediction for the
future of the Senate's Medicare Advantage Program?
Dr. Moffit. Well, Senator, they both cannot be right. We
know that. You have a wildly different estimate based on very,
very different assumptions. My own view is that the structure
of the Senate bill is such that it is not likely to encourage
widespread participation of private plans. Let me tell you why.
One of the things that is overlooked in this debate is the
whole question of payments. Medicare+Choice was not successful
largely because of the payment structure of the Medicare+Choice
system. Health care costs were going up 8, 9, 10, 11, 12
percent, but under the administrative pricing of the Medicare
program they would get cost increases on an annual basis of 2
percent. But beyond that, there was another problem with
Medicare Choice. There was not one aspect of plan operation in
Medicare Choice that did not come under the regulatory
juggernaut of the CMS. That means that virtually every aspect
of plan business activity was subjected to the regulatory reach
of the CMS. They could not even make normal business decisions.
The regulatory regime and lower payment discouraged plans from
staying in the program.
In this particular case, Medicare payment to the new
Medicare Advantage programs is based not on anything that looks
like a market formula. It is based, rather, on the
administrative pricing of the current Medicare program. In
other words, the benchmark is the fee-for-service system in the
current Medicare program. As health care costs increase and as
the demand for the baby boomers creates a greater demand on the
system, what will the government do? Well, basically what they
will do is what they have always done in the past, start to
reduce reimbursement. This means they will also reduce
reimbursement for the private plans.
Second, looking at the actual structure of the bill, Title
II and Title III, what you have is a highly prescriptive
statutory program. It looks much more like Medicare+Choice than
it does the Federal Employees system, which in fact is low on
regulation and bureaucracy.
The Chairman. Is it 40 percent of 2 percent, Ron?
Mr. Pollack. I think it is relatively small, but if I may,
Bob offered me a membership in one of his favorite clubs. I
thought I would return the favor. [Laughter.]
Bob, if you believe that the private insurance companies
can do a much better job in keeping administrative costs down,
I am prepared to sell you all the bridges, all the tunnels and
all the ferry boats leading into Manhattan. The private
insurance industry has not distinguished itself in terms of
administrative costs compared to the public sector.
Senator, I believe that there will be relatively few
people, Bob and I agree on this, who are going to go into the
private plans, but not for the reason that Bob indicated. You
know, we have seen a precipitous drop in the number of people
who are in private plans, the Medicare+Choice plans, and this
is despite the fact that Congress, with each passing year, has
showered those plans with increasing amounts of money. The
Congressional Budget Office, the General Accounting Office, the
Inspector General's Office, all three, none of whom have got an
ax to grind in this debate, have been saying that it costs more
to serve people in these private plans than it has in the
public plans. It is not surprising that after the
Medicare+Choice plans initially offered fairly generous drug
benefits, they have been reducing those benefits. They have
been increasing premiums and they have been reducing benefits.
So people have been voting with their feet.
People are happy with the traditional Medicare program and
I think they are going to be loath to give up their freedom of
choice of physician to go to a private plan.
The Chairman. I will ask one more question, and then we
will turn to you, the audience, and get response to some of
your questions.
Both of you have been reasonably or very critical of the
Senate and House bills that are before us, for a variety of
different reasons. However, do you believe there are any
positive aspects to the current legislation? If so, why?
Ron, we will stay with you.
Mr. Pollack. Well, I hate to sound like a broken record on
this question but, on the Senate bill, I think that the one
very significant achievement in that bill is it does provide
very substantial relief to low-income seniors. Now, as I said,
``I think there are some significant improvements that still
need to be made on that score, particularly the elimination of
the assets test and making sure that low-income people are in
Medicare not just in Medicaid.'' But I think that is the
singular important achievement in the Senate bill, and I think
people, irrespective of ideology, should take pride in that. I
think it is a step in the right direction.
I am also pleased that we did not do what the President had
asked, namely that we load the decks on behalf of private plans
at the cost of the traditional Medicare program. Even though
that is a negative I think it was a step in the right
direction, and it enables the Senate to pass legislation
potentially on a bipartisan basis.
The Chairman. Doctor.
Dr. Moffit. I would say that probably the best single
provision in both Houses is the proposal in the House Ways and
Means Committee to transition to a competitive system in the
year 2010 with a real premium support system. That, frankly,
makes the best sense to me. I think that is where we have a
greater opportunity for change. My suggestion would be to
accelerate that, speed it up. Instead of waiting to 2010, go
earlier and go in 2006 or 2007, and get this show on the road.
That would be my suggestion.
The Chairman. Thank you, gentlemen, both very much.
Now, we will turn to you, the audience, and while I have
your question in front of me, I would ask that you come to the
microphone right over here and ask the question of either one
or both of the gentlemen. We have got about four of you or five
of you already, and any more who have not submitted your
questions, please do, if you would.
Ms. Cameron. Joy, would you come forward and ask your
question?
Ms. Cameron. My question was about dual-eligibles----
Mr. Pollack. About what?
Ms. Cameron. Dual-eligibles, people that are eligible for
both Medicaid and Medicare. My question had to do with on the
House plan, there is a Federal plan to phase in the dual-
eligibles over 14 years, where they take to FMAP rate and
increase it by 6\2/3\ percent every year to essentially
Federalize a program as a way of offering relief to the States.
The Senate offers to pay their premiums for Part B for States
that already have a prescription drug plan.
I was just wondering if the Senate would consider adopting
the House plan because it provides more fiscal relief for the
States and----
The Chairman. Your question is?
Ms. Cameron. My question is, is it cost or what is
hindering something like that?
The Chairman. Both gentlemen.
Mr. Pollack. Well, I am happy to. This is a pretty arcane
subject, but a very important one, so I am glad you raised it.
The question of dual-eligibles is not just a question for the
beneficiaries of the program, but also has a big impact on the
States. The States have been complaining about extraordinary
costs that they bear as a result of these dual-eligibles,
people eligible for Medicaid and Medicare. The States have
said, with ample justification, that they thought, since they
are in effect wrapping around the Medicare program, that this
should be a Federal expense, not a State-Federal expense.
I believe that is the right thing to do. I think it would
provide the States with significant relief, and in the process
it would put less pressure in cutting back Medicaid programs,
which many States are experiencing.
I think my only caveat about that is that we have got a
very limited amount of money that is available under the budget
resolution, $400 billion. So we have a zero sum game that we
are playing with in terms of the amount of money. If you spend
it on one thing, you cannot spend it on another thing. So to
the extent that fiscal relief is provided to the States, less
money is available to provide help to low-income seniors or
other seniors. So while I think the cause is just and I think
it does make sense to try to have the Federal Government
ultimately assume those costs, I would like to see it happen on
a slower basis so that more of the dollars can be used to help
people who right now do not have drug coverage.
The Chairman. Doctor.
Dr. Moffit. I was just going to say, as far as the dual-
eligibles are concerned, it makes sense. The House provision
makes sense in terms of addressing that question. Once again,
what I would do of course is I would stress the opportunity
here. There is an opportunity here to create a real market, and
I would subsidize them directly rather than the way they have
it in the House bill. I would create something that looks like
the AEI drug account. I just think it is a much better way to
go.
Ms. Cameron. Thank you.
The Chairman. Thank you.
Now, let's have Craig Principi, is it? Craig? A tantalizing
question, please ask it.
Mr. Principi. My question is for Mr. Pollack. I am 23-
years-old right now, and I would like to know from your
perspective, when I am 43 and ready to put my own kids through
college, what percentage of my income do you think I should
have to pay for other people's medical care?
Mr. Pollack. I presume, given the context of our
discussion, we are talking about our parents and grandparents,
people who might be on Medicare.
I am not sure I have a precise answer to that. I do know my
parents benefited from the Medicare program and in the process
I felt I benefited as well. I actually do not look at it
generation by generation, although that is important to do. I
do not discount at all the thrust of your comment. But I like
to look at it as the whole family. When my parents get helped
or your grandparents get helped, I think it actually does help
all of us. So I am in favor of having a program like Medicare
and like Social Security. I think it enhances the well being of
all of us, even though from a generational standpoint it might
well be a money transfer from the young to the old. But I think
in terms of our well being as a society, I think it does
something very important and helpful.
I want to remind you, in 1965 when the Medicare program was
enacted, almost no insurance companies were willing to sell
insurance to seniors. Why is that? Because they make high
claims. They are sick. They are more likely to need health
care. I think that one of the things we should cherish was in
1965 we passed Medicare and we provided relief for seniors, who
are now living longer and I think live a much better life. In
the process, their children can rest assured that their parents
will be taken care of.
The Chairman. Now, Craig, in the element of fair play, we
are going to return to Dr. Moffit to respond to that. In
turning to him, in this room about 2 months ago we had that
noted expert on health care, Alan Greenspan. Chairman Greenspan
said, ``As a percentage of total income today, there is still a
margin that could be spent on health care that is not.'' He is
claiming that the average American today is getting more for
their money than they are actually paying in. Interesting
comment.
Doctor.
Dr. Moffit. I think the question is a fair question because
it really goes to the heart of the current debate. The current
debate is not about the current World War II generation. The
current debate is about how we are going to be able to absorb
the costs of the next generation of retirees. Now, we have an
idea about what those costs are going to be, and they are very,
very unpleasant. According to Public Trustee, Tom Saving, he
made a projection that if we did nothing, if we just kept the
current Medicare program, the current Medicare entitlement
system as it is today, by 2026 when the Medicare Part A program
goes bankrupt, actually goes under, roughly 24 or 25 cents out
of every Federal dollar that is collected in income taxes will
go to the Medicare system.
If we added a prescription drug benefit, said Professor
Saving, and we had, let us say, the Federal Government pick up
75 percent of the cost of that drug benefit, then 35 cents out
of every Federal dollar would be going to pay for Medicare.
We have to ask ourselves a very, very big important
question today and in the next couple of weeks. Can we afford
the entitlement program that so many in Congress seem hellbent
on establishing? A more important question--at least at a
preliminary level Ron and I agree is whether the focus should
be on low income people who do not have access to health
insurance and drug coverage. Why should a low income working
family that is struggling to put their kids through school,
struggling with a mortgage, struggling to make ends meet, have
the responsibility of paying the drug bills of six-figure
retirees living in Boca Raton, FL? Are we going to establish a
universal entitlement? It seems irresponsible to do so.
The Chairman. All right. Now, Dave from New Jersey. If you
would ask your question relating to orphan drugs.
Audience participant. This question goes, I am addressing
both of you. How do you plan to include orphan drugs under each
plan? Are you familiar with the----
Mr. Pollack. Yes, but I have not frankly thought about how
to--so I am happy for Bob to take that first. [Laughter.]
The Chairman. It is the ``doctor'' in front of his name
that gives him the chance to lead on this one.
Dr. Moffit. Right. I am not a real doctor. [Laughter.]
I have not got a clue really about orphan drugs, except
that I think it is a question of what kind of a system we set
up. I mean if you have a competing system of private plans and
you have orphan drugs in the private plans, that is fine.
Audience participant. Well, my concern is I personally am
on a drug, an orphan drug, and I do not fall under the poverty
line, but I still have to worry about coverage. So for certain
situations where someone needs coverage that is above and
beyond the typical cost, how do you plan to provide to people--
--
Dr. Moffit. I think there is a simple answer to that. I do
not think they should sell any kind of insurance in this
country, whether it is in the private sector, or for that
matter in a public program or a public/private partnership,
which does not have catastrophic requirements. If you are
talking about catastrophic coverage, yes.
Mr. Pollack. I would go a step further than that, I think,
Bob. Any medically necessary drug, whether it is an orphan drug
or some other, should be part of a prescription drug regimen.
So that is the real question. Is it medically necessary? If it
is an orphan drug or not is irrelevant.
The Chairman. Thank you very much, Dave. You almost stumped
the panel. [Laughter.]
Joe Mosier. Joe.
Mr. Mosier. My question was specifically for Ron Pollack. I
was wondering if you support targeted benefits for the low
income seniors, how can you oppose the President's plan which
includes a $600 subsidy for first-dollars drug expenses for the
low income, and full premium support for low income seniors?
Mr. Pollack. I appreciate that question. Providing only
$600 in subsidies for low-income seniors means that a senior,
say, who has $3,000 in expenditures, is going to have to pay
$2,400 out of pocket. Now, a low income senior has an income of
less than $9,000, $8,980 or lower, so if you are saying that a
senior with $3,000 expenditures should be paying $2,400, you
are in effect saying it is appropriate to charge such a senior
somewhere between a quarter and maybe 30 percent of their
income just on drugs. I think not only is that inappropriate,
it is clearly unaffordable.
So it is not the idea that the President said he wanted to
do something special for low-income seniors that I am
quarreling with. It is that what he is doing is wholly
inadequate, and for most seniors is simply going to leave those
costs unaffordable.
The Chairman. Thank you, Joe.
Dr. Moffit. I would just like to respond. I would think----
The Chairman. Joe directed it at Ron, but I control the
microphone. You wish to respond?
Mr. Pollack. You paid for the mike?
The Chairman. No, I just control it.
Dr. Moffit. No, Ron, we all pay for the mike. [Laughter.]
The Chairman. Any further comment there?
Dr. Moffit. I would just say that the issue here has to do
with high drug cost. Once again my response is the same as the
response I made earlier. I do not believe that we should have
any kind of a drug program or a drug insurance program without
catastrophic coverage, so catastrophic coverage should kick in.
There should be a stop loss to cover high costs. There is
nothing wrong in concept with the idea clearly. If we go to low
income people with insufficient resources, we can set up an
account. There is no reason why they should not have the option
to pick and choose what they think is best for them.
We have a very, very diverse senior population. The senior
population is diverse in terms of its needs, it is diverse in
terms of its health status, it is diverse in many, many
different ways. We should not set up a system that
straitjackets their options.
The Chairman. Larry Litman, to ask of both of our
participants.
Mr. Litman. The reform proposals on the table are based on
two assumptions. One, that private insurers will offer a drug-
only benefit, and two, that people will sign up for these
plans. You talked about the second part already. Could you talk
about the validity of the drug-only benefit?
Mr. Pollack. Well, I think Bob and I have somewhat of an
agreement on that score. Bob quoted Bob Reischauer earlier,
saying these plans do not exist in nature. Not only is that
true, it is also true that the insurance companies do not want
to offer these plans.
As you know, Larry, I developed a friendship with my
ideological opposite, Chip Kahn, when he was head of the Health
Insurance Association of America. When he was CEO of HIAA, Chip
was very forthright and said the insurance companies he
represented had no interest whatsoever in providing a drug-only
policy. The reason he said that, aside from the data he had
been receiving from his membership, was that what the insurance
industry believes is that when you provide a drug-only policy,
the only people who are going to buy into them are the people
who have a high predictability of needing drugs. He was
terribly worried that the insurance companies would therefore
have to ratchet up the premiums over time, and that the
insurance industry would be blamed for this.
I do not think it makes a lot of sense to have drug-only
policies. Bob, I think, is right. They should be integrated
into a full insurance package, but they should be available
both under traditional Medicare and in private plans. My hope
is that ultimately that is the direction we are going to go.
The Chairman. Dr. Moffit.
Dr. Moffit. Well, no. I think it is a risk, a drug-only
policy. I do not think there is going to be a lot of enthusiasm
for it, but we will see. I mean this is an opportunity to
actually find out. This is a creation of both the House and
Senate, and it is a creation which is grounded in the desire to
establish a separate standing drug benefit. The question is,
can we make this work, either in the public sector or the
private sector. I do not think you can make it work in either
one.
We did, a few years ago, try to create a drug benefit in
Medicare. It turned out to be a political debacle. We had a
situation where we said, OK, fine, we are going to have senior
citizens covered by prescription drugs. That was back in 1988.
We enacted it. Everybody was in it. The projected premiums went
through the roof. Utilization, the projections went through the
roof, and within one year the program was repealed.
My view on this is that we have got to get beyond the drug
benefit issue and start thinking about Medicare reform. That is
the real issue facing the country. It is not just simply the
provision of prescription drugs. I think where I agree with my
colleague here is that we should start focusing on low income
people who do not have access to private options or who are not
eligible for Medicaid.
The Chairman. There you have it.
Let me turn to you gentlemen. We will give you one minute
each in wrap up. Let us see, you had the first word. We will
allow Ron the last word, so we will come back to you for that
minute of wrap up.
Dr. Moffit. My turn.
The Chairman. Your turn.
Dr. Moffit. OK. We are in a historic debate. At the end of
the day, the outcome of this debate is going to determine the
character and quality of American life for as long as we live.
If we do the right thing we can create a responsible targeted
prescription drug benefit to the senior citizens who really
need the help, and at the same time create a transition to a
superior health care system where people will have an
opportunity to be able to enjoy high quality health care in
their final years. We can do that.
We have to recognize that, in the meantime, Congress cannot
provide an artificially cheap drug benefit. It is not going to
happen. We have to recognize that when we talk about how
Medicare has superior cost control what that means is that
Medicare is going to reduce the supply of services to senior
citizens, and will do it through price regulation and
restrictions on access. We do not need to go that way. Too many
countries have. We can do much better.
The Chairman. Thank you, doctor.
Now let me turn to Ron.
Mr. Pollack. Senator, thank you for inviting me. I am glad
I did not bring my flak jacket. At superficial glance, I think
all of our major parts are still in order. I appreciate that.
I look forward to this debate moving forward. It is high
time that seniors got prescription drug coverage. Everyone else
in the population essentially has it. I hope we do it in a way
that achieves true competition among private plans and public
plans. There is no reason to move toward private plans by
tipping the scales toward them. They do not serve rural
communities. They have pulled out of a lot of places. You lose
your choice of doctors. It costs more money, and it provides
less satisfaction to America's seniors.
I think we can provide a decent prescription drug benefit,
at least make a decent start. I am glad we agree on starting
with low-income seniors and disabled. Hopefully we can do
better for other seniors as well.
Thank you, Senator, for inviting us.
The Chairman. Well, gentlemen, thank you. Dr. Bob Moffit of
Heritage and Ron Pollack of Families USA.
Now if this were a hearing I would rap the gavel and say
the committee is adjourned. But it is not a hearing. It is a
debate or a discussion, and if you enjoyed it, you may applaud.
[Applause.]
Thank you gentlemen both, and thank you all for coming
today. We hope you enjoyed it.
[Whereupon, at 3:30 p.m., the proceedings were adjourned.]