Recommendations On Policy Options/Financing Comprehensive Health Care Reform: Proposed Health System Savings and Revenue Options

SECTION I: Health Systems Savings

Ensuring Appropriate Payment

Increase the Medicaid Brand-Name Generic Drug Rebate Amounts.

The National Committee to Preserve Social Security and Medicare strongly supports the expansion of drug rebates in the Medicare and Medicaid programs. In Medicare Part D, a Medicaid-like rebate should be applied to all drugs covered by the program, as described in "Option 67" of the December 2008 Congressional Budget Office (CBO) Budget Options: Health Care report. These savings should be retained in Medicare and used to fill the Part D coverage gap. We encourage the Finance Committee to employ a larger drug rebate in the Medicaid program as well and to use the savings to raise income eligibility limits in the Medicaid program.

Modifying Beneficiary Contributions

Making Beneficiary Contributions More Predictable

The National Committee applauds the goal of simplifying beneficiary cost-sharing and making Medicare's benefit structure more consistent with what is available in the private sector. In particular, it is important that the overall value of the benefits provided by Medicare be comparable to at least the "medium option" level of coverage available in the health insurance exchange - the level described as comparable to the Federal Employees Health Benefits Plan (FEHBP) in the Finance Committee's Coverage Policy Options paper. As we noted in our response to that paper, we urge that Medicare provide equitable coverage, by adding a new "Medicare Extra" or "Part E" option to receive a comprehensive benefit under original Medicare. In addition, we urge that the Part D "doughnut hole" coverage gap be closed.

Regarding the proposal to require a minimum level of cost sharing across all Medigap plans, we caution the Committee that significantly increasing cost-sharing requirements of any kind could negatively impact beneficiary access to services. A growing body of research finds that appropriate use of health services declines with even modest increases in cost sharing, particularly among low-income populations. It is important to consider that Medicare beneficiaries tend to have low to moderate income (the median beneficiary has an annual income of $15,000), and that access to services will be hampered if significant cost sharing is required.

Also, it is most important 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 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. As an alternative to the changes outlined in the Committee's Financing Policy Options, we believe it would be preferable to offer 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." The Department of Health and Human Services (HHS) would administer this option as a new program to provide a supplementary benefit to Parts A and B. In this program, enrollees would receive an overall benefit that resembles the benefit packages offered by private plans: for example, featuring a single annual deductible, an out-of-pocket maximum, and reasonable coinsurance for outpatient services. 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.

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.

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.

Means Testing Part D Premiums

The National Committee is opposed to applying means-testing to Medicare Part D, just as we are opposed to the current means-testing of Part B premiums. Therefore, we are opposed to the Senate Finance Committee's proposed option that it "could consider requiring beneficiaries whose incomes exceed certain thresholds to pay higher premiums for Part D drug coverage. Higher premiums could apply only to basic coverage. The income thresholds could be set at the same levels and adjusted in the same manner as under Part B."

Means-testing does not modernize or improve Medicare for beneficiaries. As hundreds of thousands of Medicare beneficiaries can attest, the Centers for Medicare & Medicaid Services (CMS), the Social Security Administration (SSA) and the Internal Revenue Services (IRS) cannot, even under the current system, accurately determine the Part D premiums that beneficiaries are required to pay. Current problems include the failure to withhold premiums, failure to cease withholding premiums, failure to withhold the correct amount in premiums, and failure to forward deducted premiums to the proper Part D plan. These failures can create costly problems for beneficiaries, such as having more deducted from their Social Security check than they can owe or being retroactively disenrolled from their Part D plans.

Income-relating Part D premiums as suggested by the Senate Finance Committee would be even more complex than the current system and it raises privacy issues regarding the need to share personal financial information among multiple entities. It would require proof, confirmation, and multiple data exchanges among three governmental agencies - CMS, SSA, and IRS - and more than 3,700 Part D plans nationwide. Based on Medicare beneficiaries' experiences to date, it is fair to assume that it would greatly exacerbate current problems, and create new ones, if another level of premium calculation is added. Additionally, State Health Insurance Assistance Programs (SHIPs) already have difficulty assisting beneficiaries in choosing the Part D plan that is most appropriate for them.  There are too many plans, with too many different variables, including premium, deductible, coverage gap, formulary, and utilization management requirements for formulary drugs.  The proposed option to means-test Part D premiums unwisely adds another variable based on income, making premium calculations more difficult.

We support the complete elimination of means-testing because it undermines the social insurance nature of the Medicare program. Means-testing also raises premiums for those who have paid the most into the program. By the time they retire, higher-income seniors have already paid a greater share of Medicare's cost compared to low- and middle-income seniors. For example, higher-income seniors contribute more in Medicare payroll taxes since there is no income cap as there is in the Social Security program. Higher-income seniors also pay more income tax which helps to finance the majority of Part B and Part D costs. Finally, these seniors are subject to higher income taxes on their Social Security benefits, which are used to strengthen Medicare's Hospital Insurance Trust Fund.

The National Committee supports proposals to improve the Part D Low-Income Subsidy and to close the Part D "doughnut hole" coverage. We believe that the asset limits for the low-income subsidy (LIS) should be eliminated or substantially raised. (For example, $27,000 for single beneficiaries, $55,000 for a couple). Currently, asset limits for the LIS under Part D are too low, requiring low-income seniors to sell assets in order to get assistance, leaving them financially vulnerable. Furthermore, the income limit should be raised to 200 percent of the Federal Poverty Level, eligibility processes should be improved by allowing cross-deeming between the LIS program and the Medicare Savings Programs, and additional funding should be provided to expand enrollment outreach.

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.

Government Relations and Policy, May 2009