May 21,1999


Options for Reforming Medicare

WASHINGTON -- Senate Finance Committee Chairman William V. Roth Jr., (R-DE) today announced the Committee will meet on Wednesday, May 26, 1999 at 10:00 a.m. in 215 Dirksen Senate Office Building to hear testimony on options for Medicare reform. The Breaux-Thomas proposal, that would move Medicare to a "premium support" system, will be discussed.

The following witnesses are expected to appear before the Committee:

I. A panel consisting of:

The Honorable John B. Breaux, Senator from Louisiana; Washington, D.C.

The Honorable William M. Thomas, Representative from California; Washington, D.C.

II. A panel consisting of:

William J. Scanlon, Ph.D., Director, Health Financing and Systems Issues, General Accounting Office; Washington, D.C.

Dan L. Crippen, Director, Congressional Budget Office; Washington, D.C.

Bruce M. Vladeck, Ph.D., Mt. Sinai School of Medicine; Former HCFA Administrator; New York, NY

Deborah Steelman, President, Steelman Health Strategies; Washington, D.C.

Kenneth E. Thorpe, Ph.D., Vanselow Professor and Director, Institute of Health Services Research, Tulane University; New Orleans, LA

David B. Kendall, Senior Analyst, Health Priorities Project, Progressive Policy Institute; Washington, D.C.

Purpose of the Hearings:

The fourth and fifth hearings in our ongoing series looking at Medicare reform will focus on specific options for reforming Medicare. The primary focus of the Wednesday hearing will be on the work of the National Bipartisan Commission on the Future of Medicare and the Chairmen's proposal, also known as the Breaux-Thomas proposal. The Breaux-Thomas proposal would move Medicare to a "premium support" system. The premium support system is modeled on the Federal Employees Health Benefits Program with certain key adjustments for Medicare's elderly and disabled population. In addition to the Breaux-Thomas proposal, a number of other options for Medicare reform will also be discussed.

There will be two panels on Wednesday morning. The first panel will consist of Senator Breaux and Representative Thomas. They will discuss their work on a premium support proposal for Medicare.

The second panel will consist of experts who both support and oppose the Breaux-Thomas approach, as well as some who have explored the range of Medicare modernization options without showing a preference for any particular option.

Two of the panelists were members of the National Bipartisan Commission. Attorney Deborah Steelman of Steelman Health Strategies voted for the Breaux-Thomas proposal. Former Health Care Financing Administration Administrator Bruce Vladeck voted against the Breaux-Thomas proposal. The other panel members include William Scanlon from the General Accounting Office, who will describe for the Committee the range of reform options. Dan Crippen, Director of the Congressional Budget Office, will discuss the budget implications of various reform options. David Kendall of the Progressive Policy Institute and Ken Thorpe, Professor of Health Policy at Tulane University, will also add their perspectives to the discussion.

On Thursday morning, the first panel will continue discussing perspectives on Medicare reform. The first panel will include Marilyn Moon, of the Urban Institute, one of two public members of the Medicare Board of Trustees. Also on the panel will be Gail Wilensky of Project Hope, who is also Chair of MedPAC and a former Administrator of HCFA. Stuart Butler of the Heritage Foundation will also appear on the first panel. Adding the states' perspective will be Ray Sheppach of the National Governors' Association. The beneficiaries' perspective will be presented by a representative of the American Association of Retired Persons and long-term fiscal responsibility themes will be discussed by Martha Phillips of the Concord Coalition.

The second panel will consist of representatives of a number of the major provider and health plan organizations affected by possible reforms. Adding their perspectives will be representatives from the American Medical Association, the American Hospital Association, the Health Insurance Association of America, the American Association of Health Plans, the National Blue Cross and Blue Shield Association and the National Association of Public Hospitals and Health Systems.

Goals for the Hearing:

• To consider the work by Senator Breaux and Congressman Thomas on moving the Medicare program to a premium support system. How would that system work and what are the advantages and disadvantages for beneficiaries, taxpayers and providers?

• To consider the range of alternatives in addition to premium support, from technical adjustments to major restructuring. To date, the Committee has heard testimony relating to updating the Medicare benefit package, including the supplemental market, modernizing the fee-for-service system, changing the roles and functions of the Health Care Financing Administration, and ensuring the fiscal stability of the program into the future.

• To discuss the integration of Medicare and Medicaid and highlight key aspects to consider in Medicare reform. Changes that might be contemplated in the Medicare program can have profound implications for the Medicaid program and vice versa.


The premium support approach suggested in the Breaux-Thomas proposal is a hybrid of defined benefit and defined contribution health insurance systems. There would be a defined core set of comprehensive health benefits that all plans must offer. Plans could offer some additional benefits, but the value of the package could vary no more than 10 percent above the actuarial value of the core set of benefits. Under the proposal, the government would make a contribution toward the cost of the plan premium. The government contribution would grow annually at the same rate as the premium of the average plan participating in Medicare. Each beneficiary would have the ability to choose from a variety of public and private plans. If a beneficiary chose a plan with a premium higher than average, they would have to pay the additional cost themselves. If a beneficiary chose a plan with a lower-than-average premium, the government would pay a higher percentage of the total premium cost. Plans with a premium at or below 85 percent of the national average premium would be free to the beneficiary. In addition, the Breaux-Thomas proposal included several other notable elements of reform such as improvements to the design of the benefit package and new federal subsidies to low-income beneficiaries for prescription drugs. (See Exhibit 1).

This type of system would shift the traditional fee-for-service (FFS) program to the type of premium-based system typically found in employment-based health insurance systems such as the Federal Employees Health benefit Program and the California Public Employees' Retirement System (CalPERS). For those who question whether the publicly-administered FFS plan could compete in such a market-based system, concerns arise about the future of the FFS plan and what the consequences might be for beneficiaries.

There are other approaches that would address needed improvements in selected areas of today's Medicare program. Those with doubts about the premium support approach often view certain technical adjustments to the current program as more than adequate to deal with Medicare's problems. These generally would be described as "modernization" proposals. The current funding arrangements would be maintained. Additional administrative restraints on provider payments would be used to slow the growth of the program. Steps would be taken to make HCFA a more prudent purchaser of health care and improvements would be made to the Medicare+Choice program.