Medicare Compliance & Reimbursement

Opposition from powerful group could alter course of reform bill.

Various associations and industry groups have been crying out for Medicare reform over the years, but now that reform bills have passed no one seems to be happy with them.

In July 14 letters to Senate Majority Leader Bill Frist (R-TN) and House Speaker Denny Hastert (R-IL), AARP president William Novelli set out his group's requirements for supporting a Medicare bill. First on the list: The final product must not include the sort of head-to-head competition between fee-for-service Medicare and private plans that the House wants.

Novelli's letter does not mince words. If "the final conference agreement does more harm than good, based on the concerns enumerated in this letter, we will not hesitate to oppose it," he warns. AARP is by far the largest seniors' organization, and while it's unclear how much control it wields over its members' political attitudes and voting behavior, its opposition to a Medicare bill would not be taken lightly.

While AARP criticisms are aimed at the House bill, the group does praise the lower chamber for including seniors eligible for both Medicare and Medicaid in its benefit, rather than leaving the so-called dual eligibles to rely on Medicaid pharmaceutical coverage as the Senate bill does.

AARP essentially rejects the House's "premium support" model. Under that proposal, "if traditional Medicare costs more than the average of all plan costs [in a region], then the Part B premium will be increased to make up the difference," says Novelli. "This will lead to an inherently unfair system: Medicare+Choice experience strongly suggests that private plans will enroll younger and healthier beneficiaries, leaving older and sicker individuals to drive up traditional Medicare rates."

Moreover, unlike FFS Medicare with its government-set payment rates, "private plans could undercut bids in some years, eating short-term losses in order to increase market share, and then raise rates in later years to make up the difference."

AARP also faults the House for not providing a guaranteed government fallback in the event that private drug-only plans do not emerge in a particular region, even with the government taking on most of the insurance risk. AARP argues the Senate bill, which does provide such a fallback, "is the minimum necessary to ensure coverage in all parts of the country," although the seniors' lobby says the fallback plan should not automatically disappear after one year if private risk-bearing plans come into the market.

The House bill increases the level of out-of-pocket drug expenses at which catastrophic coverage kicks in for upper-income seniors. AARP says this violates the "social insurance nature" of Medicare and ignores the fact that "individuals with higher incomes have already paid more through higher Medicare payroll taxes during their working lives."

AARP faults both bills for their "donut holes," or coverage gaps. It also calls for better incentives for employers to maintain existing retiree health and pharmaceutical benefits. It rejects the Senate's provision allowing employers to reduce benefits for Medicare-eligible retirees as compared to non-Medicare eligibles.

The group faults both bills for indexing deductibles and other benefit parameters to rapidly increasing pharmaceutical spending for Medicare beneficiaries. "Most older Americans' cost-of-living adjustments are linked to the general inflation rate, and most employer-provided pensions are not even adjusted for inflation. As a result, beneficiary income would swiftly fall behind a benefit indexed to drug costs," AARP says.

AARP also wants federal health agencies "to sponsor and disseminate studies of comparative clinical effectiveness of drugs widely used by Medicare beneficiaries."