Senate Democrats

Medicare Advantage Reforms in H.R. 6331: Setting the Record Straight

Earlier this week, Senator Kennedy returned to the Senate to cast the decisive vote in favor of H.R.6331, theMedicare Improvements for Patients and Providers Act, legislation to prevent the pending 10.6 percent cut in payments to physicians who care for the 44 million American seniors in the Medicare program and the estimated 8.9 million beneficiaries in the military’s TRICARE program. Republicans had twice blocked this legislation, but this time, nine additional Republicans voted in favor of the legislation — providing a veto-proof majority of 69 votes. While both the House and the Senate have now overwhelmingly passed this critical bi-partisan legislation to protect access to quality health care for our nation’s seniors and military families, President Bush is still threatening to veto it.

In an attempt to provide excuses for their obstructionism, the Bush Administration and its Republican allies in the Senate have asserted a series of bogus claims about the Medicare Advantage provisions of the bill. This Fact Sheet outlines the most common of these excuses and sets the record straight as to why the modest, common-sense Medicare Advantage reforms in H.R.6331 should be enacted. While the President and Bush-McCain Republicans are fighting to protect the health insurance industry, Democrats are fighting to protect seniors — ensuring that physicians are fairly reimbursed, that beneficiaries are able to afford Medicare’s services, and that the long-term stability of the Medicare program is assured.

EXCUSE: The bill makes inappropriate reductions to Medicare Advantage payments.

  • THE TRUTH: The only reductions to Medicare Advantage payments in H.R.6331 are also included in the McConnell-Grassley Bill, which the President allegedly supports.H.R.6331 would eliminate the remainder of the “stabilization fund” for Medicare preferred provider organizations – consistent with the recommendation of the Medicare Payment Advisory Commission (MedPAC), an independent panel that advises Congress regarding Medicare payments. H.R.6331 would also follow MedPAC’s recommendation to eliminate the double payments that Medicare now makes for the Indirect Medical Education (IME) costs incurred by teaching hospitals when treating Medicare beneficiaries. S.3118, the McConnell-Grassley bill, contains these same provisions.
  • THE TRUTH: H.R.6331 would NOT reduce payments to Medicare Private Fee-for-Service (PFFS) plans.H.R.6331 proposes changes to the PFFS plan structure in direct response to complaints from insurance commissioners, consumer advocates, providers and enrollees who have expressed concern about the PFFS plan design and problems with payments. The bill would merely prevent PFFS plans from “deeming” providers into their plans at the point of service. Instead, they would have to contract with doctors and hospitals to form provider networks – just like all other Medicare Advantage plans that serve Medicare beneficiaries. In short, H.R.6331 would generate modest savings, not by cutting payments to PFFS plans, but rather, by making PFFS plans compete on a more equal basis with other private plans and thereby slowing their explosive growth.
  • THE TRUTH: Under H.R.6331, the federal government would still spend almost $2 trillionon Medicare Advantage over the next 10 years. Spending for Medicare Advantage plans would be reduced by less than two percent over the next five years, and less than three percent over the next 10 years. So, instead of paying $723 billion to these plans over the next five years, the government will pay out $710 billion. And instead of paying out $1.780 trillion over 10 years, the government will pay $1.731 trillion. (CBO baseline compared to CBO analysis of H.R.6331 in July 8, 2008 letter)

EXCUSE: The bill would reduce beneficiaries’ access to benefits and / or choices.

  • THE TRUTH: Under current law, Private Fee-for-Service plans limit beneficiaries’ choices. As mentioned above, PFFS plans currently do not have to have any contracts or agreements with providers. They can “deem” doctors and hospitals into their plans, but these providers may choose not to treat patients in PFFS plans at the point of service – leaving the beneficiary without access to care. PFFS plans’ ability to “deem” providers creates tremendous uncertainty and confusion for both beneficiaries and providers. Too often Medicare beneficiaries sign up for PFFS plans only to learn subsequently that they cannot find a nearby doctor or hospital that accepts their plan. (Center for Medicare Advocacy, June 25, 2008; Medicare Rights Center, June 23, 2008) Providers have found it difficult, and sometimes impossible, to ensure they are paid fair rates from PFFS plans and to collaborate on care coordination. As a result, many have decided to stop accepting Medicare patients with PFFS plans altogether. (See, e.g. testimony before the Senate Finance Committee, January 30, 2008)
  • THE TRUTH: Under current law, many PFFS and other Medicare Advantage beneficiaries receive less coverage than they would under traditional Medicare. Several analyses have shown that some Medicare Advantage beneficiaries who need hospital care, home health care, and other specialty services may end up paying more out of pocket and/or receiving less coverage than under traditional Medicare. As a result, some beneficiaries who require those services can wind up significantly worse off in Medicare Advantage than they would if they were enrolled in traditional Medicare. (See, e.g. GAO Report entitled “Medicare Advantage: Increased Spending Relative to Medicare Fee-for-Services May Not Always Reduce Beneficiary Out-of-Pocket Costs,” February 2008)
  • THE TRUTH: H.R.6331 would improve beneficiary choice and access to health care providers. The provisions in H.R.6331 that require PFFS plans to establish provider networks, rather than “deeming” doctors to be part of the plans, would protect beneficiaries. Far from limiting consumers’ choice of plans, this provision will help ensure that people with Medicare who choose a PFFS plan will have adequate access to specialists and other providers. (Medicare Rights Center, June 23, 2008)
  • THE TRUTH: Even Senator Grassley, though an ardent opponent of H.R.6331, recognizes the shortcomings of Private Fee-for-Service plans. In his January 30, 2008 statement before the Senate Finance Committee, Senator Grassley noted:

“Unlike other Medicare Advantage or MA plans, Private Fee-for-Service plans are not held to the same level of accountability…. The Private Fee-for-Service plans do not have to coordinate care. They do not have to help patients manage chronic illness. And these plans can force providers to accept the lower government-set Medicare payment rates instead of having to pay the market rate….

The plans are not required to have a network of participating providers. So, the doctor can decide at each visit whether to accept the plan. A beneficiary could find that her long-time doctor decides not to treat her. These plans advertise that enrollees can go to ANY doctor or hospital. But they sometimes fail to explain that the hospital or doctor may refuse them.”

  • THE TRUTH: Under current law, the government subsidizes administrative costs and profits for big health insurance companies that operate Medicare Advantage plans. When Congress approved the current system that makes increased payments to private plans compared to traditional Medicare, policymakers intended for the excess payments to be returned to beneficiaries. In the case of PFFS plans, however, MedPAC has found that only about half of this excess payment is used to deliver extra benefits to enrollees. The remainder is used to finance administrative costs, marketing and the profits of these plans. (See April 11, 2007 statement of Glenn Hackbarth, Chairman of MedPAC, submitted to the Senate Finance Committee.)


  • THE TRUTH: The Government Accountability Office (GAO) found that in a single year, private Medicare Advantage plans reaped over $1 billion in extra profits. In a report released on June 24, 2008, the GAO found that private insurers that participate in Medicare Advantage spent less on beneficiaries than they projected in 2005. This lower spending created a windfall profit for these plans of over $1 billion. These additional profits were on top of the $35 billion in revenues these plans generated in the same year. GAO explained that the accuracy of Medicare Advantage plans’ projections is important, because it is these projections that determine Medicare payments and affect the amount of additional benefits beneficiaries receive beyond those that are provided under traditional Medicare. Medicare Advantage plans are supposed to use the additional payments they receive from the government to provide their beneficiaries extra benefits; instead, too much of this money is going, not to seniors, but to big insurance company profits.

EXCUSE: The Private Fee-for-Service reforms in H.R.6331 would undermine private health plans’ ability to compete.

  • THE TRUTH: It is the current structure of PFFS plans that undermines competition. The “deeming” authority given to PFFS plans gives them a competitive advantage over other Medicare Advantage plans. Without having to expend the time, effort, and resources to establish provider networks, PFFS plans that enter new geographic areas can, instead, focused on aggressive marketing initiatives to lure beneficiaries to switch to their plans. In April 11, 2007 testimony[1] before the Senate Finance Committee, Glenn Hackbarth, Chairman of MedPAC, further explained:

“Private Fee-for-Service plans can compel hospitals, physicians, and other health care providers to accept Medicare payment rates, Medicare’s administered prices. They’re not market prices. In short, Private Fee-for-Service plans are prospering, not because of their intrinsic value, but because they take advantage of government-set rules.”

  • THE TRUTH: Former Bush Administration CMS Administrator, Mark McClellan, has suggested elimination of PFFS plans’ “deeming” authority as a possible solution to concerns about PFFS. In June 28, 2007 testimony before the House Committee on the Budget, Mark McClellan, former Administrator for the Centers for Medicare and Medicaid Services (CMS) under the Bush Administration – and a strong proponent of Medicare Advantage -discussed PFFS plans’ deeming authority:

“While new PFFS plans may need this authority to establish a market presence and “get off the ground” with beneficiaries and health care providers, the long-term use of deeming authority may not be necessary for a well-run PFFS plan. To address this, deeming authority for a PFFS plan might end after an initial plan startup period…. Similarly, PFFS plans might be required to establish contracts with providers and post the resulting provider lists after a reasonable time period…. Properly implemented, steps like these would help avoid excess Medicare costs and assure that PFFS plans are both available to beneficiaries who want them and are a good investment for the federal Government.”

EXCUSE: H.R.6331 would cause reduced enrollment of 2.3 million Medicare beneficiaries in Medicare Advantage.

  • THE TRUTH: Medicare Advantage would grow by 2.4 million beneficiaries (25 percent) over the next five years. According to a July 8, 2008 analysis by the Congressional Budget Office (CBO), twelve million Medicare beneficiaries would be enrolled in Medicare Advantage in 2013 – up from 9.6 million beneficiaries enrolled in Medicare Advantage today. This would include an increase in PFFS plan enrollment of nearly one million beneficiaries (a 39 percent increase) over the next five years. H.R.6331 would not cut Medicare Advantage enrollment; it would merely slow the explosive growth in the most inefficient type of Medicare Advantage plan – PFFS plans.
  • THE TRUTH: Not one beneficiary will lose access to Medicare advantage. According to the July 8 CBO letter, under H.R.6331, some Medicare beneficiaries would choose not to stay with a private plan. They would not be forced to leave Medicare Advantage, but would choose to receive benefits in the traditional Medicare program. Not a single beneficiary would be forced out of Medicare Advantage.
  • THE TRUTH: There is much concern about the recent rapid growth in PFFS plans.

o       In April 2007 testimony before the Senate Finance Committee, MedPAC Chairman, Glenn Hackbarth said the following about the rapid growth in PFFS plans:

“To me, this is a warning light. Medicare beneficiaries are not enrolling in well-run managed care plans…, but rather in plans that largely duplicate traditional Medicare, except that they have higher costs, including higher administrative costs.”

o       In a January 2008 statement submitted to the Senate Finance Committee, Mark Miller, Executive Direct of MedPAC further explained:

“MedPAC has particular concern about the impact of PFFS plans…on the financial integrity of the program and their inconsistency with MedPAC’s basic payment principles. Enrollment in these plans has increased 8-fold in just two years….Given that Medicare spends 17 percent more than it would if these beneficiaries had stayed in [traditional fee-for-service] and they do not manage care, enrollment growth in PFFS plans comes at an unacceptably high cost to Medicare.”

o       Even former Bush Administration CMS Administrator, Mark McClellan, had this to say about Private Fee-for-Service Plans in his June 28, 2007 testimony before the House Budget Committee:

“PFFS plans are the least efficient kind of MA plans and they are now growing rapidly.”

EXCUSE: The elimination of “deeming” could result in the elimination of health care coverage choices for beneficiaries living in rural areas.

  • THE TRUTH: H.R.6331 doesn’t affect Private Fee-for-Service plans in most rural areas. PFFS plans operating in areas where there are fewer than two other network plan options would be exempted from any changes to their deeming authority in the legislation. So, the Republicans’ argument that this legislation would eliminate choices in rural areas is simply false. PFFS plans in rural areas without other plan options can continue to operate as they do today without provider networks.
  • THE TRUTH: The argument that PFFS plans are necessary to preserve choice in rural areas is exaggerated and misleading. Only six percent of rural Medicare beneficiaries are in PFFS plans. (Kaiser Family Foundation, June 2008) Moreover, 99 percent of PFFS beneficiaries currently have access to a non-PFFS Medicare Advantage Plan. (MedPAC, March 2008) Accordingly, even if deeming were to be eliminated in rural areas (which, again, H.R.6331 would not do), the impact would be limited. In reality, the savings generated under H.R.6331 come predominantly from decreased future PFFS enrollment in urban and suburban areas where most beneficiaries have dozens of other Medicare Advantage plan options.
  • THE TRUTH: Private Fee-for-Service Plans can actually impede access to health care in rural America. PFFS plans often reimburse providers at rates far lower than under the traditional Medicare Program. For example, numerous PFFS plans do not comply with the cost-based payment requirements for Critical Access Hospitals. When PFFS plans do not adequately reimburse rural providers, they undermine the viability of the rural health care safety net by undoing the special payment structure created by Congress to ensure access to care in rural areas. (National Rural Health Association, October 2007 and January 2008)
  • THE TRUTH: The National Rural Health Association (NHRA) supports the Private Fee-for-Service Reforms in H.R.6331. The NHRA, a national non-profit membership organization whose mission is to improve the health of rural Americans and provide leadership on rural health issues, supports H.R.6331, including the bill’s PFFS reforms. In a June 23, 2008 letter, the NRHA states:

“The NRHA supported the intention of [PFFS] plans to give rural seniors a choice in their Medicare coverage. However, implementation has not always lived up to these intentions. Rural seniors deserve clarity and transparency and rural providers deserve prompt and fair payment from [PFFS] plans…. In addition, some rural providers have struggled with a process known as “deeming.” The elimination of this process in certain situations is a positive one.”

EXCUSE: The elimination of “deeming” could cause retirees to lose their health coverage because employer-based Private-Fee-for-Service plans that provide coverage in all 50 states will cease to exist without deeming authority.

  • THE TRUTH: H.R.6331 would require employers that provide retiree coverage using PFFS plans to have contracts with doctors and hospitals in order to ensure access to care. The bill also applies this requirement for plans that offer coverage to individual Medicare beneficiaries who do not have retiree coverage. If employers have difficulty in contracting with doctors or hospitals, they would be able to utilize a waiver designed by CMS that will give employer-sponsored plans flexibility in meeting network requirements in areas where provider networks are difficult to form. This waiver has already been announced by CMS and will be available for the 2009 plan year. With the announcement of this waiver, the deeming authority is not necessary for employers to be able to provide nationwide or multi-state retiree coverage.

EXCUSE: Seniors and their doctors oppose the Medicare Advantage reforms in H.R.6331.