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AFSCME Testimony to the U.S. House on Medicare Advantage and the Federal BudgetStatement for the Record of the The American Federation of State, County and Municipal Employees (AFSCME) represents 1.4 million employees who work for federal, state, and local governments, health care institutions and non-profit agencies, and an additional 230,000 retiree members. AFSCME and its members are proud of labor's historic role in the creation of Medicare and we remain strong defenders of the Medicare program from those who would undermine its foundations. When President Johnson signed Medicare into law on July 30, 1965, he spoke of the profound promise of Medicare to our nation and its citizens: “No longer will older Americans be denied the healing miracle of modern medicine. No longer will illness crush and destroy the savings that they have so carefully put away over a lifetime so that they might enjoy dignity in their later years. No longer will young families see their own incomes, and their own hopes, eaten away simply because they are carrying out their deep moral obligations to their parents, and to their uncles, and their aunts. And no longer will this Nation refuse the hand of justice to those who have given a lifetime of service and wisdom and labor to the progress of this progressive country.” For today's 42 million Medicare beneficiaries and our nation, the need for Medicare to remain a sanctuary against financial ruin caused by the vicissitudes of illness and disability rings as true in 2007 as it did nearly 42 years ago. Today, the financial security of Medicare is threatened by the drive to privatize the program. Overpayments to Medicare Advantage plans are causing a shift of beneficiaries out of the more efficient government-administered program into more costly private plans. Overpayments to these private plans may make them highly profitable, but they also have a deleterious impact on the federal budget, the Medicare program and the Medicare benificiaries. Overpayments to Private Medicare Advantage Plans Threaten Medicare's Financial SolvencyWhen Congress opened up Medicare to private plans, it was based on the claim that the private health insurance industry would be more efficient, provide more coordinated care for seniors and the disabled, and do so with less cost to the taxpayers and beneficiaries than the traditional Medicare program. The promises of efficiencies and lower costs have been illusory; Medicare now pays private Medicare Advantage plans more than it would cost to cover the same beneficiaries through the traditional Medicare program. According to the Medicare Payment Advisory Commission (MedPAC), these private plans are paid an average of 12 percent, or $1,000 per year, more to cover a Medicare beneficiary than the cost of traditional Medicare to cover the same beneficiary. Private Medicare Advantage fee-for-service plans are paid on average 19 percent more than the traditional Medicare fee-for service program. Overpayments to the private insurance industry are worsening Medicare's financial health. Enrollment in the private plans is growing rapidly and enrollment is growing the fastest among plans receiving the largest overpayments. Over the next 10 years, these overpayments to insurance companies will cost an additional $160 billion. These overpayments shave two years off the financial solvency of Medicare's hospital insurance trust fund. The ballooning growth in overpayments to private plans will drive premiums even higher for beneficiaries, erode Medicare's financial solvency and ultimately force major changes in the Medicare program, including substantial cuts in benefits. If left unchecked these overpayments will ultimately lead our nation backwards to a time when seniors were one illness away from poverty and were denied reasonable and necessary medical care because they could not afford to pay doctors or hospitals. Overpayments to Private Medicare Advantage Plans Are Increasing State Medicaid CostsThe overpayments to private plans come out of the Medicare hospital trust fund, Part B premiums and general revenues. Medicaid, which is jointly funded by states and the federal government, subsidizes Part B premiums for low-income Medicare beneficiaries. Because the overpayments push Part B premiums higher, states are forced to pay more for Part B premiums to subsidize these overpayments to private plans. Nationally, states and the federal government will be forced to pay an extra $168 million in FY 2007 in Part B monthly premiums for all low-income Medicare beneficiaries as result of the overpayments to private Medicare plans. Attached is a table showing the additional cost to Medicaid, by state, to subsidize overpayments to private Medicare plans. All Medicare Beneficiaries are Already Paying MoreBecause Medicare Advantage overpayments drive up premiums paid by Medicare beneficiaries, all seniors, not just those in the private plans, are paying more now. In 2007, each beneficiary in traditional Medicare paid an extra $24 per year for the Part B premium to subsidize the overpayments to the private plans. Medicare Disadvantage PlansAdvocates for Medicare beneficiaries, beneficiaries and state insurance commissioners have been reporting that private plans have used abusive, misleading and fraudulent sales tactics to shift seniors out of Medicare and into their private insurance policies. The billions and billions in extra costs coming out of the pockets of taxpayers, states and beneficiaries to fund overpayments to Medicare Advantage plans explains the gold rush fever of health insurance companies to sign up seniors, even if it means these companies step far over the line in their sales and marketing practices. With 27 percent of all Medicare beneficiaries having cognitive or mental impairments, these elderly and disabled beneficiaries are a vulnerable target of abusive, confusing, misleading and fraudulent sales tactics. According to press reports, beneficiaries are told that “Medicare is going private” or that they will lose their Medicare or Medicaid unless they sign up for a particular plan. Insurance company agents show beneficiaries business cards which suggest that they are from Medicare, Social Security, or other trusted government agencies. Many beneficiaries do not realize that when they sign up for Medicare Advantage plans they will lose their Medicare coverage and terminate or jeopardize eligibility for existing retiree or Medicare supplemental plans. Once beneficiaries are in private Medicare Advantage plans they may be forced to pay higher co-payments than they would under traditional Medicare. Traditional Medicare does not require any co-payments for home health care services but many Medicare Advantage plans do. Many plans have higher out-of-pocket costs for hospitalization, chemotherapy, and services needed for those who are chronically ill. Medicare Advantage beneficiaries also find they have fewer rights than traditional Medicare beneficiaries when things go wrong with their health insurance. The dizzying array of complex benefits packages and out-of-pocket rules vary from plan to plan and can change every year in a Medicare Advantage plan. While current law requires these plans to offer at least the actuarial equivalent level of benefits as provided in traditional Medicare, plans can and do change their benefit and cost–sharing rules to keep the healthiest, and least costly, beneficiaries in their plans. MedPAC reports that Medicare Advantage plans are enrolling beneficiaries who are healthier than average. By targeting healthier beneficiaries through marketing or winnowing out sicker, and more costly, beneficiaries through increased costs and changes in benefits, Medicare Advantage plans raise their own profit margins at the expense of beneficiaries and the Medicare program. It is not at all clear that the additional payments made to Medicare Advantage plans are indeed being returned to beneficiaries in the form of additional benefits or reduced cost-sharing. With little accountability and reporting requirements it has been extremely difficult to identify what percentage of the overpayments are being used to boost profits of the private insurance companies, to pay insurance commissions, marketing or administrative costs, rather than improve benefits. Medicare Advantage fee-for-service plans are the least efficient private plans and receive the highest overpayments from Medicare. Because these types of private plans are exempt from most quality measurements, taxpayers have no assurance that these excessively costly plans are truly protecting the health of beneficiaries. For example, these plans are not required to coordinate care of enrollees with complex or serious medical conditions. These plans are not required to work with community and social service programs to ensure continuity of care and integration of services. In sum, taxpayers have little to no assurance that the billons in extra payments to private insurance companies are actually providing meaningful benefits to the sickest and frailest beneficiaries. It would be more accurate to call many of these private insurance plans Medicare Disadvantage Plans. Congress Must Stop the Insurance Industry's Fleecing of MedicareOverpayments to insurance companies prime the Medicare privatization pump and put the security of the Medicare program at risk. Congress must act to secure Medicare by reining in the runaway overpayments to Medicare Advantage plans. Recalibrating Medicare Advantage overpayments will improve the efficiency of the program, reduce incentives for abusive tactics and strengthen the financial health of Medicare. The savings realized from reducing these escalating overpayments can be used to improve the prescription drug benefit, improve health services for low- and moderate-income beneficiaries, prevent a cut in the Medicare reimbursement to physicians and help pay to cover more children under the State Children’s Health Insurance Program (SCHIP). Congress must act now to stop the insurance industry’s fleecing of Medicare. Amount of Extra Part B Monthly Premiums Medicaid Must Pay in 2007
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Raymond Summers
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