By John Reichard, CQ HealthBeat Editor

May 18, 2007 -- Sen. Daniel K. Akaka, chairman of a Senate Homeland Security and Governmental Affairs subcommittee, held a hearing Friday to call attention to rising health insurance premiums paid by federal employees and retirees—a surprising choice of topic, perhaps, given that those premiums rose only 1.8 percent in 2007.

But the Hawaii Democrat noted at the Oversight of Government Management Subcommittee hearing that the growth was that low in large part because the Office of Personnel Management (OPM) dipped into reserve funds held by the Federal Employees Health Benefits Program (FEHBP) to hold down premium increases. Akaka also was critical of OPM for not applying for the subsidy employers can receive from the Medicare program if they continue to offer their retirees prescription drug coverage.

In his opening statement Akaka said, "Premium growth is a problem because it consistently outpaces the cost-of-living adjustments and average annual pay raise" received by federal employees.

If not for use of the reserve funds and a decision by insurers to offer less generous benefits in 2007, among other factors, premiums would have risen 9 percent on average rather than 1.8 percent, according to testimony by Government Accountability Office officials.

Six percentage points of the 9 percent hike that otherwise would have occurred stemmed from the rising cost and utilization of health care services, while the other 3 percentage points resulted from projected increases in the cost of prescription drugs.

FEHBP is closely watched nationally, not only because the eight million federal employees and retirees in the program make it the nation's largest employer-sponsored health plan, but also because its competitive marketplace is viewed as a model for taming health cost increases.

Although Akaka expressed concerns about rising premiums, GAO's analysis of the program did note that FEHBP's costs are growing more slowly than that of other employer-sponsored health plans. Based on a study completed by the auditing agency in December, GAO Representative John E. Dickens said, "We found that growth in average FEHBP premiums recently slowed from a peak of 12.9 percent for 2002 to 1.8 percent."

Dickens said that the subsidy employers can obtain from Medicare for offering prescription drug coverage to retirees would have lessened premium increases had OPM chosen to apply for it. He testified that the subsidy would have held average FEHBP premium growth in 2006 to 4 percent rather than the 6.4 percent that premiums actually grew.

Big plans with a large number of retirees might have seen a bigger impact on premiums had they received the subsidy, Dickens added. He said an executive with one large plan told the GAO that the subsidy would have lowered premium growth by up to 4 percentage points.

The 2003 Medicare overhaul law (PL 108-173) sought to stem the erosion in retiree prescription drug coverage by paying employers to continue those benefits. The subsidy averages about $670 per retiree in companies that receive it.

But Nancy H. Kichak, OPM's chief actuary, said that a federal review of whether to apply for the subsidy concluded that it would be inappropriate to do so.

"This review found no good rationale for the federal government to pay itself to continue providing prescription drug coverage to federal retirees, especially since OPM has no plans to eliminate this coverage," Kichak testified.

Alan G. Lopatin, legislative counsel for the 4.6 million-member National Active and Retired Federal Employees Association, said, "We are bewildered" by the decision not to take advantage of the subsidy. It doesn't make "street sense," he said. "We can't say that everything is being done to contain premium growth if more than $1 billion is left on the table every year."

"It is fair to say that other public and private employers who had no intention of reducing or ending their retiree drug benefits decided to apply for the payment anyway," Lopatin said.

Akaka said he was disappointed with OPM's decision not to pursue the subsidy. "I believe we all have a common goal to offer a range of comprehensive health care plans and ensure the lowest possible premiums," he said.

Akaka also questioned Kichak about another approach to holding down health costs: Giving OPM authority to negotiate directly with the drug industry over prescription drug costs. Kichak said OPM's evaluation of the issue showed that private insurers participating in FEHBP are effectively contracting with private pharmacy benefit managers to control rising drug costs. "I'm not looking for any more authority," she declared.

Lawmakers at the hearing also questioned witnesses about the impact of Health Savings Accounts on the affordability of health plans in FEHBP. Critics of "HSAs," which entail the use of high-deductible health plans, say their low premium charges will lure relatively healthy employees away from more traditional health plans relied on by older, sicker federal employees and retirees for affordable coverage.

"Less healthy enrollees avoid HSAs . . . because they could pay thousands of dollars in out-of-pocket costs," Lopatin testified. But as healthy enrollees leave and traditional plans come to be dominated by sicker, more costly enrollees, their premiums will rise and benefits will erode, he said. "Ultimately, this would be the death knell" for traditional plans, he said.

But Stephen Gammarino, senior vice president for national programs at the Blue Cross-Blue Shield Association, said of HSAs that, "materially, they haven't affected the [FEHB] program as a whole."

Lopatin agreed, noting that only 0.2 percent of FEHBP enrollees in 2006 were enrolled in an HSA or similar plan. But if "HSAs blossom" many federal workers would be at risking of losing affordable coverage, he said.

By Mary Agnes Carey, CQ HealthBeat Associate Editor

May 15, 2007 -- House members Tom Allen, D-Maine, and Jo Ann Emerson, R-Mo., Tuesday introduced legislation that would increase funding for research to help health care providers and patients decide which drugs, medical devices, and treatments are the most effective.

The bill (HR 2184) authorizes $3 billion over five years for research by the Agency for Healthcare Research and Quality, which already has done comparative effectiveness reviews on renal artery stenosis, anemia drugs used by cancer patients, and other items. Comparative effectiveness research compares outcomes associated with different therapies for the same condition, allowing providers and patients to avoid ineffective or costly treatments.

The federal government, as well as health insurers and large employers with self-insured plans, would fund the research, the lawmakers said at a news conference.

"As the demand for quality health care services grows, we must get the best value for our health care dollar," Allen said, adding that such research would be better than television and magazine advertisements that often guide consumer choices.

Emerson called the bill "a no-brainer" that should receive wide bipartisan support due to its promise of saving money and improving health care outcomes nationwide.

Bill Vaughan, senior policy analyst at Consumers Union, said that comparative effectiveness research "is how consumers find out what really works and what's good."

Among its provisions, the legislation would establish a comparative effectiveness advisory board appointed by the Comptroller General at the Government Accountability Office that includes employers, consumers, health care providers, researchers, and others, to provide input on research priorities and methodologies.

Separately, America's Health Insurance Plans and the Blue Cross and Blue Shield Association also have announced proposals for a public-private entity to explore the effectiveness of new and existing medical procedures, drugs, devices, and biologics.

By John Reichard, CQ HealthBeat Editor

May 17, 2007 -- The budget deal (S Con Res 21) adopted Thursday by the House and Senate authorizes a $50 billion reserve fund to expand coverage of uninsured children, a provision hailed by Democrats. But it doesn't simplify the process of actually finding that money.

Because the reserve fund is "deficit-neutral," lawmakers will have to cut spending elsewhere in the federal budget or raise taxes to come up with the $50 billion. "What's the purpose of a reserve fund without any reserves?," asked a House GOP aide. "If you're not putting any money on the table, $50 billion is a hard number to hit."

Senate Finance Committee Chairman Max Baucus, D-Mont., issued a statement late Wednesday emphasizing that the budget agreement can "extend health coverage to as many as 12 million lower-income, uninsured American children." Baucus was counting the six million kids already covered by the State Children's Health Insurance Program (SCHIP) and up to six million more who would be covered by expanding the program, as well as enrolling more uninsured children in Medicaid.

"Now we have a blueprint for the right priorities in Congress," Baucus declared.

However, lobbyists assume that much—and perhaps all—of the money for covering kids will have to come from Medicare cuts. The budget deal contains no reconciliation instructions governing Medicare provisions, which would have prevented Medicare cuts from being blocked by filibuster.

Baucus now must complete a legislative package he's been assembling to finance the expansion of SCHIP and Medicaid. Senate Democratic aides say he plans to do so in time for a markup shortly after the Memorial Day recess on a measure that would provide a five-year reauthorization for SCHIP, which expires Sept. 30. Aides say the financing provisions will be marked up at the same time.

But there's considerable skepticism about whether Baucus can get the job done because of the political power of health care lobbies facing potential cuts, including those representing private health plans in Medicare and hospitals.

In addition, lobbyists note lawmakers will have to find a way to pay for blocking a scheduled 10 percent cut in payments to doctors, a physician payment "fix" expected to also force cuts elsewhere in Medicare.

Asked how much the $50 billion reserve fund in the budget actually means, one state health policy analyst said, "I don't think it does mean anything. It's more a message, a statement of intent."

Reconciliation provisions would have "taken the filibuster off the table." But "reconciliation is really hard to do," the analyst said. By creating a mechanism to simplify cuts, it binds lawmakers into making budgetary decisions that could be politically unpopular, he said.

While Senate Democrats, some Senate Republicans, and insurance and hospital lobbying organizations have mentioned the possibility of taxing tobacco to pay for covering kids, "the more you tax it, the less consumption there is," the analyst said, adding that the result is less revenue for the states from tobacco taxes. States, along with the federal government, fund both the SCHIP and Medicaid programs.

Another factor in finding the money to expand children's coverage is how big an obstacle President Bush would be to such a step. "If there's a $50 billion expansion that includes taxes and Medicare cuts, I bet he vetoes it," the analyst said.

"It's absolutely going to be hard, but it's absolutely doable," the Senate Democratic aides insisted. "There will be good policy options to get the $50 billion," they added.

Baucus hasn't elaborated on how he'll come up with the $50 billion, other than to say he would consider the possibility of a tobacco tax increase as well cuts to private plans in Medicare. "Everything is on the table," the aides said.

While financing children's coverage won't be easy, efforts by Democrats to find offsets are well under way. The House Ways and Means Committee or its subcommittees have had nine hearings so far this year on Medicare, and plan a hearing May 22 on private fee-for-service plans in the program. Ways and Means Health Subcommittee Chairman Pete Stark, D-Calif., said this week that he's aiming to complete a package of Medicare cuts over the next six weeks.

Regarding a potential presidential veto, a House Democratic aide said the White House would be hard pressed to justify such a step. "President Bush had a lot more than $50 billion in provider cuts in his own budget," the aide said.

By John Reichard, CQ HealthBeat Editor

May 16, 2007 - State insurance regulators joined Senate Aging Committee Chairman Herb Kohl, D-Wis., Wednesday in saying that Medicare officials are failing to properly oversee the marketing of private plans in Medicare, with Kohl revealing the results of a congressional investigation he said found "countless" cases of seniors being preyed upon by unscrupulous insurance agents.

But a senior Medicare official told lawmakers at Wednesday's hearing that she opposes the remedy he is seeking—giving states added authority to join the Centers for Medicare and Medicaid Services (CMS) in cracking down on abusive tactics. The private plans, collectively known as Medicare Advantage plans, are heavily funded by the federal government and so current federal authority should be maintained, said the official, Abby L. Block, director of the Center for Beneficiary Choices at CMS. "They're our contractors," she said.

But state regulators said CMS is reacting too slowly to protect seniors from sales tactics that defraud and deceive seniors into enrolling plans they don't want. The agency lacks the resources to oversee the private plans, they said, and urged that state authority be expanded beyond its current scope, which permits states to investigate and take enforcement action only against insurance agents, rather than against the plans themselves.

While lawmakers, federal and state officials and insurers may be at odds over the policy remedies to the problem of marketing abuses, there was no dispute at the hearing that too many abuses are occurring. Revelations of the scope of the problem are occurring at a delicate time for the insurance industry, when a number of congressional Democrats are trying to build the case for chopping its Medicare payments on the grounds that they are overpaid.

Kohl and the panel's ranking Republican, Gordon Smith of Oregon, made it clear that they do not oppose the Medicare Advantage program per se, but Smith warned the industry that public confidence in the private plan side of Medicare may be hanging in the balance. He told insurers to "get on top of this and get on top of it fast."

Medicare Advantage plans involve tradeoffs for seniors—lower out-of-pocket costs, extra benefits such as dental and vision coverage, and more extensive coverage of prescription drugs, for example—but enrollees are limited to seeing doctors and hospitals in the plan's networks. In addition, benefits are subject to change, plans may stop operating, and in some cases, out of pocket costs may exceed those of traditional Medicare.

Fueled by the promise of big sales commissions, insurance agents have signed up seniors without explaining the disadvantages of the plans or even that they are no longer part of the traditional Medicare program, investigators found. "Our investigation has revealed a disturbingly consistent picture, one which only seems to be growing," Kohl said. "Seniors have been removed from Medicare without their knowledge, signed onto plans they can't afford, misled regarding coverage, and told their doctors accept these plans, when in reality they don't. This is simply unacceptable."

Thirty-seven states have reported receiving complaints about marketing that led Medicare beneficiaries to enroll in a Medicare Advantage plan "without adequately understanding their choice to remain in traditional Medicare or without adequate understanding of the consequences of their decision," testified Wisconsin Insurance Commissioner Sean Dilweg.

Dilweg, who chairs a National Association of Insurance Commissioners task force on senior issues, added that insurance departments in 39 states have reported complaints about other types of misleading practices. "This includes instances where a plan or an agent provides misleading information about the provider network associated with a certain plan, or the benefits that the plan offers, or the beneficiary cost-sharing involved," he said.

"This seems to be a particular problem" with a type of Medicare Advantage plan known as private fee-for-service plans, "where seniors are being told that they can go to any provider without being told that they may only go to a provider that accepts Medicare, and also a provider that has agreed to accept the plan's payments." In 31 states, regulators have reported "cross-selling," he added, in which agents use Medicare prescription drug-only plans as a pretext to get in the door, then sell seniors other plans such as Medicare Advantage plans, annuities, and funeral policies, he said.

Kim Holland, Oklahoma's insurance commissioner, testified about a condition of "virtual lawlessness" in her state regarding Medicare Advantage marketing. "Unlicensed agents are setting up shop in pharmacies, Wal-Marts, and nursing home lobbies to prey upon seniors' confusion over their medical coverage," she said. Holland said "we have pushed the boundaries to respond to our citizens in need because CMS has not done so—leaving many of our aged and vulnerable to those whose interests are strictly their own."

After recently visiting with CMS officials about problems in her state, Holland said she was left with the impression that "they are more concerned with protecting the [Medicare Advantage] program than protecting the people" enrolled.

The driving force behind the deceptive marketing is the big commissions sales agents can make on Medicare Advantage, said Albert Sochor, vice president of an Oklahoma-based insurer called Old Surety Life Insurance that sells competing Medigap coverage. "First year commissions run as high as $700 per enrollee," he said. "Agents have made hundreds of thousands of dollars in a very short time."

Dilweg urged that states be given authority oversee Medicare Advantage plans as they do Medigap plans. Doing so would allow states to hold companies "responsible for the acts of their agents as they currently are for all other insurance products," he said. "Under the Medigap model, consumers will be able to go directly to their state insurance departments to resolve problems rather than having to call CMS, who seems to have neither the manpower nor the expertise to deal with many of these types of complaints."

Block said CMS wants to work closely with states to share information on abusive practices without changing the current oversight structure. She also said the agency plans to soon propose two regulations that would speed the ability of CMS to impose penalties on plans with marketing violations. In addition, she said that private fee-for-service plans next year will be required to include clear language in the information they give enrollees stating that they only can see providers who accept the payment conditions imposed by the plans.

Kohl said he was pleased by a new set of practices that the lobby group America's Health Insurance Plans has said its members are adopting to strengthen the training of insurance agents to prevent marketing abuses. "This is a good start, but it's only a start," he said. "If more hearings are necessary to hold feet to the fire, we will hold them," he said.

Senate Finance Committee Chairman Max Baucus, D-Mont., issued a statement late Wednesday saying he'll work with his colleagues on the panel "to enact measures that protect seniors against slimy sales tactics." Baucus noted that he introduced legislation in the 109th Congress that would have required the Department of Health and Human Services to adopt marketing standards developed by state insurance commissioners through the National Association of Insurance Commissioners. The measure also would have permitted states to enforce those standards, he said.

By John Reichard, CQ HealthBeat Editor

May 14, 2007 -- House Ways and Means Health Subcommittee Chairman Pete Stark will intensify efforts this week to lay the groundwork for Medicare cuts likely to target many sectors in health care. The California Democrat has already clarified that he will try to trim payments to Medicare Advantage plans, but this week he'll begin turning more of his attention to Medicare payments to hospitals, home health agencies, and skilled nursing facilities.

Stark is likely to have to hit many sectors because of how much money he'll need—up to $100 billion, lobbyists estimate—to fund Democratic policy priorities, ranging from covering more uninsured children to blocking payment cuts to doctors.

At a hearing Tuesday, Stark's panel will review current payment levels to hospitals, home health agencies, and skilled nursing facilities, but he may have to range farther than that in pursuit of savings to expand the number of uninsured children covered by Medicaid and the State Children's Health Insurance Program (SCHIP).

His task is complicated by the difficulty he faces obtaining significant sums of money from cuts to the managed care plans in the Medicare Advantage program and from hospitals, both of which are politically powerful.

The politics of blocking scheduled payment cuts to doctors also are problematic, with some lobbyists predicting Stark will seek a two-year physician payment "fix" to block scheduled cuts to doctors in 2008 and 2009. Stark won't want to be busy trying to cut other Medicare payments to providers during next year's election campaigns to pay to block cuts to doctors that would take effect in 2009, lobbyists say.

Stark reportedly told the American Hospital Association last week that he intends to trim the full "market basket" increase hospitals are scheduled to receive in Medicare inpatient payments under current law. He's not alone in recommending that step; the Bush administration also has called for cutting inpatient payments next year.

And both the administration and the Medicare Payment Advisory Commission also have urged that payments be frozen at current levels to home health agencies and skilled nursing facilities.

One health care lobbyist predicts that the home health sector will be "absolutely annihilated" in Stark's Medicare cuts proposal because of the big profit margins that sector enjoys in treating Medicare patients. But home health cuts likely would raise no more than $8 billion over five years, he calculates.

Because virtually every member of Congress has a hospital in his or her district and that those facilities are typically large or even the largest employers, he doubts Stark will be able to obtain cuts of more than $10 billion over five years from that sector.

He notes that the hospital industry has already been loudly protesting fiscal 2008 hospital payment cuts proposed by the Bush administration in its regulatory proposals. Hospitals will protest, "they gave at the office" when Stark proposes legislation that would trim them along with the regulatory proposals, he said.

The health care lobbyist estimated that a freeze in payments to hospices and skilled nursing facilities would raise $1.5 billion, and that cuts to Medicare Advantage plans would total around $23 billion. Those various cuts would about pay the cost of a two-year doctor payment fix and extend various expiring payment provisions Congress typically renews when they expire each year, such as an exemption to the current cap on Medicare payments for rehabilitation therapy.

Meanwhile, the Senate doesn't appear keen on cutting much from Medicare Advantage plans, even though they are paid considerably more than providers in traditional Medicare. While "private fee-for-service plans" in Medicare Advantage may have less political backing and therefore be more vulnerable to cuts, a managed care executive says that enrollment in those plans still isn't large enough so that cuts in their payments would generate big savings.

The difficulties Stark faces raise doubts that he'll find the money to pay the $50 billion, what lawmakers figure it will cost to cover the six million or so uninsured children now eligible for—but not yet enrolled in—Medicaid or SCHIP.

The managed care executive also expressed uncertainty about the SCHIP and Medicaid expansion. White House officials have said they don't want to expand SCHIP, "so who knows what's going to happen there," the executive said.

Other tactics, such as taxing tobacco or dropping "pay-go" rules requiring cuts or tax increases to fund program expansions, also are politically dicey. What that may mean in the end is that Democrats at best can only make a start on expanding children's coverage, lobbyists say.

By CQ Staff

May 18, 2007 -- As congressional scrutiny of Medicare private fee-for-service (PFFS) plans increases, a new study suggests the plans are not worth the additional costs to beneficiaries and the Medicare program.

The report, published as a Health Affairs Web exclusive, finds that while the Medicare drug law (PL 108-173) has increased beneficiaries' choice among Medicare Advantage plans, much of that growth has been in PFFS plans, especially in rural areas.

While advocates of PFFS plans say they include features such as nurses working with beneficiaries to better understand treatment options, report author Marsha Gold said the plans are not worth the additional cost to beneficiaries and taxpayers.

"The additional PFFS plan choices essentially allow firms to 'piggyback' on Medicare's existing investment and policies and do relatively little to improve care management," Gold said in a news release. "To the extent that PFFS enrollment grows, Medicare's risk pool is fragmented, and the program's purchasing power with providers is diluted."

Of the approximately 8.5 million Medicare beneficiaries enrolled in Medicare Advantage plans, about 1.5 million are in the PFFS plans, almost a twentyfold increase from March 2005 and almost a sixtyfold increase from the 26,000 beneficiaries who were enrolled in PFFS plans at the end of 2003, when the Medicare drug law was enacted. The plans must provide both Medicare Part A (hospital) and Part B (physician and outpatient) services and may provide Part D prescription drug coverage as well.

At a May 16 Senate Aging Committee hearing, state insurance regulators joined panel chairman Herb Kohl, D-Wis., in saying that Medicare officials are failing to properly oversee the marketing of private plans in Medicare, with Kohl revealing the results of a congressional investigation he said found "countless" cases of seniors being preyed upon by unscrupulous insurance agents. Industry representatives said they were taking steps to prevent such abuses.

By Adam Bloedorn, CQ Staff

May 16, 2007 -- The U.S. health care system ranks last or next-to-last when compared with five other nations surveyed in a new report from The Commonwealth Fund.

While the United States spent $6,102 per capita on health care in 2004—more than double the average of other nations—the report, released Tuesday, finds the U.S. system lacking in five aspects of a "high performing" health system: quality, access, efficiency, equity, and healthy lives.

Only 84 percent of American patients reported having a regular doctor, while 61 percent found it difficult to find care on nights and weekends. The country also pays twice as much per capita on drugs than the other nations, according to the report, which studied the health care systems in Australia, Canada, Germany, New Zealand, the United Kingdom, and the United States. Of the six countries surveyed, the United States is the only one without a universal health care system, which partly accounts "for its poor performance on access, equity, and health outcomes," according to the report.

"Other nations ensure the accessibility of care through universal health insurance systems and through better ties between patients and the physician practices that serve as their long-term 'medical home.'

It is not surprising, therefore, that the U.S. substantially underperforms compared to other countries on measures of access to care and equity in health care between populations with above-average and below average incomes," the study's authors say.

Sen. Ron Wyden, D-Ore., who is sponsoring legislation (S 334) that would provide universal health coverage, said the Commonwealth Fund report "confirms what I hear from folks at town hall meetings all across Oregon: They want access to quality health care that can't be taken away."

"We have the best health care professionals in the world," Wyden said. "We spend enough money on health care. We just don't spend it in the right places."

The report gives the United States good marks for its performance in preventative care, which is an area "that has been monitored closely for over a decade by managed care plans," according to the report's authors.