2003-09-30 -- News on House-Senate Negotiations
on Medicare Restructuring

Kaiser Foundation Daily Health Policy Report, [Sep 29, 2003]

Capitol Hill Watch |  Medicare Negotiators Considering  Plan To Charge
Higher-Income Beneficiaries  More for Doctor Visits, Other Outpatient
Services

Members of the conference committee charged with reconciling the House
and Senate Medicare bills (HR 1 and S 1) this week plan to consider a
provision that would require higher-income beneficiaries to pay higher
premiums for physician and other out-of-hospital services as part of a
larger effort to "slow growth in the government's costs for Medicare,"
the AP/Las Vegas Sun reports. (See below.)

The proposed "means testing" provision, which does not appear in the
Medicare bills passed earlier this year in the House and Senate, would
base Medicare Part B premiums for out-of-hospital services on the
incomes of beneficiaries, according to an internal Republican
document.

Medicare conferees to date have not formally considered such a
proposal, which "may or may not win approval," according to several
unnamed congressional aides, the AP/Sun reports.

In addition, Medicare conferees this week plan to consider whether to
charge higher-income beneficiaries with large pharmaceutical costs
more for prescription drug coverage than lower-income beneficiaries,
according to the internal Republican document.

Many Democrats, such as Sen. Edward Kennedy (D-Mass.), oppose means
testing because they maintain that a "fundamental principle" of
Medicare is that "all beneficiaries receive a standard benefit at a
fixed cost," the AP/Sun reports.

However, supporters, such as Sens. Don Nickles (R-Okla.) and Dianne
Feinstein (D-Calif.), maintain that Medicare must adopt means testing
to account for the longer life expectancies of beneficiaries and the
related increase in medical costs (Espo, AP/Las Vegas Sun, 9/27).

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 September 27, 2003

Medicare Plan Could Boost Some Premiums

By DAVID ESPO ASSOCIATED PRESS

WASHINGTON (AP) - Negotiators on a Medicare drug bill are discussing a
proposal to require higher-income seniors to pay a bigger premium for
doctor and other out-of-hospital services than other beneficiaries,
according to an internal working document and Republican officials.

The discussion is part of an effort to slow growth in the government's
costs for Medicare, at the same time the giant health care program for
seniors is expanded with a new prescription drug benefit.

Discussions of proposals to link the so-called Part B premium to a
beneficiary's income are in the early stages, according to several
aides who spoke on condition of anonymity, and may or may not win
approval. While staff talks have been held, the lawmakers negotiating
for the House and Senate have yet to formally consider the issue.

The disclosure came as the White House and GOP congressional leaders
sought to accelerate the pace of work on the bill. President Bush met
with lawmakers at the White House on Thursday to renew his call for
passage by the end of the year of comprehensive legislation costing
$400 billion over a decade.

"I think it's the right thing to do," he said. "We have an obligation
to our seniors.

Efforts to fashion a compromise have been slowed by policy differences
and political divisions as well as personality clashes between key
lawmakers, although negotiators are now working on a timetable
designed to achieve agreement by Oct. 17.

At the same time, the Alliance to Improve Medicare, created to press
for enactment of legislation, disclosed plans to begin television
advertising in targeted states and congressional districts. "Don't you
come home without a prescription drug benefit," says one senior in the
ad.

Both the House and Senate passed measures in June to establish
prescription drug benefits for Medicare recipients for the first time.
In addition, both bills would overhaul the government's 38-year-old
program of health care for seniors, establishing a new managed care
option that supporters say would modernize coverage at the same time
it held down costs through competition.

An internal Republican working document sets aside time during next
week's discussions to review "means testing," a concept under which
some beneficiaries would pay more for services than others. Among the
items listed for discussion is the premium for out-of-hospital
coverage, as well as linking the prescription drug benefit to an
individual's income.

Neither the legislation that cleared the Senate nor the House bill
contains provisions that link income to the cost of Part B premiums.

The Senate signaled its support for means-testing shortly before
passing its Medicare legislation last June. But with an amendment at
the brink of passage - it prevailed 59-38 on a test vote - Sen. Edward
M. Kennedy, D-Mass., threatened a filibuster if it were included in
the bill and supporters abandoned the effort.

Many Democrats oppose such provisions, arguing that a fundamental
principle of the 1965 program is that all beneficiaries receive a
standard benefit at a fixed cost. Under current law, beneficiaries are
responsible for paying 25 percent of the cost of the premium, or
$58.20 a month in 2003.

But the amendment that was on the verge of Senate passage had
bipartisan support - Sen. Don Nickles, R-Okla., and Sen. Dianne
Feinstein, D-Calif., were its chief sponsors.

"Much has changed since the creation of Medicare in 1965. People are
living longer, due in large part to improved diagnostic tools and
treatment. There is no way Congress could have predicted the number of
people who would come to rely on Medicare or the rate at which medical
expenses would grow," Feinstein said at the time.

Under the proposal that was ultimately derailed in the Senate, an
estimated 1 million of the current 38 million Medicare beneficiaries
would have been required to pay a higher premium, rising to 100
percent of the cost for those with incomes above $200,000.

The internal GOP document also indicates that negotiators will discuss
whether to charge higher income beneficiaries who have large drug
costs more than less well-off seniors. The House bill included such a
provision, but not the Senate measure.

Under the House bill, individuals with incomes greater than $60,000
would have to spend more on drugs before coverage began for
catastrophic costs. The amount would increase on a sliding scale, with
those earning $200,000 required to spend $12,000 a year before the
benefit begins.

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Wall Street Journal, September 30, 2003

 Varying Medicare-Cost Analyses Dog House-Senate Negotiators

By DAVID ROGERS  Staff Reporter of THE WALL STREET JOURNAL

WASHINGTON -- Lawmakers negotiating major Medicare legislation are
dogged by cost analyses that vary by tens of billions of dollars,
highlighting the risk that Congress could increase the health
program's expenses if it miscalculates how to introduce private
insurance plans into the government-run system.

Republicans and the White House are convinced long-term savings will
result, as private health plans compete and provide nongovernment
alternatives for beneficiaries. But the Congressional Budget Office
and Medicare actuaries at the Centers for Medicare and Medicaid
Services (CMS) remain far apart in how they score the early impact of
certain provisions.

House and Senate negotiators are meeting daily in hopes of reaching
some framework for an agreement by the middle of this month. But at a
time when Republicans are trying to find new options to contain costs,
the budget disputes aren't merely technical: They leap from a genuine
intellectual divide over how well the private insurers will fare in
the Medicare market.

"I've been watching this for six months now. So far there has been no
resolution," said CBO Director Douglas Holtz-Eakin. Thomas Scully,
Medicare's chief administrator, said the experience is quite unlike
anything before, since the CMS and CBO Medicare estimates have
"historically been close, but this time they're based on predicting
behavior."

Since the CBO expects few insurers to participate in Medicare, it
tends to minimize the government's cost of helping the plans establish
themselves. The CMS is more bullish about the likelihood of plans
participating, but this optimism requires its actuaries to warn that
upfront costs to Medicare could be substantial.

The CMS, for example, puts a much higher price tag than the CBO on the
cost of premium rebates promised by lawmakers to people who enroll in
the private insurance plans. And there is at least a $40 billion
disparity between how the CBO and CMS estimate the impact of a
decision last week by negotiators to lift a proposed cap on the number
of plans that can contract with the government in each regional
Medicare market.

Both the House and Senate passed Medicare bills -- in line with the
White House's wishes -- that allow the government to award contracts
only to the three lowest bidders in each region. The administration
believed this would encourage companies to bid lower, for fear of
being shut out. And to the extent there would be just three survivors,
insurers could better build networks big enough to help them to reduce
long-term costs.

Conservatives and the health-insurance industry opposed the
three-company limit as anticompetitive, and won a tentative agreement
to drop it. The CBO said the cost of doing so would be modest, about
$200 million over 10 years, because it assumed so few plans would bid
anyway. Estimates by CMS actuaries indicate that would drive bids 4%
higher, and the cost would be closer to $40 billion to $60 billion
over the same period. Now there is pressure to restore some form of
the three-company cap.

Since the CBO's cost estimates are lower, and since it is the official
scorekeeper for Congress, Republicans have been happy to ignore the
higher estimates. But the wide gulf could be a problem still for the
White House.

The stakes are big, since President Bush and Republicans need an
agreement on the private plans to move ahead with the second part of
the modernization blueprint: a new prescription-drug benefit for those
in Medicare, which covers about 40 million elderly and disabled
Americans. The total 10-year package has been budgeted at $400
billion, and to appease conservatives, Republicans are exploring new
cost-containment provisions that aren't in either the House or Senate
bill.

One proposal is to raise Part B Medicare premiums for physician
services so that individuals earning more than $60,000 a year would
pay a greater share of the costs. The Senate already has signaled
support for raising the premiums of those earning more than $100,000.
The options now seek to expand the universe of beneficiaries affected
with a threshold closer to $60,000, but then adjust the resulting
premium increase more slowly, so people aren't driven out of Medicare,
and everyone would still enjoy some subsidy for physician services.

A second option is a stop-loss mechanism to force Congress to
reconsider changes in Medicare if it keeps absorbing more general
revenue. The Treasury now covers about 30%-31% of Medicare's total
costs; a point could be set -- 35% or 40%, for example -- at which
lawmakers would have to consider further adjustments.