Recommendations On Policy Options/Expanding Health Care Coverage: Proposals to Provide Affordable Coverage to All Americans

SECTION I: Individual Market Reforms

Non-Group and Micro-Group Market Reforms
Small Group Market Reforms

Federal Rating Rules

In general, the National Committee shares the Senate Finance Committee's positions to end the practice of denying health insurance coverage to people with pre-existing conditions and of charging higher premiums based on health status. However, these improvements will be negated for older Americans by your proposal to allow older consumers to be charged up to five times more than younger adults in the non-group, micro-group, and small group markets.

As you know, the current health insurance system is failing many older Americans. A growing number of older adults are without insurance coverage, and once older Americans lose their coverage, they are more likely to remain uninsured until they become eligible for Medicare. The consequences of not having insurance are particularly severe for older Americans as they defer care during these uninsured periods, and for the Medicare program once they become eligible. Studies have shown that uninsured adults in their 50s and early 60s experience worse health outcomes and use more services when they enter the Medicare program, compared to those who were insured.

Age rating is also a concern because age is strongly associated with health status. As Americans age, they are more likely to experience chronic conditions such as heart disease, cancer, stroke, and diabetes. It seems particularly unfair to remove current age-related caps on specific services as part of health care reform only to enshrine in the same legislation higher premiums based on age.

(Please see our further discussion in the section on a Temporary Medicare Buy-In).

Health Insurance Exchange

Functions Performed by Secretary

Given our concern about widespread abuses in the marketing of Medicare Advantage plans, which often led to Medicare beneficiaries enrolling in a private plan without adequate understanding of the plan or their ability to stay in traditional Medicare, the National Committee suggests that you strengthen your proposals to:

Develop standardized marketing requirements modeled after Medicare Advantage (CMS regulates the marketing activities of Medicare Advantage plans in order to protect beneficiaries from unscrupulous marketing practices). For example, marketing rules prohibit most unsolicited door-to-door and outbound sales calls to beneficiaries;

Establish rate schedules for broker commissions (also currently done by CMS for Medicare Advantage plans).

One recommendation is to ensure that State Insurance Commissioners have the ability to protect consumers from marketing abuses by all insurance plans whether they are sold through the Health Insurance Exchange, the individual market or are Medicare Advantage (MA) plans. As you know, with regard to MA plans, this would require repeal of the federal preemption of state insurance laws regarding Medicare Advantage and Part D plans that is included in the Medicare Modernization Act of 2003.

SECTION III: Public Health Insurance Option

The National Committee has long supported the establishment of a government-operated prescription drug benefit in Medicare. We believe seniors should have the choice of receiving their prescription drugs through the traditional program rather than being limited to the private marketplace for coverage. We believe a Medicare-operated drug benefit would be simpler than the current system, and Medicare's overall cost efficiencies and ability to negotiate prices would help slow the rate of growth in prescription drug costs. In Part D as it is currently structured, only 6 to 7 percent of beneficiaries change plans each year, indicating that there is very little competition in the private plan market established by this program. This lack of competition has resulted in premiums and other out-of-pocket costs that are growing faster than health care costs generally, and significantly outpacing the growth of the economy overall. Unfortunately, this can be easily seen in the 24 percent increase in premiums for beneficiaries in 2009 alone. (Enrollment weighted average from Avalere Health).

Furthermore, the Part D market offers a complex array of benefit options, and research has shown that beneficiaries are seldom able to pick a plan that exposes them to the least liability. Beneficiaries are often surprised by the utilization management rules that apply to their coverage, and there are widespread complaints (particularly from the vulnerable dual eligibles) that the exceptions/appeals process is ineffectual.

We believe that the experience of the Medicare Part D program points to the need for a public plan option in the health insurance exchange under consideration by Congress. A public plan would provide a benchmark in the health insurance exchange, offering competition based on the value of its benefit and the quality of its utilization management processes, and we believe this competition would "raise the quality bar" for private plans in the exchange.

The National Committee supports the establishment of a public health insurance option administered by a new agency within the Department of Health and Human Services (HHS). It is valuable to make such an option competitive with private health plans by requiring that eligibility rules, premium rating limits, marketing requirements, and income-related subsidies mirror the requirements that apply in the health insurance exchange. Risk-adjustment policies should also be the same. Such a plan should not, however, be subject to the solvency requirements that will apply to private plan.

Any prescription drug benefit within the public plan option should be structured to ensure that the public will be involved in the process of developing any formulary or utilization management rules that will apply. Furthermore, there should be an open process in setting up an exceptions and appeals process for claim denials.

SECTION IV: Role of Public Programs

Medicare Coverage

The National Committee urges the Senate Finance Committee to ensure that health care reform results in an equitable level of health insurance coverage for seniors. Currently, the actuarial value of Medicare's benefit falls significantly below the average benefit value offered in large employer PPO plans and the Federal Employees Health Benefits Plan (FEHBP). (A 2008 Kaiser Family Foundation analysis found that Medicare's benefit value is 87 percent of the benefit value of a typical large employer PPO and 90 percent of the standard FEHB option). Reform of the health care system offers an opportunity to address this disparity. We urge the Finance Committee to include a new "Medicare Extra" or "Part E" in its reform legislation, creating the option of a comprehensive benefit under original Medicare. In addition, the Part D "doughnut hole" coverage gap should be closed.

We believe that it is crucial to provide Medicare beneficiaries an option to receive a comprehensive benefit under original Medicare, often described in the health policy literature as "Medicare Extra" or "Part E." Under this option, the Department of Health and Human Services (HHS) would administer a new program to provide a supplementary benefit to Parts A and B. Beneficiaries would pay premiums to cover the costs of the program. A 2005 analysis by researchers at The Commonwealth Fund found that this kind of coverage would provide beneficiaries the value of a Medigap plan and save them hundreds of dollars in premium costs. By making enrollment automatic upon enrollment in Part B, while providing beneficiaries an opportunity to opt out, most beneficiaries will avoid the complication of enrolling in a Medigap plan, while maintaining the option for those who prefer the options available through private coverage.

Medicare Part E will supplement coverage for all the services now covered under Parts A and B, and it will create a cost-sharing structure under Medicare that is similar to best practices in the private market:

• A single $250 per person deductible (applying to both outpatient and inpatient care).
• Outpatient coinsurance of 10 percent.
• Inpatient hospital co-payment of $100 per admission.
• Out-of-pocket maximum of $3,000.
• No cost-sharing for home health and certain preventive services (reflecting current policy).

Ideally, beneficiaries would have the additional option to obtain prescription drug coverage through a Medicare-operated plan. We believe HHS should administer this plan, which would offer a stable, uniform benefit nationwide and serve as the default plan for Low-Income Subsidy beneficiaries who do not choose a private plan. This plan would have no coverage gap. In addition, development of the program's formulary and exceptions/appeals processes would be subject to public input and scrutiny. Senator Durbin's Medicare Prescription Drug Savings and Choice Act (S. 330) is an excellent model. Benefiting from lower administrative costs, such a plan would likely offer lower premiums, and it would serve as a national benchmark for benefit structure and formulary policies.

Whether a new comprehensive benefit is offered or not, the Part D coverage gap should be closed in the existing program. We believe that pharmaceutical manufacturers should be subject to Medicaid-like drug price rebates for all medications purchased through the Part D program, as described in "Option 67" of the December 2008 Congressional Budget Office (CBO) health care budget options report. The resulting savings, estimated at $110 billion over ten years, should be applied to eliminating the coverage gap, which CBO estimated to cost $134 billion over the same timeframe ("Option 89"). Additional savings to fill the coverage gap should be found by authorizing HHS to negotiate drug prices for unique drugs.

Currently, Medicare's irrational cost-sharing structure exposes beneficiaries to an undue level of costs. The lack of an out-of-pocket maximum, the extreme deductible requirement for Part A, and the Part D coverage gap are largely unique to Medicare and are responsible for Medicare's lower benefit value relative to typical large employer plans in the private market.

Looking at employer-based health insurance, only 20 percent of this population lacks the financial protection of an out-of-pocket maximum. Under Medicare, it is the "sickest" beneficiaries, those who must use the most services, who are liable for the greatest costs when cost-sharing is not capped. It is important these beneficiaries be protected from this liability.

The high Part A deductible requirements also have an adverse effect that disproportionately affects "sicker" beneficiaries, and they do not appear to be effective in containing costs. As the Medicare Payment Advisory Commission (MedPAC) noted in a 2002 report, the high cost sharing requirement in Part A likely does little to discourage inappropriate use of services, since the acute care provided in inpatient settings is seldom "discretionary." Similarly, there is significant evidence that the coverage gap in Part D reduces adherence to drug therapies, likely resulting in higher medical costs overall, and it exposes the most vulnerable beneficiaries to the heaviest cost sharing.

Almost all beneficiaries depend on supplemental coverage, such as Medigap, to provide the comprehensive financial protection that Medicare currently fails to provide. Beneficiaries must navigate a complex set of insurance options to piece together a comprehensive benefit - enrolling in traditional Medicare and then shopping for both a Medigap plan and a Part D drug plan. They also bear a heavy paperwork burden in paying several separate premiums and managing claims. (For this reason, many join a private Medicare Advantage plan to avoid this complexity, even if they would prefer to remain in traditional Medicare). Creating an optional Part E would expand choice for beneficiaries - providing them the opportunity to receive this ‘one stop shopping' through traditional Medicare if they so choose, or through the current system if it best serves their needs.

Reduce or Phase-Out the Medicare Disability Waiting Period

The National Committee to Preserve Social Security and Medicare supports phasing out the 24-month Medicare waiting period for all disabled beneficiaries. The 24-month waiting period was instituted without a policy rationale and remains an unjustified feature of the Medicare law. Because of the two-year waiting period, an estimated 400,000 disabled beneficiaries are without health insurance and many more are underinsured at a time in their lives when the need for health coverage is most dire. No one with a disability severe enough to qualify for SSDI should be without health coverage. By requiring disabled beneficiaries to wait two years for Medicare coverage, the current law exposes these individuals to inadequate health care, poverty or even death.

Phasing out this two-year waiting period would provide stable health insurance to a vulnerable group of beneficiaries who are unable to work. Therefore, the National Committee favors Approach 3, which would reduce the waiting period in six-month increments, with complete elimination after one-and-a-half years (2011).  We believe Approach 2, which would reduce the waiting period by one month every quarter beginning in October 2009 until completely phased out in by 2015, is the next best option.

The National Committee has concerns about the other options that, while presumably less expensive, leave a significant disabled population without insurance and thus particularly vulnerable in a time of need. While the National Committee is cognizant of the fiscal pressures facing health care reform, we believe any reform of the Medicare Disability Waiting Period must have as its goal the eventual elimination of any waiting period.  Approach 1, which would reduce the wait to 12 months, fails to meet that criterion.

The National Committee also has some reservations about Approach 4, which would retain the 24-month waiting period for persons with access to private health insurance, not including COBRA, which meets or exceeds a specified "actuarial standard." There is concern that private coverage that meets an "actuarial standard" could still have benefit caps, high out-of-pocket costs, or restrictions on services vital to people with disabilities, such as prosthetics or durable medical equipment

Temporary Medicare Buy-In

The National Committee agrees with the Senate Finance Committee that it is important to explore options for providing health insurance coverage for people aged 55-64. Older Americans who are not yet eligible for Medicare often have a difficult time finding affordable health care and may find that no insurer will cover them at a time in their lives when they most need health insurance protection. Ensuring that older adults have access to affordable, high-quality health insurance is important for individuals, and it can ultimately reduce costs for the Medicare program. Studies show that having insurance and receiving care in the years before becoming eligible for Medicare results in beneficiaries who are healthier - and therefore less costly to cover - than those without insurance before they become Medicare beneficiaries.

The National Committee supports exploring the option of a Medicare buy-in for those aged 55-64. However, we are concerned that the Finance Committee's Temporary Medicare Buy-In proposal would be unaffordable for beneficiaries and difficult and costly to administer. Without support through a federal subsidy, it is difficult to see how Medicare coverage would be an affordable option for many in the 55-64 age group. Without such assistance, many low-income individuals with high health care costs would remain uninsured or underinsured. Others with very high health care needs might pay the high premiums but this adverse selection could cause Medicare spending and cost sharing for existing beneficiaries to increase more rapidly than is currently anticipated. As cost-sharing for Medicare is already placing a significant burden on an older population with limited incomes, changes to Medicare that might further increase costs must be avoided.

Whether those aged 55-64 are allowed to buy into Medicare, or eventually are required to buy private insurance through a Health Insurance Exchange, the premiums must be affordable. We strongly recommend that those who might be allowed to buy into Medicare be eligible for the same tax credits that are available to low-income people buying insurance through the Health Insurance Exchange. And, if 55-64 year olds are required to buy insurance through the Exchange, Congress simply cannot go forward with the 5:1 rating rule based on age for individual and small group markets included in the options document. Combining a requirement for ‘personal responsibility' with provisions allowing insurance companies to charge older adults up to five times the premiums available to those who are younger will place older Americans in an unconscionable position.

SECTION VI: Options to Improve Access to Preventive Services and Encourage Health Lifestyles

Promotion of Prevention and Wellness in Medicare

Incentives to Utilize Preventive Services and Engage in Healthy Behaviors

The National Committee supports the Finance Committee proposal to remove or limit beneficiary cost-sharing for preventive services. This will encourage seniors to maintain a routine schedule of physician visits, identifying health issues while they are manageable and reducing costs.

We also believe that routine dental, vision and hearing services are very important to older adults and should be covered more extensively.

SECTION VII: Long - Term Care Services and Supports

Medicaid Home and Community Based (HCBS) Waivers and the Medicaid HCBS State Plan Option
The National Committee supports the proposal to allow states to seek approval from HHS to offer additional services under section 1915(i), and we believe that individuals should be allowed to simultaneously enroll in more than one Medicaid waiver.

Eligibility for HCBS Services: Waivers and the State Plan Option
We support the elimination of the current institutional level-of-care requirement for eligibility under section 1915(i) waivers, and we hope that states will expand access to these services by adopting less stringent criteria. It is valuable to provide states the opportunity to do this without imposing a requirement that they do so. States should also be allowed to confer eligibility for HCBS services up to 300 percent of the Supplemental Security Income (SSI) payment level, if needs-based criteria are met.

Increase Access to Medicaid HCBS
We support "Approach 1" as a policy for expanding access to HCBS. States should be provided incentives to expand the numbers of persons provided HCBS. While we would like waiting lists for these services to disappear, we believe that a prohibition against waiting lists may discourage states from offering the services, particularly in a time when state budgets are facing major shortfalls. Thus, "Approach 2" does not seem tenable at this time.

Increase Federal Match for Medicaid HCBS
The National Committee strongly supports increasing the federal match for HCBS to encourage states to increase access to these services. We believe, however, that a one percent increase in the match provides an inadequate incentive. A five percent increase will go much further in motivating states to expand HCBS. We support "phasing-up" the FMAP match over a five year period, if it proves necessary to reduce the initial cost impact.

Medicaid Spousal Impoverishment Rules
The National Committee strongly supports extending the protection provided by Medicaid spousal impoverishment rules for institutional residents to applicants for HCBS services. Spouses simply should not face the choice of impoverishment or divorce when an individual needs HCBS. As described in the Finance Committee's policy options, these rules should apply to applicants who receive HCBS under sections 1915 (c), (d), (e), (i), and (k), as well as under section 1115 of the Social Security Act.

Medicaid Resources/ Asset Test
We strongly support increasing asset eligibility levels for Medicaid HCBS services. Requiring applicants to spend down to a subsistence level of assets before providing coverage creates a major obstacle to access. Applicants should be allowed to retain assets at least at the level of the average monthly cost of six months of nursing facility services. Furthermore, the look-back period for asset transfers should be reset to 36 months.

Government Relations and Policy, May 2009