V I E W P O I N T

The CHAMP Act (H.R. 3162) Strengthens and Improves Medicare for Future Generations

Medicare Advantage Improvements

•  Eliminates overpayments to private Medicare Advantage plans and strengthens Medicare's financial outlook.

According to government estimates, private Medicare Advantage plans are paid an average of 12 percent more to cover a beneficiary than it would cost to cover that same beneficiary in traditional Medicare. In simple dollar terms, Medicare pays about $1,000 more a year to cover a beneficiary in a private plan than it would cost to provide care to that same beneficiary under traditional Medicare. These large overpayments are estimated to cost Medicare $149 billion over the next ten years and accelerate the depletion of the hospital insurance trust fund by two years. The overpayments are also currently increasing Part B premiums by $24 annually for all Medicare beneficiaries.

The CHAMP Act would begin leveling the playing field between private plans and traditional Medicare in 2009 and fully equalize Medicare payments by 2011. Further, the legislation prohibits plans from enrolling new beneficiaries in 2009 and 2010 if they cannot bid below 106 percent and 103 percent of fee-for-service Medicare, respectively . As a result, this legislation would lower Medicare spending, constrain the growth of Part B premiums, improve program solvency, and preserve the ability of traditional Medicare to fairly compete with private plans.

•  Prevents private plans from charging higher out-of-pocket costs for benefits than traditional Medicare.

Despite receiving inflated payments, Medicare Advantage plans can provide inferior health coverage compared to traditional Medicare. Private plans do not necessarily provide benefits that are fully equivalent to traditional Medicare. They are required to cover everything that Medicare covers, but they are not required to cover every benefit in the same way. For example, private plans may create financial barriers to care by imposing higher cost-sharing requirements for benefits such as home health services, hospitalization, skilled nursing facilities, inpatient mental health services, and durable medical equipment – all of which protect the sickest and most vulnerable beneficiaries. The CHAMP Act would limit out-of-pocket costs in Medicare Advantage plans for any service to no more than the amount of cost-sharing for the same service in fee-for-service (FFS) Medicare.

•  Prevents Preferred Provider Organizations (PPOs) from collecting excessive and unnecessary payments.

The Medicare Modernization Act of 2003 (MMA) created a $10 billion “stabilization” fund to benefit regional Preferred Provider Organizations. The goal of the fund was to entice private preferred provider organizations (PPOs) to enter into and remain in the Medicare program. Last year Congress reduced, but did not eliminate, the funds available in the PPO stabilization fund. There has been heavy PPO participation in the Medicare program without the use of the additional incentives, and it appears unlikely these incentives will be needed to entice PPOs to participate in the program in future years. The nonpartisan MedPAC has also recommended that this stabilization fund be eliminated. The CHAMP Act eliminates the remaining $3.5 billion in incentives.

•  Holds private plans to equal standards and removes their special advantages.

The CHAMP Act e qualizes the playing field across types of Medicare Advantage plans by requiring Private Fee-For-Service (PFFS) and PPO plans to report data on the same quality measures as reported by Coordinated Care Plans. The CHAMP Act also eliminates the sp ecial treatment of private fee-for-service plans. The legislation would prohibit hospitals, physicians and other providers from extra-billing beneficiaries in PFFS plans by 15 percent. Also, the legislation would require the Department of Health and Human Services to review PFFS plan bids in a fashion similar to other Medicare Advantage plans.

Overall Program Improvements 

•  Repeals arbitrary limit on general revenue funding of Medicare program.

The MMA contained a provision designed to limit the federal government commitment to the Medicare program to 45 percent of its cost – an arbitrary limit that was imposed without hearings or public discussion. This funding limit was triggered in the 2007 Medicare Trustees Report, setting the stage for biased and harmful policy changes to the future of the Medicare program. The 45 percent threshold does nothing to reduce the overall cost of Medicare, only the federal government's obligation to shoulder a portion of that cost through general revenues. Furthermore, limiting the federal government's contribution to the Medicare program ignores Medicare's financing structure, which was designed to rely on general revenues to finance about 75 percent of Part B and Part D. We applaud the CHAMP Act for repealing this arbitrary Medicare funding limit and look forward to working with Congress to find meaningful solutions to the financial challenges facing Medicare.

•  Repeals the demonstration project designed to privatize Medicare.

The MMA contained a “comparative cost adjustment demonstration project”, also known as “premium support”. Beginning in 2010, the demonstration project would require traditional fee-for-service Medicare to compete, based on cost, with subsidized private plans in certain areas. Seniors will receive the equivalent of a voucher in an amount reflecting an average of the private plan and government costs for their region. If they can find a less expensive plan, they can keep a portion of the savings from their voucher-like payment. If their medical needs are high, they will pay out-of-pocket for any costs beyond their allocation. As the price for participating in this process, seniors in the demonstration areas will give up their traditional fee-for-service coverage and go into managed care instead. Many seniors will decide not to make the switch, especially those older and frailer beneficiaries who have long-standing doctors with extensive knowledge of their medical histories. As the risk pool shrinks, their costs will rise. We are pleased the CHAMP Act repeals this dangerous demonstration project which could lead to irreversible upheaval to the Medicare program if left in place.

Low-Income Improvements

•  Improves benefits for low-income Medicare beneficiaries.

Low-income beneficiaries turn to two programs for assistance with Medicare cost-sharing: the Medicare Savings Program (MSP) for Parts A and B and the Low Income Subsidy (LIS) for Part D. Improving these two programs is t he most cost-effective and efficient way to help low-income and minority Medicare beneficiaries. The CHAMP Act substantially improves the MSP and LIS programs and helps to ensure that eligible beneficiaries receive the benefits they need.

•  The CHAMP Act increases the asset limits for the MSP and LIS programs to $17,000 for an individual and $34,000 for a couple. We wholeheartedly support this change as the asset test has proven to be the biggest barrier in delivering Medicare assistance to those with low-incomes.

•  The CHAMP Act stabilizes and improves the Qualified Individual (QI) program by making it permanent and by increasing the income level to 150% of the federal poverty level. Many low-income beneficiaries rely on the QI program for assistance with their Part B premiums. We urge Congress to adopt these improvements before the QI program expires on September 30, 2007.

•  The CHAMP Act eliminates the requirement that state governments recover costs from the estate of low-income seniors who receive assistance with Part B costs. This provision will help the families of low-income beneficiaries who have managed to accumulate modest assets after a lifetime of saving.

•  The CHAMP Act eliminates Part D cost-sharing for full benefit dual eligible beneficiaries receiving care through home- and community-based care waivers. Currently, institutionalized dual eligible beneficiaries do not have any Part D cost-sharing, while dual eligible beneficiaries in a community setting are responsible for co-pays each time they fill a prescription. Eliminating this disparity removes one disincentive for beneficiaries to remain in their homes.

•  The CHAMP Act prevents Part D out-of-pocket spending from exceeding 5 percent of income annually for the lowest income Medicare beneficiaries ($15,315). Low-income beneficiaries can find it particularly challenging to afford even the low co-payment amounts available through the LIS program. Many take multiple medications, and their co-payments grow larger each year as they reflect inflation in drug prices. Placing a limit on their out-of-pocket costs will make prescription drugs more affordable and accessible to those least able to bear the cost.

•  The CHAMP Act ensures that the lowest income Medicare beneficiaries who are automatically assigned to a Part D plan will be assigned to one that: covers most of the drugs commonly used by Medicare beneficiaries; provides pharmacy access in areas where low-income beneficiaries reside; and costs less than the majority of other plans where the beneficiary resides. Unlike the current process of random assignment, these common sense reforms will go a long way toward matching low-income Medicare beneficiaries with a Part D plan that adequately meets their needs.

•  The CHAMP Act eliminates Medicare Part D late enrollment penalties for individuals eligible for low-income subsidies. Currently, the Centers for Medicare and Medicaid Services has waived the late enrollment penalty for LIS subsidy-eligible individuals until the end of 2007. We believe permanently waiving these penalties through a change to the statute is necessary to reduce the confusion and uncertainty of the current annual process.

•  The CHAMP Act creates a special enrollment period for individuals eligible for low-income subsidies, allowing up to 90 days after notification of LIS status to select a Part D plan or Medicare Advantage plan that covers prescription drugs. Currently, the Centers for Medicare and Medicaid Services has extended the special enrollment period for LIS subsidy-eligible individuals until the end of 2007. We believe a permanent statutory change is necessary.

Physician Fix

•  Ensure seniors will have access to their long-time physician.

Physicians serving Medicare beneficiaries are scheduled for a 10 percent cut in their reimbursement rates next year and further reductions for years to come. The CHAMP Act halts the scheduled payment cuts for the next two years and instead provides physicians with a 0.5 percent payment update in both of these years. The National Committee is mindful of increases to physician reimbursement rates, as seniors bear part of the cost through higher Part B premiums. However, it is important that physicians be adequately compensated if they are to continue serving Medicare beneficiaries. Inadequate reimbursement rates can force many physicians to stop accepting new Medicare patients, and these access restrictions ultimately result in higher out-of-pocket costs for beneficiaries. We believe the CHAMP Act strikes a reasonable balance that will preserve seniors' access to their long-time physicians while minimizing the impact on their premiums. We encourage Congress to continue examining ways to protect seniors from future premium increases.

Part B Benefit Improvements

•  Provides Medicare mental health parity.

Under current law, Medicare imposes an unfair and discriminatory coinsurance rate of 50 percent for outpatient mental health services, as compared to 20 percent for most outpatient services under Medicare. The CHAMP Act reduces Medicare's coinsurance for outpatient mental health services to the 20 percent rate.

•  Extends exceptions process for therapy caps.

Congress has limited the amount of Medicare coverage for beneficiaries receiving outpatient therapy services, including physical therapy, speech-language pathology services, and occupational therapy. To compensate for these limits, Congress created an “exceptions process” which allows for specific diagnoses and procedures to receive Medicare coverage even after a beneficiary has met their therapy cap for the year.  This exceptions process was scheduled to end January 1, 2008. The CHAMP Act provides a two-year extension of the exceptions process for the Medicare therapy caps and requires that HHS conduct a study to develop an alternative or refined payment system for the future.

•  Preserve rehabilitation options for Medicare beneficiaries.

Medicare implemented a new rule that restricts access to inpatient rehabilitation facilities (IRFs). The so-called 75 percent rule requires that 75 percent of IRF patients have one or more of 13 specified conditions in order to maintain their IRF status for purposes of Medicare reimbursement. The result of this rule is a quota system that rations and denies rehabilitation services to Medicare beneficiaries for whom the services are medically necessary and appropriate. The CHAMP Act permanently freezes implementation of the “75 percent” rule at 60 percent.

•  Offers new preventive benefits to Medicare beneficiaries.

The CHAMP Act allows the Secretary of Health and Human Services to add new benefits for preventive items and services that are reasonable and necessary for the prevention or early detection of an illness or disability. In addition, the bill eliminates co-payments for current and future preventive benefits and exempts them from the Part B deductible. As a result, Medicare beneficiaries will have access to preventive services at no charge. The CHAMP Act also r equires the new preventive benefits to be included as part of the initial “Welcome to Medicare” physical.

Part D Benefit Improvements 

•  Prohibits seniors from being locked into their Part D prescription drug plan.

One of the most common complaints from seniors about Medicare Part D is that their prescription drug plan can drop medications or raise prices throughout the year while they are “locked-in” to the plan until the next annual enrollment period. The CHAMP Act permits seniors to change Part D plans if their plan has a mi d-year material change in the formulary that reduces access to their prescribed drugs (unless such change was required for safety reasons).

•  Allows Part D plans to cover benzodiazepines.

Benzodiazepines are a class of drugs commonly used by individuals with mental illnesses. Many seniors in nursing homes and extended-care facilities rely on these drugs. The CHAMP Act would remove the exclusion of benzodiazepines from required coverage under the Medicare prescription drug program .

Government Relations and Policy, Updated August 2007

The National Committee is a nonprofit, nonpartisan organization that acts in the interests of its membership through advocacy, education, services, grassroots efforts and the leadership of the board of directors and professional staff. The work of the National Committee is directed toward developing a secure retirement for all Americans.