Press Releases

STATEMENT OF TOM SCULLY, ADMINISTRATOR CENTERS FOR MEDICARE & MEDICAID SERVICE

The Centers for Medicare & Medicaid Services recently released its 2004 Medicare+Choice rates. While these rates are increasing, they are still insufficient and leave the program stagnated at payment levels that are likely to result in a continued reduction in participation in the Medicare+Choice program.

Medicare+Choice has seen falling participation in recent years that has primarily hurt low-income beneficiaries. Studies released last week by the Rand Corporation and previous studies by Emory University show that poor beneficiaries, often in large urban areas, disproportionately enroll in Medicare+Choice plans. These beneficiaries often cannot afford increasingly expensive Medigap plans that do not offer drug coverage. As a result, these beneficiaries choose to enroll in Medicare+Choice plans to lower their out-of-pocket costs while getting a drug benefit. The increasingly diminished value of Medicare+Choice payments have left many of these Medicare beneficiaries with a less attractive benefits package.

The Medicare risk program began in 1982 and by 1997 about 18 percent of Medicare beneficiaries had enrolled in Medicare+Choice plans. At that time, enrollment in the Medicare+Choice program was projected to almost double by 2002. In the 1997 legislation Congress changed the Medicare+Choice payment formula with the best of intentions – but the new formula backfired. Most urban plans had reimbursement growth capped at 2 percent for five consecutive years, as costs grew by up to 10 percent a year. The results were predictable: since 1997, beneficiary enrollment has dropped to 11 percent of beneficiaries and since the year 2000, more than 2 million beneficiaries lost their Medicare+Choice coverage as plans dropped out of the program while others are seeing their benefits shrink.

While the 1997 reforms were intended to encourage more private plan coverage in rural areas of the country, there has been no increase in Medicare+Choice plans in rural areas, and there has been a significant reduction in access to coverage in urban areas. It is now very hard to find Medicare+Choice plans in Detroit, Chicago, Houston, Philadelphia, New York City and many other urban areas where the bulk of plans have dropped out of the program.

Beneficiaries, especially low-income beneficiaries, have been left with higher copayments, higher deductibles, higher out of pocket costs and reduced drug benefits. The beneficiaries that have been hurt by the collapse of Medicare+Choice are the ones that can least afford lower benefits or the high costs of Medigap.

Medicare HMOs are not for everyone. The Administration expects that even under President Bush’s reform proposal only about 15 percent of beneficiaries will ever sign up for Medicare HMOs. But for the beneficiaries that need this choice the most, it must be retained.

The President’s reform plan not only proposes to revitalize Medicare+Choice and make the payment and benefit structure more viable in urban areas, but it also proposes real change in the structure of Medicare that will finally bring private health plan choices to rural areas. HMOs are not designed to work in rural areas, however PPOs and private-fee-for-service plans are. The President’s plan is designed so that private-fee-for-service and PPO plans will be available in every community across the country. This will finally give Medicare beneficiaries throughout the country some of the same choices now available in the federal health employee benefits plan.

Publication of the Medicare+Choice rates reflects the continuing reality of the Medicare+Choice program – increasingly flat rates in urban areas that do not cover costs – which will inevitably result in reduced participation by both plans and beneficiaries. We still expect about 10 percent of Medicare beneficiaries to participate in this program, but we are only stemming the tide. Congress must act to make sure this program is revitalized and improved.