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104th Congress                                             Rept. 104-79
                        HOUSE OF REPRESENTATIVES

 1st Session                                                     Part 1
_______________________________________________________________________


 
 A BILL TO AMEND SECTION 4358 OF THE OMNIBUS BUDGET RECONCILIATION ACT 
OF 1990 TO PERMIT MEDICARE SELECT POLICIES TO BE OFFERED IN ALL STATES 
                          ON A PERMANENT BASIS

                                _______


                 March 15, 1995.--Ordered to be printed

_______________________________________________________________________


    Mr. Archer, from the Committee on Ways and Means, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 483]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 483) to amend title XVIII of the Social Security Act 
to permit Medicare select policies to be offered in all States, 
and for other purposes, having considered the same, report 
favorably thereon with amendments and recommend that the bill 
as amended do pass.

                                CONTENTS

                                                                   Page
 I. Introduction......................................................2
        A. Purpose and Summary...................................     2
        B. Background and Need for Legislation...................     2
        C. Legislative History...................................     2
II. Explanation of the Bill...........................................3
        A. Expansion of Medicare SELECT (sec. 1).................     4
III.
    Votes of the Committee............................................4
IV. Budgets Effects of the Bill.......................................5
        A. Committee Estimate of Budgetary Effects...............     5
        B. Statement Regarding New Budget Authority and Tax           6
            Expenditures.
        C. Cost Estimate Prepared by the Congressional Budget         6
            Office.
 V. Other Matters to be Discussed under the Rules of the House........7
        A. Committee Oversight Findings and Recommendations......     7
        B. Summary of Findings and Recommendations of the             7
            Government Operations Committee.
        C. Inflationary Impact Statement.........................     7
VI. Changes in existing Law Made by the Bill, as Reported.............7

    The amendments are as follows:
    Strike out all after the enacting clause and insert in lieu 
thereof the following:

SECTION 1. PERMITTING MEDICARE SELECT POLICIES TO BE OFFERED IN ALL 
                    STATES ON A PERMANENT BASIS.

    Section 4358(c) of the Omnibus Budget Reconciliation Act of 1990, 
as amended by section 172(a) of the Social Security Act Amendments of 
1994, is amended--
          (1) by inserting ``and such other States as elect such 
        amendments to apply to them'' after ``Services)'', and
          (2) by striking ``and only during the 3\1/2\-year period 
        beginning with 1992''.

    Amend the title so as to read:

    A bill to amend section 4358 of the Omnibus Budget Reconciliation 
Act of 1990 to permit Medicare select policies to the offered in all 
States on a permanent basis.

                            I. INTRODUCTION

                        a. purposes and summary
    H.R. 483 would extend the Medicare SELECT program to all States on 
a voluntary and permanent basis.
                 b. background and need for legislation
    Under current law, Medicare beneficiaries can purchase private 
health insurance to supplement their Medicare coverage. These 
individually purchased policies are known as Medigap policies. Medigap 
insurance is regulated by federal and state law. The Omnibus Budget 
Reconciliation Act of 1990 (OBRA 1990) established a demonstration 
project under which insurers could market a Medigap product known as 
Medicare SELECT. SELECT policies are the same as other Medigap policies 
except that they may only pay in full for supplemental benefits if 
covered services are provided through designated health professionals 
and facilities known as preferred providers. OBRA 1990 limited the 
SELECT demonstration project to 3 years (1992-1994) and to 15 States. 
The Social Security Amendments of 1994 (P.L. 103-432) extended the 
project for 6 months, through June 30, 1995.
    The demonstration project is currently set to expire on June 30, 
1995. If the program is not extended before this date, HCFA would be 
required to notify the participating States to prepare for closing the 
program. Medicare SELECT carriers would then have to close the program 
to new Medicare enrollees on June 30, 1995. While current enrollees 
could remain in the program, health plans would be required to notify 
the participants that the program has ended.
    If the program is allowed to expire, no additional individuals 
would be allowed to enroll in SELECT plans. This will likely result in 
significant increases in premiums for current enrollees as no new lives 
would be allowed into the pool, many enrollees will likely leave the 
plan if the program is ended, and those remaining in the pool age and 
increase costs.
    Current enrollees in Medicare SELECT are receiving significantly 
reduced premiums as related to traditional fee-for-service Medigap 
policies. The bill would expand the program to all fifty states and 
make the program permanent so all seniors could enjoy the savings 
associated with Medicare SELECT products and the peace of mind that the 
program is permanent.

                         c. legislative history

Committee bill

    H.R. 483 was introduced on January 11, 1995, by Mrs. 
Johnson of Connecticut, et al., and referred to the Committee 
on Ways and Means and Committee on Commerce, and on January 17, 
1995, was referred to the Subcommittee on Health. The bill as 
introduced contained four provisions: (1) expanding the 
Medicare SELECT program to all fifty states and make it 
permanent; (2) allowing for the development of an eleventh plan 
option under Medigap; (3) clarifying renewability requirements 
for SELECT plans; (4) imposing civil money penalties for 
misrepresentation or the provision of false information.
    The Subcommittee on Health of the Committee on Ways and 
Means marked up the bill on February 23, 1995, and approved by 
voice vote one amendment by Chairman Thomas that limited the 
bill to an extension of the program to all fifth states and 
made the program permanent. The Subcommittee ordered favorably 
reported H.R. 483, as amended, by a recorded vote of 10-3.
    The Committee on Ways and Means marked up the bill on March 
8, 1995, and ordered the bill to be favorably reported without 
amendment by a roll call vote of 31 yeas and 2 nays.

Legislative hearing

    The Subcommittee on Health of the Committee on Ways and 
Means held a public hearing on February 10, 1995, on Medicare 
Reform and Innovation, which focused on Medicare SELECT, as 
well as other programs.

                      II. EXPLANATION OF THE BILL

a. expansion of medicare select (sec. 1 of the bill and sec. 4358(c) of 
                               obra 1990)

Present law

    Under present law, 15 states are eligible for participation 
in the Medicare SELECT program: Alabama; Arizona; California; 
Florida; Illinois; Indiana; Kentucky; Massachusetts; Minnesota; 
Missouri; North Dakota; Ohio; Texas; Washington; and Wisconsin. 
The program is set to expire on June 30, 1995.

Explanation of provision

    The provision would extend the SELECT program to all States 
on a permanent basis. States would be given the opportunity to 
participate in the Medicare SELECT program.

Reasons for change

    The program is rapidly approaching the current expiration 
date of June 30, 1995. If the program is not extended before 
this date, the Health Care Financing Administration (HCFA) 
would be required to notify the participating States to prepare 
for closing the program. Medicare SELECT carriers would then 
have to close the program to new Medicare enrollees on June 30, 
1995. While current enrollees could remain in the program, 
health plans would be required to notify the participants that 
the program has ended. This would result in significant 
increases in premiums for current enrollees as no new lives 
would be allowed into the pool, many enrollees will likely 
leave the plan if the program is ended, and those remaining in 
the pool age and increase costs.
    The State and time limited nature of the program has 
limited insurer participation because of significant 
development and start-up costs of new policies and the 
uncertain nature of the program. This uncertainty has also led 
to difficulties in network development as providers are also 
concerned with the limited duration of the program.
    Medicare SELECT premiums appear to be ten to 37 percent 
lower than traditional Medigap premiums, when rated on the same 
basis. Consumers Union, in the August 1994, Consumers Reports, 
ranked Medigap plans nationally and ranked eight Medicare 
SELECT plans in the to fifteen Medigap products country wide. 
In addition, the National Association of Insurance 
Commissioners has reported that very few complaints have been 
associated with Medicare SELECT products.
    When the demonstration was first announced, 29 States 
indicated their desire to participate in the program and there 
continues to be a strong interest in SELECT among those states 
not currently allowed to participate in the program. The 
National Governors Association, the National Conference of 
State Legislators, and the National Association of Insurance 
Commissioners have all supported expanding this program to all 
fifth states and making it permanent.

Effective date

    The provision is effective upon enactment.

                      III. VOTES OF THE COMMITTEE

    In compliance with clause 2(l)(2)(B) of rule XI of the 
Rules of the House of Representatives, the following statements 
are made concerning the votes of the Committee in its 
consideration of the bill, H.R. 483.

                       motion to report the bill

    The bill H.R. 483, was ordered favorably reported by a roll 
call vote of 31 yeas and 2 nays on March 8, 1995, with a quorum 
present. The roll call vote was as follows:
        YEAS                          NAYS
Mr. Archer                          Mr. Stark
Mr. Crane                           Mr. McDermott
Mr. Thomas
Mr. Shaw
Mrs. Johnson
Mr. Bunning
Mr. Houghton
Mr. Herger
Mr. McCrery
Mr. Hancock
Mr. Camp
Mr. Ramstad
Mr. Zimmer
Mr. Nussle
Mr. Johnson
Ms. Dunn
Mr. Collins
Mr. Portman
Mr. English
Mr. Ensign
Mr. Christensen
Mr. Ford
Mr. Matsui
Mrs. Kennelly
Mr. Coyne
Mr. Levin
Mr. Cardin
Mr. Kleczka
Mr. Lewis
Mr. Payne
Mr. Neal

                           votes on amendment

    The Committee defeated an amendment (8 years and 25 nays) 
offered by Mr. Stark for a temporary extension (18 months) of 
Medicare SELECT for States currently participating in the 
program. The roll call vote was as follows:
        YEAS                          NAYS
Mr. Stark                           Mr. Archer
Mr. Ford                            Mr. Crane
Mr. Matsui                          Mr. Thomas
Mr. Coyne                           Mr. Shaw
Mr. Levin                           Mrs. Johnson
Mr. Cardin                          Mr. Bunning
Mr. McDermott                       Mr. Houghton
Mr. Lewis                           Mr. Herger
                                    Mr. McCrery
                                    Mr. Hancock
                                    Mr. Camp
                                    Mr. Ramstad
                                    Mr. Zimmer
                                    Mr. Nussle
                                    Mr. Johnson
                                    Ms. Dunn
                                    Mr. Collins
                                    Mr. Portman
                                    Mr. English
                                    Mr. Ensign
                                    Mr. Christensen
                                    Mrs. Kennelly
                                    Mr. Kleczka
                                    Mr. Payne
                                    Mr. Neal

                           IV. BUDGET EFFECTS

               a. committee estimate of budgetary effects

    In compliance with clause 7(a) of rule XIII of the Rules of 
the House of Representatives, the following statement is made 
concerning the effects on the budget of this bill, H.R. 482, as 
reported:
    The Committee agrees with the estimate prepared by CBO, 
which is included below.

    b. statement regarding new budget authority and tax expenditures

    In compliance with subdivision (B) of clause 2(l)(3) of 
rule XI of the Rules of the House of Representatives, the 
Committee states that the provisions of H.R. 483 do not involve 
any new budget authority, or any increase or decrease in 
revenues or tax expenditures.

      c. cost estimate prepared by the congressional budget office

    In compliance with subdivision (C) of clause 2(l)(3) of 
rule XI of the Rules of the House of Representatives, requiring 
a cost estimate prepared by the Congressional Budget Office, 
the following report prepared by CBO is provided.

                                     U.S. Congress,
                               Congressional Budget Office,
                                    Washington, DC, March 10, 1995.
Hon. Bill Archer,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
reviewed H.R. 483, a bill to permit Medicare Select policies to 
be offered in all states, as ordered reported by the House 
Committee on Ways and Means on March 8, 1995. CBO estimates 
that enactment of H.R. 483 would not significantly affect the 
federal budget or the budgets of state and local governments. 
Pay-as-you-go procedures would apply because the bill could 
affect direct spending. The estimated change in direct 
spending, however, is not significant.
    Medicare Select policies are Medicare supplemental health 
insurance policies allowed under a demonstration program that 
Congress initiated in section 4358 of the Omnibus Budget 
Reconciliation Act of 1990. The program was limited to 15 
states and was to run for three years beginning on January 1, 
1992. The demonstration was extended for six months in section 
172 of the Social Security Act Amendments of 1994. This bill 
would extend the program to the entire country and make it 
permanent.
    Except for Medicare Select policies, issuers of Medicare 
supplemental policies are not allowed to offer benefits that 
differ depending on the provider selected by the beneficiary. 
Under Medicare Select policies, insurers can, in effect, set up 
Medicare Preferred Provider Organizations (PPOs). If PPOs are 
successful in managing care, they can reduce Medicare costs, 
because Medicare pays for most of the cost of the services 
covered under the supplemental policies. The preliminary 
evaluation of the demonstration conducted under contract to the 
Health Care Financing Administration (HCFA), however, has found 
very little management of care by the insurers and no cost 
savings to Medicare. On the other hand, Medicare costs could 
rise if enactment of this bill caused additional Medicare 
beneficiaries to purchase coverage that reduced their co-
payments and thus diminished their economic incentives to seek 
cost-efficient care. The preliminary evaluation of the 
demonstration found that few additional beneficiaries purchase 
Medicare supplemental policies. Because this bill could result 
in either costs or savings, and there is little evidence of 
either, CBO estimates that this bill would have no significant 
effect on the federal budget.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Scott 
Harrison.
            Sincerely,
                                         June E. O'Neill, Director.

     V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE

          a. committee oversight findings and recommendations

    With respect to subdivision (A) of clause 2(l)(3) of rule 
XI of the Rules of the House of Representatives (relating to 
oversight findings), the Committee advises that it was as a 
result of the Committee's oversight activities concerning the 
extension of the Medicare SELECT program to all fifty states 
and making the program permanent that the Committee concluded 
that it is appropriate to enact the provisions contained in the 
bill.

    b. summary of findings and recommendations of the committee on 
                    government reform and oversight

    With respect to subdivision (D) of clause 21(l)(3) of rule 
XI of the Rules of the House of Representatives (relating to 
oversight findings), the Committee advises that no oversight 
findings or recommendations have been submitted to this 
Committee by the Committee on Government Reform and Oversight 
with respect to the provisions contained in this bill.

                    c. inflationary impact statement

    In compliance with clause 2(l)(4) of rule XI of the Rules 
of the House of Representatives, the Committee states that the 
provisions of the bill are not expected to have an overall 
inflationary impact on prices and costs in the operation of the 
national economy. As is indicated above (in Part IV of this 
report), the bill is projected to be deficit neutral over 
fiscal years 1995-2000.

        VI. CHANGES IN EXISTING LAW MADE BY THE BILL AS REPORTED

    In compliance with clause 3 of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italics, existing law in which no change 
is proposed is shown in roman):

     SECTION 4358 OF THE OMNIBUS BUDGET RECONCILIATION ACT OF 1990

SEC. 4358. MEDICARE SELECT POLICIES

    (a) * * *
          * * * * * * *
    (c) Effective Date.--The amendments made by this section 
shall only apply in 15 States (as determined by the Secretary 
of Health and Human Services) and such other States as elect 
such amendments to apply to them [and only during the 3\1/2\-
year period beginning with 1992].
          * * * * * * *