Hearing of the Senate Budget Committee Subject: The President's Fiscal Year 2004 Budget Proposal for Medicare and Medicaid

HEARING OF THE SENATE BUDGET COMMITTEE
 
SUBJECT: THE PRESIDENT'S FISCAL YEAR 2004 BUDGET PROPOSAL FOR MEDICARE AND MEDICAID
 
SEN. PATTY MURRAY (D-WA): Thank you very much, Mr. Chairman.

Thank you, Mr. Secretary, for being here today and just to follow up on one of Senator Wyden's questions, and you mentioned the SCHIP allocation and some of the funding challenges we face in Oregon and Washington and other states returning dollars. A question I have on the Medicaid dollars that you're putting out there and how you're going to allocate it, are you going to base that on expenditures or allocation on that? Because that's really important to our states, if you're going to base it on expenditures that will be very different than if you base your formula on allocations. Have you determined that? You've kind of used the words changeably in your testimony.

MR. THOMPSON: Well, basically it's based upon expenditures, because of the states match and the federal match.

SEN. MURRAY: But for those of us states who have to return our SCHIP dollars because we haven't been able to use them --

MR. THOMPSON: But under this proposal you would get your allocation and be able to use it. It would not be sent back.

SEN. MURRAY: That's where—challenge is understanding what you're saying. If you base it on expenditures after we've had the return sum, that is a very different formula funding than if you base it on what our allocation is.

MR. THOMPSON: But see, it's different. Under the Medicaid it has to be based upon expenditures, because there has to be in a state contribution. It'll be less under the new provision than it is under the old, but it's still there. SCHIP is going to be allowed to go to the state and be given to the state, and it'll be an allotment given to the state. But it will be on top of the Medicaid proposal. For instance --

SEN. MURRAY: Then you're saying it's based on the allocation?

MR. THOMPSON: It'll be based—it'll be an allotment allocation to the state of Washington, right. And so you will be able to use—you will not have to send your SCHIP money back. You will be able to use your SCHIP money in the state of Washington for not only for children, but for low income parents.

SEN. MURRAY: Let me turn to Medicare, because that's a huge issue for us, and --

MR. THOMPSON: I know it is.

SEN. MURRAY: I think we all need to know that we need to modernize Medicare and increase prevention, but I'm very concerned that if we turn Medicare over to the private insurance market we're going to add to the current inequities in the system. And I know you've said many times in the past few months that seniors will not be forced into HMOs in order to receive prescription drug coverage, but I think it's pretty clear that the administration is looking to expand the role of private insurance in Medicare, and to me that approach is fairly troubling. I think we have to remember that Medicare was created a long time ago because of the failures of private insurance industry --

MR. THOMPSON: That's true.

SEN. MURRAY: You know, if we look at Medicare Plus Choice right now we see some pretty painful limits of private insurance, it works great in some of our real large urban areas, but in a lot of places in my state it doesn't work well. Some states have plans that offer prescription drugs or vision benefits, but seniors in my state don't have access to that. Let me put up this chart here. I know you know this, we have talked about this before, but that's the Medicare reimbursement chart that shows a number of states that—or the inequities in the Medicare reimbursement system, that Senator Wyden actually referred to a few minutes ago. And we see where Louisiana gets reimbursed at over 7,000 --

MR. THOMPSON: Take a look at Wisconsin.

SEN. MURRAY: Here, down there with us.

MR. THOMPSON: Yeah, I'm right down there, you better believe I SEN. MURRAY: And this is my concern. There's a huge gap, and if these amounts are used to determine the Medicare Plus Choice reimbursement rates, we're going to exacerbate a problem that is already there. It punishes states like Wisconsin and Washington, Oregon and --

MR. THOMPSON: Iowa.

SEN. MURRAY: -- others and, as Senator Wyden said, it sort of benefits states who have been inefficient. And as he said so eloquently, there's no reason to do anything innovative to work towards preventive care, to try and make changes. If all you do is reduce your costs then we get a benefit system reimbursement like this and if you're going to put your proposals based on these inequities, it's only going to make states not want to do something that reduces their costs.

MR. THOMPSON: You've said a lot of things and most of which I agree with, so let me try and answer and allay some of your fears. First off, the Medicare Plus Choice program is HMOs. The model that we're talking about is not an HMO model. Secondly, you are very satisfied, I'm certain, about the Federal Employees Health Benefit Program and your federal employee in the state of Washington has many choices, and every one of your federal employees in the state of Washington is covered under the Federal Employees Health Benefit Program. That's the model that we want to use in the Medicare system. And, finally, the reimbursement formulas, most of them are statutory and I can't change them.

SEN. MURRAY: But you can give us proposals to change them.

MR. THOMPSON: I can give you proposals and I would set up a committee and I'd sit down and talk to you about ideas and how we can --

SEN. MURRAY: I think that's important too --

MR. THOMPSON: But we have to --

SEN. MURRAY: -- because it's hard for Congress to move forward on this when you have winner states and loser states and we don't have anything from the administration to help us deal with this.

MR. THOMPSON: But this administration, we've only been in office for two years and we inherited this system. We can't change everything. And I'm trying to come up with innovative ideas on Medicaid, trying to come up with innovative ideas on Medicare. I've got many ideas on the uninsured that I'd like to sit down and talk to you about, quality assurance, preventive health, ways in which we can really improve the system. Most people don't ask me for my ideas, I wish they did.

SEN. MURRAY: Well, I would like to work with you on this because if we just base the prescription drug benefit on the same inequities that we already have and the same formulas that we already have, there's going to be states who are going to lose all over again in a way that just simply isn't fair. So I think it's important that we talk about how that formula is going to be—whether you're going to provide a flat, per-beneficiary amount, the same for everybody in the country when you come to prescription drugs, or you're going to base it on an inequitable formula. If you base it on an inequitable formula, you're going to have a number of us who are going to absolutely oppose you.

SEN. NICKLES: Senator Murray, you made an excellent comment. I concur.

And, Secretary Thompson, I'll again say that I think several of our colleagues are saying we all recognize we need to make significant Medicare reforms, improvements --

MR. THOMPSON: Absolutely.

SEN. NICKLES: -- to resolve some of these inequities that are in the system. I'll work with --

SEN. MURRAY: Great.

MR. THOMPSON: You're going to find that this administration wants to work with you and accomplish those reforms. How many of those reforms can be adopted, you know, is a political decision and we have to—and the problem is that the prescription drugs is the dessert and unless we're willing to make the necessary changes to strengthen and improve Medicare right now, with prescription drugs being the dessert, we will never get back to Medicare and make the necessary changes until it's in a crisis situation.

SEN. MURRAY: Well, Mr. Secretary --

MR. THOMPSON: So I think we have an opportunity this year.

SEN. MURRAY: Let me just say that if the only people who get the high calorie dessert are the people with the high calorie dinner, we're all going to be overweight and this Medicare program --