**923 P.L. 100-360, MEDICARE CATASTROPHIC COVERAGE ACT OF 1988
Dates of Consideration and Passage
House July 22, 1987;  June 2, 1988
Senate October 27, 1987;  June 8, 1988
House Report (Ways and Means Committee) No. 100-105(I),
May 22, 1987 [To accompany H.R. 2470]
House Report (Energy and Commerce Committee) NO. 100-105(II),
July 1, 1987 [To accompany H.R. 2470]
Senate Report (Finance Committee) No. 100-126, July 27, 1987
[To accompany S. 1127]
House Conference Report No. 100-661, May 31, 1988
[To accompany H.R. 2470]
Cong. Record Vol. 133 (1987)
Cong. Record Vol. 134 (1988)
The house bill was passed in lieu of the Senate bill. The House Report (parts I
and II) is set out below and the House Conference Report follows.

(CONSULT NOTE FOLLOWING TEXT FOR INFORMATION ABOUT OMITTED MATERIAL.  EACH     
COMMITTEE REPORT IS A SEPARATE DOCUMENT ON WESTLAW.)                           

HOUSE CONFERENCE REPORT NO. 100-661
May 31, 1988
* * * * *

*145 JOINT EXPLANATORY STATEMENT OF THE COMMITTEE OF CONFERENCE

  The managers on the part of the House and the Senate at the conference on the disagreeing votes of the two Houses on the amendment of the Senate to the bill (H.R. 2470) to amend title XVIII of the Social Security Act to provide protection against catastrophic medical expenses under the medicare program, and for other purposes, submit the following joint statement to the House and the Senate in explanation of the effect of the action agreed upon by the managers and recommended in the accompanying conference report: 
  The Senate amendment struck out all of the House bill after the enacting clause and inserted a substitute text. 
  The House recedes from its disagreement to the amendment of the Senate with an amendment which is a substitute for the House bill and the Senate amendment.  The differences between the House bill, the Senate amendment, and the substitute agreed to in conference are noted below, except for clerical corrections, conforming changes made necessary by agreements reached by the conferees, and minor drafting and clarifying changes.

1. Short Title;  References in Act;  Table of Contents (Section 1 of House
bill;  Section 1 of Senate amendment)

Present law 

  No provision.

House bill 

  Specifies that the act may be cited as the "Medicare Catastrophic Protection Act of 1987."  Specifies that, except as otherwise specifically provided, whenever an amendment in this act is stated as an amendment or repeal of a section or provision, the reference is to the Social Security Act.  Includes a table of contents.

Senate amendment 

  Similar provision, except specifies that act may be cited as the "Medicare Catastrophic Loss Prevention Act of 1987."

Conference agreement 

  The conference agreement specifies that the Act may be cited as the Medicare Catastrophic Coverage Act of 1988.

**924 *146 2. Inpatient Hospital Services (Section 101 of House bill; 
Sections 2 and 3 of Senate amendment)

Present law 

  (a) Deductible/Spell of Illness.--During each "spell of illness", beneficiaries are required to pay an inpatient hospital deductible ($540 in 1988).  A spell of illness is defined as beginning when a beneficiary enters a hospital and ending when he or she has not been in a hospital or skilled nursing facility for 60 days. 
  (b) Limitation on Covered Inpatient Days.--(1) A beneficiary is entitled to 90 days of inpatient hospital services during each spell of illness.  An additional lifetime reserve of 60 days may be drawn upon when an individual exceeds 90 days in a spell of illness.  Medicare payment ceases after a beneficiary has used 90 days in a benefit period and exhausted the lifetime reserve days. 
  (2) The program includes an inpatient psychiatric carryover restriction for persons who are inpatients of a psychiatric hospital on the first day of Medicare entitlement.  Days during the immediately preceding 150 days that the individual is an inpatient of a psychiatric hospital are subtracted from the 150 days that would otherwise be available in the initial spell of illness for inpatient psychiatric services. 
  (c) Coinsurance.--Beneficiaries are liable for daily coinsurance charges, equal to one-quarter of the inpatient hospital deductible for days 61-90 in a spell of illness ($135 in 1988).  In addition, beneficiaries are liable for daily coinsurance charges, equal to one-half of the inpatient hospital deductible, for the 60 lifetime reserve days ($270 in 1988). 
  (d) Part A Premium.--Individuals aged 65 or over who are not automatically entitled to Part A may voluntarily enroll in the program if they pay a monthly premium.  The premium amount, updated annually for the following year, is equal to $33 multiplied by the ratio of the inpatient hospital deductible for the following year to the inpatient hospital deductible in 1973. 
  (e) Adjustment in PPS Payment Rates.--Annual adjustments are made in payment amounts to PPS and PPS-exempt hospitals.  Beginning in fiscal year 1988, the Secretary is required to adjust annually hospital weighting factors. Adjustments to outlier cutoff points are made periodically.

House bill 

  (a) Deductible/Spell of Illness.--Specifies that the deductible is to be applied to the first period of continuous hospitalization that begins in a calendar year.  A beneficiary is required to pay only one deductible in a calendar year. 
  Eliminates "spell of illness" concept. 
  Specifies that beneficiaries whose "spell of illness" (for which a deductible is imposed) began before January 1, 1988, and had not yet ended as of such date, would not be required to pay an additional deductible for that spell of illness in 1988 or 1989. 
  (b) Limitation on Covered Inpatient Days.-- 
    (1) Repeals limitations on number of covered inpatient days. 
    (2) Specifies that the psychiatric carryover restriction applies for the period beginning on the first day of Medicare entitlement *147 **925 and ending at the end of the first period of 60 consecutive days on which the individual is not receiving inpatient psychiatric hospital services.  The 150-day limitation is retained. 
  (c) Coinsurance.--Repeals coinsurance requirements, including, those required for emergency hospital services provided by a hospital that does not participate in Medicare. 
  (d) Part A Premium.--Requires the Secretary in September of each year  (beginning in 1987), to establish the Part A monthly premium amount for the following year equal to the estimated actuarial value of the Part A benefit for such year (rounded to the nearest dollar).  The actuarial value equals one- twelfth of the estimated average per capita amount payable from the Federal Hospital Insurance Trust Fund for services and related administrative costs incurred with respect to persons aged 65 and over for Part A benefits for the entire year.  The Secretary is required, when the premium amount is promulgated, to issue a public statement setting forth the actuarial assumptions and bases employed in arriving at an adequate actuarial rate. 
  (e) Adjustment in PPS Payment Rates.--Requires the Secretary (when adjusting payment rates for PPS and non-PPS hospitals, the target amounts, the weighting factors, and the outlier cutoff points), when appropriate, to take into account reductions in beneficiary payments to hospitals resulting from the repeal of the day limitation on inpatient hospital services. 
  Effective date.--(a) Applies to the deductible for 1988 and succeeding years.  (b) and (c) apply to inpatient hospital services furnished on or after January 1, 1988.  (d) Applies to premiums for months beginning with January 1, 1988.  Conforming amendments effective January 1, 1988.  (e) Effective on enactment.

Senate amendment 

  (a) Deductible/Spell of Illness.--Similar provision, except limited to persons covered under both Part A and Part B.  The deductible applies to the first "period of hospitalization" beginning in a calendar year.  "Period of hospitalization" is defined as beginning on the first day the individual is furnished inpatient hospital services and ending on the date of discharge from the hospital (or, in the case of a transfer, hospitals) involved. 
  Eliminates "spell of illness" for persons covered under both Parts A and B. 
  Specifies that beneficiaries whose period of hospitalization (for which a deductible is imposed) begins during December of a calendar year would not be required to pay an additional deductible for a hospitalization beginning in January of the following year. 
  (b) Limitation on Covered Inpatient Days.-- 
    (1) Similar provision, except limited to persons covered under both Parts A and B. 
    (2) Repeals psychiatric carryover restriction for persons covered under both Parts A and B. 
  (c) Coinsurance.--Similar provision, except limited to persons covered under both Parts A and B.  Coinsurance requirements for services furnished outside the United States are also eliminated for these persons. 
  **926 *148 (d) Part A Premium.--No provision. 
  (e) Adjustment in PPS Payment Rates.--No provision. 
  Effective date.--Applies to items and services furnished after December 31, 1987, Beneficiaries (covered under both Parts A and B) whose spell of illness begins before January 1, 1988 and whose period of hospitalization included in that spell of illness begins on or after January 1, 1988 and before February 1, 1988 would not have an inpatient hospital deductible imposed for that period of hospitalization. 
  (a) Deductible/Spell of Illness.--The conference agreement includes the House provision with an amendment.  The agreement provides that a beneficiary, whose period of hospitalization (for which a deductible is imposed) begins during December of a calendar year, would not be required to pay an additional deductible for a hospitalization beginning in January of the following year. 
  The agreement provides that, if the Secretary terminates a contract with a health maintenance organization (HMO) or competitive medical plan (CMP) during a year, no inpatient hospital deductible will be imposed for the remainder of the year on a beneficiary who can demonstrate that he or she, while enrolled in the organization during the year, had an inpatient hospital admission paid for by the HMO or CMP. 
  (b) Limitation on Covered Inpatient Days.--The conference agreement includes the House provision. 
  (c) Coinsurance.--The conference agreement includes the Senate amendment with an amendment deleting the requirement that individuals be enrolled in both Parts A and B. 
  (d) Part A Premium.--The conference agreement includes the House provision with an amendment specifying that the Secretary is first required to establish the monthly premium in September of 1988 which will be in effect for calendar year 1989. 
  (e) Adjustment in PPS Payment Rates.--The conference agreement includes the House provision with an amendment.  Under the agreement, the Secretary shall adjust the target amounts for each non-PPS hospital to reflect reductions in beneficiary payments to hospitals resulting from the enactment of this legislation. 
  (f) Chronic Ventilator-Dependent Units in Hospitals.--The conference agreement includes a provision requiring the Secretary to establish up to five demonstration projects for up to three years each to review the appropriateness of classifying chronic ventilator-dependent units in hospitals as rehabilitation units.  The Secretary is authorized to treat such units as rehabilitation units for reimbursement purposes. 
  The conferees expect that the Secretary will establish criteria for the demonstration projects which will assure that (1) the units will serve patients who have recently undergone tracheostomy and are newly ventilator-dependent; (2) there is reasonable expectation at admission that the patient will be able to return home or to the community at discharge;  (3) the major diagnoses of patients will include spinal cord injury, head trauma, advanced lung disease, Guillain-Barre syndrome, musuclar dystrophy--Duchenne type, polyomyositis and dermatomyositis, and phrenic nerve paralysis secondary to surgical trauma;  (4) the rehabilitation programs within the units will include physical therapy, patient and family instruction **927 *149 in the use of ventilator equipment, self-suctioning and medications, and psychological counseling;  (5) expected length of stay within the units will be typically two to four months; and (6) other factors which the Secretary finds relevant. 
  In establishing the demonstrations the Secretary is required to consult with the Prospective Payment Assessment Commission.  In addition, the conferees expect that the Secretary will consult with appropriate professional groups such as the American Thoracic Society and the American College of Chest Physicians. 
  Effective date.--The Conference agreement applies to the deductible for 1989 and succeeding years.  Other provisions apply to care and services occurring on or after January 1, 1989, except that (d) is effective and applies to premiums for January 1989 and succeeding months and (e) is effective for PPS hospital discharges on or after January 1, 1989, and for non-PPS hospitals, for cost reporting periods beginning on or after October 1, 1989.

3. Extended Care Service (Section 102 of House bill;  Sections 2 and 3 of
Senate amendment)

Present law 

  (a) Coinsurance.--Beneficiaries are required to pay a daily coinsurance charge (equal to one-eighth of the inpatient hospital deductible) for days 21- 100 of post-hospital extended care services furnished during each spell of illness. 
  (b) Limitation on Covered Days.--The program covers up to 100 days of post- hospital extended care services in a spell of illness. 
  (c) Prior Hospitalization Requirement.--In order to have payment made for extended care services, the beneficiary must have been an inpatient of a hospital for at least three consecutive calendar days and have been transferred to a participating SNF usually within 30 days.  The law has authorized the Secretary to provide coverage for extended care services in a SNF without regard to the 3-day prior hospitalization requirement when he determines that such coverage will not lead to an increase in cost and will not alter the acute nature of the benefit;  however, this provision has not been implemented.

House bill 

  (a) Coinsurance.-- 
    (1) Eliminates current coinsurance requirements.  Imposes a daily coinsurance charge for days 1-7 of post-hospital extended care services furnished in a calendar year. 
    (2) Requires the Secretary, before September 1 of each year (beginning in 1987), to estimate the national average per diem reasonable cost recognized under Part A for post-hospital extended care services which will be furnished in the succeeding calendar year.  In September of each calendar year (beginning in 1987) the Secretary is required to promulgate the coinsurance amount for the following year.  The amount equals 20 percent (rounded to the nearest $0.50) of the national average per diem reasonable cost estimated by the Secretary.  The reference to "post-hospital" is deleted beginning January 1, 1989. 
  **928 *150 (b) Limitation on Covered Days.--Provides coverage for 150 days of extended care services in a calendar year. 
  (c) Prior Hospitalization Requirement.--Eliminates prior hospitalization requirement and reference to authority to provide coverage without regard to this requirement. 
  (d) Spell of Illness.--Repeals spell of illness concept. 
  Effective date.--Applies to extended care services furnished on or after January 1, 1988, except that elimination of prior hospitalization requirements (and related conforming changes) apply to extended care services furnished pursuant to an admission to an SNF occurring on or after January 1, 1989.

Senate amendment 

  (a) Coinsurance.-- 
    (1) Similar provision, except limited to persons covered under both Parts A and B.  The daily coinsurance charge is imposed on the first 10 days the beneficiary is furnished extended care services during any stay in a skilled nursing facility (SNF), but in no event can a coinsurance amount be imposed for more than 10 days in a calendar year. 
    (2) Similar provision, except coinsurance equals 15 percent (rounded to the nearest $1.00) of the estimated amount.  Eliminates reference to "post- hospital". 
  (b) Limitation on Covered Days.--Similar provision, except limited to persons covered under both Part A and Part B. 
  (c) Prior Hospitalization Requirement.--Similar provisions, except limited to persons covered under both Parts A and B. 
  (d) Spell of Illness.--Similar provisions, except limited to persons covered under Parts A and B. 
  Effective date.--Applies to extended care services furnished after December 31, 1987.  For beneficiaries receiving post-hospital extended care services on December 31, 1987, current law provisions will continue to apply until the spell of illness has ended.

Conference agreement 

  (a) Coinsurance.--The conference agreement includes the House provisions with a modification.  The agreement provides that coinsurance charges are to be imposed on the first eight days of extended care services in a calendar year. The amount of the coinsurance is equal to 20% (rounded to the nearest $0.50) of the estimated national average per diem reasonable cost recognized under Part A of Medicare for extended care services. 
  The agreement extends the current coverage of extended care services in a Christian Science sanatoria from a maximum of 30 days per benefit period to 45 days per calendar year.  As under current law, coinsurance would be applied for each day of covered care. 
  (b) Limitation on Covered Days.--The conference agreement includes the Senate amendment with an amendment deleting the requirement that individuals be enrolled in both Parts A and B. 
  (c) Prior Hospitalization Requirement.--The conference agreement includes the House provision. 
  (d) Spell of Illness.--The conference agreement includes the Senate amendment with amendments.  The requirement that individuals *151 **929 be enrolled in both Parts A and B is deleted.  Beneficiaries whose "spell of illness" began before January 1, 1989, and had not yet ended as of such date, would not be required to pay an additional hospital deductible for that spell of illness in 1989 and 1990. 
  Effective date.--The conference agreement applies to extended care services furnished on or after January 1, 1989.

4. Hospice Care (Section 103 of House bill;  Section 12 of Senate amendment)

Present law 

  A beneficiary who is terminally ill may elect to receive hospice services for two 90-day periods and one subsequent 30-day period for a total of 210 days during his lifetime.  Beneficiaries making this election must choose to receive services through a hospice and give up most other Medicare benefits.

House bill 

  Provides for a subsequent extension period beyond the current 210-day limit, if the beneficiary is recertified as terminally ill by the medical director or the physician member of the interdisciplinary group of the hospice program. 
  Effective date.--Applies to hospice care furnished on or after January 1, 1988.

Senate amendment 

  Similar provision. 
  Effective date.--Applies with respect to services furnished on or after date of enactment.

Conference agreement 

  The conference agreement includes the House provision with an amendment to further extend the favorable presumption under the waiver of liability provision for hospice care through October 1990. 
  Effective date.--The conference agreement applies to hospice care furnished on or after January 1, 1989.

5. Blood Deductible (Section 104 of House bill;  Section 3 of Senate amendment)

Present law 

  Payment may not be made under Part A for the first 3 pints of whole blood (or equivalent quantities of packed red blood cells, as defined in regulations) furnished to a beneficiary during a spell of illness.  A similar deductible is applied under Part B on a calendar year basis.  Under Part B, the deductible (in accordance with regulations) is appropriately reduced to the extent that there has been a replacement of such blood (or equivalent quantities of packed red blood cells).  For these purposes, blood furnished to an individual is deemed to be replaced when the institution or other person furnishing blood is given one pint of blood for each pint of blood furnished such individual for which the deductible is applicable. 
  The Part A and Part B blood deductibles are applied separately.

**930 *152 House bill 

  Specifies that the Part A blood deductible is applied on a calendar year basis.  Replacement provisions (identical to those specified for Part (B) are added to Part A.  The Part A blood deductible is to be reduced by any blood deductible imposed with respect to Part B. 
  Specifies that in the case of a beneficiary whose spell of illness begins before January 1, 1988 (and ends after that date), any Part A blood deductible required would be reduced during that spell of illness (during 1988 or 1989) to the extent that a Part A blood deductible had already been imposed for that spell of illness. 
  Effective date.--Applies to blood or blood cells furnished on or after January 1, 1988.

Senate amendment 

  Specifies that the Part A blood deductible is to be applied on a calendar year basis for persons covered under both Parts A and B. 
  Effective date.--Applies to items and services finished after December 31, 1987.

Conference agreement 

  The conference agreement includes the House provision. 
  Effective date.--The conference agreement applies to blood or blood cells furnished on or after January 1, 1989.

6. Home Health Benefits (Section 105 of House bill)

Present law 

  Home health services are covered under Parts A and B.  Payments for home health services are always made under Part A except in cases where the beneficiary is enrolled under Part B, but is not entitled to Part A.  In these cases, payment is made under Part B.

House bill 

  Provides that payments for home health services are to be made under Part A only in cases where the individual provided the services is not entitled to Part B in that month.  Otherwise, payments are to be made under Part B. 
  Effective date.--Applies to home health services furnished on or after January 1, 1989.

Senate amendment 

  No provision.

Conference agreement 

  The conference agreement does not include the House provision.

7. Imposition of Supplemental Medicare Premium (Section 106 of House bill; 
Sections 6 and 27 of Senate amendment)

Present law 

  (a) and (b) In General and Applicability.--The following individuals are eligible for coverage under the Hospital Insurance (Part A) program of Medicare without payment of any premium:  (1) those **931 *153 who have attained age 65 and are eligible for monthly Social Security retirement or survivor benefits, (2) individuals of any age who have been entitled for not less than 24 months to Social Security or Railroad Retirement benefits on the basis of disability (and certain related individuals), (3) individuals of any age who have end-stage renal disease, and (4) certain Federal, State, and local Government employees who have attained age 65.  Individuals age 65 or over who are not entitled to Part A benefits because they do not meet the above conditions may enroll in Part A if they pay a monthly premium. 
  All individuals age 65 and older may elect to enroll in the Supplementary Medical Insurance (Part B) program of Medicare by paying a monthly premium, which is $24,80 in 1988.  Individuals who have not attained age 65 but who are eligible for the Part A program by virtue of disability or end-stage renal disease may also elect to enroll in Part B by paying the monthly premium. 
  (c) Premium Amount.--No provision. 
  (d) Calculation for Governmental Retirees.--Currently, the pensions of most government retirees are, for the most part, treated as income subject to taxation, while Social Security benefits are tax-exempt unless they exceed a certain threshold (i.e., if adjusted gross income plus 50 percent of the Social Security benefit exceeds $25,000 for individuals, or $32,000 for married couples filing joint returns).  These differences in tax treatment of pension income result in larger adjusted gross incomes and tax liabilities for government retirees than for retirees with Social Security. 
  (e) Premium Indexing.--No provision. 
  (f) Maximum Supplemental Premium.--No provision. 
  (g) Joint Returns.--Provides rules for the filing of joint returns for married individuals under section 6013 of the Internal Revenue Code of 1986. 
  (h) Coordination with Tax Code Provisions.--Section 213 of the Internal Revenue Code of 1986 provides that expenses for medical care (including prescribed drugs or insulin), not compensated for by insurance or otherwise, may be deducted for Federal income tax purposes to the extent that they exceed 7.5 percent of adjusted gross income.  Medical care includes insurance payments and Medicare Part B premiums.

House bill 

  (a) In General.--Amends the Internal Revenue Code of 1986 to impose an annual income-related supplemental premium on Medicare-eligible individuals (generally, those entitled to Part A who file a Federal tax return, except (1) individuals required to pay a premium for Part A coverage, (2) residents of U.S. possessions, and (3) qualified nonresidents) for each taxable year. 
  (b) Applicability.--Defines a "Medicare-eligible individual" who is liable for payment of the supplemental Medicare premium as an individual who, in any month, is entitled to (or, on application without the payment of an additional premium, would be entitled to) benefits under Part A of Medicare for such month.  Provides for the following exceptions:  (1) individuals entitled to Part A benefits solely by reason of the payment of the Part A premium, (2) residents of U.S. commonwealths and territories who pay a special **932 *154 Part B premium and individuals who are enrolled under Part B but are not entitled to benefits under Part A, and (3) qualified nonresidents. 
  Defines a "qualified nonresident" as an individual who:  (1) is not furnished any service for which payment was or will be made under Medicare Part A during the taxable year or any of the 4 preceding taxable years, (2) is not entitled to benefits under Medicare Part B at any time during the taxable year or any of the 4 preceding taxable years, and (3) is present in a foreign country or countries for at least 330 full days during the 12-month period ending at the close of the taxable year and each of the 4 consecutive preceding 12-month periods.  An individual who dies during the taxable year is treated as meeting the 330-day test in that year if the individual spent at least 90 percent of the days before the date of death as full days in a foreign country or countries. 
  Provides that an individual (other than a nonresident alien) who has attained age 65 will be treated as a Medicare-eligible individual for the month in which he attains age 65 and any subsequent month unless he establishes to the satisfaction of the Secretary that he is not a Medicare-eligible individual for the month concerned. 
  (c) Premium Amount.-- 
    Provides that for 1988, the premium is as follows:

 If the adjusted gross income for the taxable year is:                          
            Over:                     But not over:          The annual premium 
                                                              for the taxable   
                                                                  year is:      
 $0 .......................... $6,000 ....................................... $0
 6,000 ....................... 6,143 ........................................ 10
 6,143 ....................... 6,287 ........................................ 20
 6,287 ....................... 6,430 ........................................ 30
 6,430 ....................... 6,573 ........................................ 40
 6,573 ....................... 6,716 ........................................ 50
 6,716 ....................... 6,860 ........................................ 60
 6,860 ....................... 7,003 ........................................ 70
 7,003 ....................... 7,146 ........................................ 80
 7,146 ....................... 7,289 ........................................ 90
 7,289 ....................... 7,433 ....................................... 100
 7,433 ....................... 7,576 ....................................... 110
 7,576 ....................... 7,719 ....................................... 120
 7,719 ....................... 7,862 ....................................... 130
 7,862 ....................... 8,006 ....................................... 140
 8,006 ....................... 8,149 ....................................... 150
 8,149 ....................... 8,292 ....................................... 160
 8,292 ....................... 8,436 ....................................... 170
 8,436 ....................... 8,579 ....................................... 180
 8,579 ....................... 8,722 ....................................... 190
 8,722 ....................... 8,865 ....................................... 200
 8,865 ....................... 9,009 ....................................... 210
 9,009 ....................... 9,152 ....................................... 220
 9,152 ....................... 9,295 ....................................... 230
 9,295 ....................... 9,438 ....................................... 240
 9,438 ....................... 9,582 ....................................... 250
 9,582 ....................... 9,725 ....................................... 260
 9,725 ....................... 9,868 ....................................... 270
 9,868 ....................... 10,011 ...................................... 280
 10,011 ...................... 10,155 ...................................... 290
 10,155 ...................... 10,298 ...................................... 300
 10,298 ...................... 10,441 ...................................... 310
 *155 10,441 ......................
 10,585 ...................................... 320
 10,585 ...................... 10,728 ...................................... 330
 10,728 ...................... 10,871 ...................................... 340
 10,871 ...................... 11,014 ...................................... 350
 11,014 ...................... 11,158 ...................................... 360
 11,158 ...................... 11,301 ...................................... 370
 11,301 ...................... 11,444 ...................................... 380
 11,444 ...................... 11,587 ...................................... 390
 11,587 ...................... 11,731 ...................................... 400
 11,731 ...................... 11,874 ...................................... 410
 11,874 ...................... 12,017 ...................................... 420
 12,017 ...................... 12,160 ...................................... 430
 12,160 ...................... 12,304 ...................................... 440
 12,304 ...................... 12,447 ...................................... 450
 12,447 ...................... 12,590 ...................................... 460
 12,590 ...................... 12,734 ...................................... 470
 12,734 ...................... 12,877 ...................................... 480
 12,877 ...................... 13,020 ...................................... 490
 13,020 ...................... 13,163 ...................................... 500
 13,163 ...................... 13,307 ...................................... 510
 13,307 ...................... 13,450 ...................................... 520
 13,450 ...................... 13,593 ...................................... 530
 13,593 ...................... 13,736 ...................................... 540
 13,736 ...................... 13,880 ...................................... 550
 13,880 ...................... 14,023 ...................................... 560
 14,023 ...................... 14,166 ...................................... 570
 14,166 .................................................................... 580
  
   **933 Provides that if an individual is not a Medicare-eligible individual for each month during the taxable year, the annual premium determined from the above table would be prorated based on the number of months an individual is a Medicare-eligible individual during the taxable year.  A similar rule applies in the case of a taxable year of less than 12 months, except that the individual's adjusted gross income for the taxable year would be annualized. 
  (d) Calculation for Governmental Retirees.--No provision. 
  (e) Premium Indexing.-- 
    (1) In General.--Requires the Secretary of the Treasury, not later than December 15 of 1988 and each subsequent calendar year, to prescribe a table of the supplemental premium amounts which will apply, instead of the 1988 table, with respect to taxable years beginning in the succeeding calendar year. 
    Requires that each premium dollar amount in the 1988 table be increased by the sum of the Medicare inflation factor and the prescription drug factor for the calendar year, and each other dollar amount in the table (i.e., the bracket amount and the threshold amount) be increased by the cost-of-living adjustment used to index the income tax brackets.  If any increase is not a multiple of $1, it is to be rounded to the nearest multiple of $1. 
    (2) Catastrophic Coverage Benefit.--Provides that the Medicare inflation factor is the percentage (if any) by which the Medicare value for a calendar year exceeds the Medicare value **934 *156 for 1988.  The Medicare value for any calendar year is the sum for January of such year of (a) 50 percent of the monthly actuarial rate promulgated under section 1818(d)(1) of the Social Security Act for such month (i.e., the Medicare Part A value), and (b) the excess of twice the monthly Part B actuarial rate under section 1839(a)(1) of the Social Security Act, over the amount of the monthly Part B premium under section 1839 (i.e., the Medicare Part B value). 
    (3) Prescription Drug Benefit.--Provides that the prescription drug factor for 1988 is zero percent, for 1989 is 5.5 percent, and subsequent years is determined as follows:  The Secretary of the Treasury in September of each year (beginning with 1989) is required to determine a percent estimated to be necessary so that the total amount of supplemental premiums attributable to the prescription drug factor estimated to be collectible in the next year is equal to 25 percent of the total of the benefits and related administrative costs estimated by the Secretary of HHS under new section 1839(g)(2)(C) of the Social Security Act to be necessary to pay for covered outpatient drugs in the next year. 
    Requires the Secretary of the Treasury in September of each year (beginning with 1991) to determine whether the amount of the supplemental premium attributable to the prescription drug factor estimated to be collectible (for taxable years beginning in calendar years after 1988 and before the previous calendar year) is greater or less than 25 percent of the total benefits and administrative costs paid for covered outpatient drugs. 
    If there is a surplus or deficit, the Secretary of the Treasury is required to adjust the prescription drug factor so as to reduce or increase, respectively, the aggregate amount of the additional premiums which are estimated to be collected by the amount of the surplus or deficit, taking into account the effect of any previous adjustments. 
    Provides that, notwithstanding the adjustment described above, the prescription drug factor for a year after 1990 cannot exceed 120 percent of such factor for the previous year. 
  (f) Maximum Supplemental Premium.--Provides that the maximum supplemental premium in 1988 is $580.  The Joint Committee on Taxation estimates that the maximum supplemental premium in future years would be:  for the taxable year beginning in 1989, $737;  in 1990, $842;  in 1991, $934;  and in 1992, $1,017. 
  (g) Joint Returns.--Provides that in the case of a joint return, the premium amounts according to the table are applied separately to each spouse, and the adjusted gross income of each spouse is one-half of their combined adjusted gross income. 
  (h) Coordination with Tax Code Provisions.-- 
    (1) Medical Expense Deduction.--Provides that the supplemental premium cannot be treated as a medical expense for purposes of section 213 of the Internal Revenue Code of 1986. 
    (2) Not Treated as a Tax for Certain Purposes.--Provides that the supplemental premium is not treated as a tax imposed by chapter 1 (income taxes) of the Internal Revenue Code of 1986 for purposes of determining the amount of any credit allowed **935 *157 under that chapter or the amount of the alternative minimum tax imposed by section 55. 
    (3) Treated as a Tax for Subtitle F.--Provides that the supplemental premium is treated as if it were an income tax for administrative purposes, such as estimated payments and collection. 
    (4) Section 15 Not to Apply.--Provides that section 15 (procedures for applying changes in tax rates) does not apply to the supplemental premium. 
  (i) Reporting Requirements.--Requires the Secretary of HHS to make a return to the Secretary of the Treasury (at such time and in such form as determined by the Secretary of the Treasury) stating the name, address, and taxpayer identification number of each individual entitled to Medicare Part A benefits for any month during the calendar year and the number of months so entitled. The provision does not apply with respect to those who pay a premium under section 1818 for Part A coverage, residents of U.S. commonwealths and territories paying a special Part B premium, and individuals enrolled under Part B but not entitled to benefits under Part A. 
  (j) Transfer to Trust Funds.--No provision. 
  Effective date.--Applies to taxable years beginning after December 31, 1987.

Senate amendment 

  (a) In General.--Amends the Social Security Act to require individuals covered by Medicare Part B to pay an annual income-related supplemental premium if their Federal tax liability for taxable years is not less than $150. 
  (b) Applicability.--Provides that any individual who is covered by Medicare Part B for any portion of any taxable year occurring after December 31, 1987, and who has Federal income tax liability for such taxable year in an amount not less than $150 must pay the applicable supplemental premium. 
  (c) Premium Amount.--Provides that the "applicable supplemental premium" equals the number of months in the taxable year during which the individual was covered by Part B, multiplied by the supplemental premium.  The "supplemental premium" is defined as the premium rate for the taxable year ($1.09 for the 1988 taxable year), multipled by the amount determined by dividing the individual's adjusted Federal income tax liability for the taxable year by $150. 
  If the latter amount is not a whole number, it is to be rounded to the next lowest whole number. 
  (d) Calculation for Governmental Retirees.--For purposes of calculating the supplemental premium, defines "Federal income tax liability" as the tax imposed by chapter 1 (income tax) of the Internal Revenue Code of 1986, reduced by credits allowed under part IV of subchapter A, excluding the following refundable credits:  Section 31 (wage withholding for income tax purposes); section 33 (tax withheld at source on nonresident aliens and foreign corporations);  and section 34 (certain uses of gasoline and special fuels). 
  For purposes of calculating the supplemental premium, defines "adjusted Federal income tax liability" as an amount equal to Federal*158 **936 income tax liability, reduced by the following amount.  The reduction is the excess (if any) of: 
    (1) 15 percent of the lesser of (a) the qualified Social Security exclusionary amount, or (b) the amount received as an annuity (whether for a period certain or during 1 or more lives) under a governmental plan which is includible in gross income under section 72 of the Internal Revenue Code of 1986, over 
    (2) the amount of credit allowed under the tax credit for the elderly and the permanently and totally disabled (section 22 of the Internal Revenue Code of 1986). 
  Defines "qualified Social Security exclusionary amount" as the excess (if any) of $6,000 ($9,000 in the case of married individuals filing a joint tax return) over the Social Security benefits (as defined in section 86(d) of the Internal Revenue Code of 1986) received during the taxable year.  For taxable years beginning after Dec. 31, 1988, the $6,000 and $9,000 amounts are increased from the previous year's amounts by the Social Security cost-of- living adjustment for the calendar year in which the taxable year begins. 
  (e) Premium Indexing.-- 
    (1) In General.--Provides that the premium rate for any taxable year  (beginning in a calendar year after 1988) is the previous year's rate, increased or decreased by (a) the premium rate adjustment used to index the monthly catastrophic coverage premium amount in years after 1988, and (b) the drug premium rate adjustment (for taxable years beginning in calendar years after 1989). 
    (2) Catastrophic Coverage Benefit.--The premium rate adjustment used to update the monthly catastrophic coverage premium amount is: 
	(a) the percentage (if any) necessary to increase the estimated total revenues collectable from the monthly catastrophic coverage premiums and the supplemental premiums (determined without regard to the drug premium rate adjustment amount) so that they equal the estimated total catastrophic coverage benefits and related administrative costs (including administrative costs for outpatient drug coverage), plus 
	(b) for calendar years before 1993, the percentage necessary to establish before 1993 a contingency fund equal to 20 percent or, if greater, a reserve fund equal to 5 percent. 
    (3) Prescription Drug Benefit.--Provides that the drug premium rate adjustment for taxable years beginning in a calendar year after 1989 is an amount equal to: 
	(a) 50 percent (60 percent for calendar year 1990 and 55 percent for calendar year 1991, as provided in Section 27 of the bill) of the modified per enrollee actuarial catastrophic drug benefit amount for that year plus 
	(b)(1) for any taxable year beginning in calendar year 1990, an amount necessary to cover 7.5 percent of the modified per enrollee actuarial catastrophic drug benefit amount for 1991, and 
	(2) for taxable years beginning in calendar years after 1990, an amount (when added to any unexpended amount determined for any preceding year) necessary to cover 7.5 **937 *159 percent of the modified per enrollee actuarial catastrophic drug benefit amount for the calendar year. 
  Defines "modified per enrollee actuarial catastrophic drug benefit amount" to mean (a) the total catastrophic drug coverage benefits and related administrative costs estimated to be paid in cash outlays from the Federal Catastrophic Drug Insurance Trust Fund divided by the total number of individuals estimated to be enrolled under Part B for the year, or (b) the reestimated per enrollee actuarial catastrophic drug benefit amount that reflects any adjustment the Secretary may make to the drug coverage benefit because the drug benefit premium amount was determined to exceed the premium limit for that year. 
  (f) Maximum Supplemental Premium.--Provides that the applicable supplemental premium for any individual cannot exceed the number of months in the taxable year the individual was covered by Part B divided by 12, multiplied by the appropriate amount, as follows:  for the taxable year beginning in 1988, $800; in 1989, $850;  in 1990, $900;  in 1991, $950;  and in 1992, $1,000. 
  For taxable years beginning in a calendar year after 1992, the applicable supplemental premium cannot exceed 65 percent of the product of the number of months in the taxable year the individual was covered by Part B, multiplied by the excess of: 
    (a) the sum of (1) 200 percent of the monthly actuarial basic rate for Part B enrollees age 65 and over (i.e., 200 percent of one-half of the benefit and administrative costs, including a contingency margin, payable for the aged from the Part B trust fund for Part B costs excluding the catastrophic coverage), plus (2) the monthly per enrollee actuarial comprehensive catastrophic benefit amount (i.e., the estimated monthly catastrophic coverage benefits and related administrative costs payable from the Federal Catastrophic Health Insurance Trust Fund divided by the estimated number of Part B enrollees) for the calendar year, over 
    (b) the sum of the basic and catastrophic monthly premiums for the year, determined without regard to current and new certain hold harmless provisions (which provide limits to any increases in the Part B and catastrophic premiums based on cost-of-living increases in Social Security benefits). 
  (g) Joint Returns.--Provides that for married individuals (as defined in section 7703 of the Internal Revenue Code of 1986), the supplemental premium is determined by treating such individuals as one individual if they:  (1) file a joint return (under section 6013 of such Code) and (2) one or both of them are covered by Part B for any portion of the taxable year and have Federal income tax liability of not less than $150.  The number of months of Part B coverage is determined according to the spouse covered for the longer period during the taxable year.  When married individuals are treated as one individual in order to calculate the supplemental premium, the limit on such premium equals the sum of the limits computed separately for each spouse. 
  (h) Coordination With Tax Code Provisions.-- 
    (1) Medical Expense Deduction.--Provides that the supplemental premium is treated as a premium paid under Medicare **938 *160 Part B in the taxable year following the taxable year to which the premium relates for purposes of section 213(d)(1)(C) of the Internal Revenue Code of 1986. 
    (2) Not Treated as a Tax for Certain Purposes.--Similar provision. 
    (3) Treated as a Tax for Subtitle F.--Similar provision. 
    (4) Section 15 Not to Apply.--Similar provision. 
  (i) Reporting Requirements.--Requires that the Secretary of HHSA include on the current return to the Secretary of the Treasury relating to Social Security benefits, the number of months any individual is covered under Medicare Part B for the calendar year.  Requires the Secretary of HHS to include on the statements sent to Social Security beneficiaries information on the name of the agency making the determination and the number of months of coverage under Medicare Part B. 
  (j) Transfer to Trust Funds.--Requires the Secretary of the Treasury, from time to time, to transfer from the general fund of the Treasury to the Federal Catastrophic Health Insurance Trust Fund amounts equal to the aggregate monthly supplemental premiums paid (excluding the drug premium rate adjustment), plus the amount the Secretary of the Treasury estimates Federal outlays are reduced under the Medicaid program because of the catastrophic provisions of this bill (after taking into account the provisions of Section 14 of the bill related to Medicaid savings and State requirements).  Such transfers are to be appropriately adjusted to the extent that prior transfers were in excess of or less than amounts required to be transferred. 
  Also requires the Secretary of the Treasury, from time to time, to transfer from the general fund of the Treasury to the Federal Catastrophic Drug Insurance Trust Fund amounts equal to the aggregate drug premium rate adjustment paid, adjusted to the extent that prior transfers were in excess of less than the amounts required to be transferred. 
  Effective date.--Applies to taxable years ending after December 31, 1987.  The supplemental premium rate for any taxable year beginning before 1988 and ending after December 31, 1987, is the rate applicable to 1987.

Conference agreement 

  (a) In General.--Under the conference agreement, medicare Part A eligible individuals are required to pay a new tax-related supplemental premium.  The supplemental premium is intended to provide approximately 63 percent of catastrophic coverage and prescription drug benefit financing on a calendar year liability basis, with flat monthly premiums financing the remaining 37 percent (subject to limitations on increases and decreases in the supplemental premium, described below). 
  The supplemental premium is drafted in the tax Code, collected with income tax payments, and after 1989 subject to income tax estimated payments. Medicare Part A eligible individuals with less than $150 of income tax liability are exempt from the supplemental premium. 
  To reduce confusion among beneficiaries, the conferees intend that the Secretary of the Treasury is to (1) implement the supplemental*161 **939 premium in an easy to understand manner (including the use of premium tables in lieu of taxpayer calculations, and separate tables as necessary for government retirees), (2) identify the supplemental premium on the applicable forms, worksheets, tables, and instructions as a premium to pay for a portion of the cost of new medicare catastrophic and prescription drug coverage, and (3) seek comments and advice from medicare enrollees and their representatives regarding the design of such forms, worksheets, tables, and instructions. 
  (b) Applicability.--The definition of medicare Part A eligible individuals generally follows the House bill, except that no special proration rule is provided for residents of U.S. commonwealths and territories.  Residents of U.S. commonwealths and territories who do not have U.S. income tax liability are not subject to the supplemental premium.  An individual is liable for the supplemental premium if such individual is medicare Part A eligible for more than 6 full months during the taxable year and has $150 or more of adjusted U.S. source income tax liability. 
  Unlike the House bill, individuals who attain the age of 65 during the taxable year are not presumed to be medicare eligible for the purposes of paying the supplemental premium.  The conferees intend that the Internal Revenue Service will inform taxpayers that they are liable for the supplemental premium if they are eligible for Part A of Medicare even if they have not actually enrolled. 
  (c) Premium Amount.--For taxable years beginning before 1994, the supplemental premium rate is the sum of the catastrophic coverage and prescription drug premium rates shown below:

                       SUPPLEMENTAL PREMIUM RATES, 1989-93                      
               [Per $150 of adjusted Federal income tax liability]              
 -------------------------------------------------------------------------------
                          Catastrophic        Prescription    Total supplemental
                         coverage premium     drug premium       premium rate   
                              rate                rate                          
 -------------------------------------------------------------------------------
 Year in which                                                                  
   taxable year                                                                 
   begins:                                                                      
   1989 ........................... $22.50                $0              $22.50
   1990 ............................ 27.14             10.36               37.50
   1991 ............................ 30.17              8.83               39.00
   1992 ............................ 30.55              9.95               40.50
   1993 ............................ 29.55             12.45               42.00
 -------------------------------------------------------------------------------
  
   The supplemental premium is to be determined under tables (similar to the income tax tables) prescribed by the Secretary of the Treasury which may provide income tax liability brackets of less than $150. 
  For purposes of computing the supplemental premium, adjusted Federal income tax liability is defined as under the Senate amendment. 
  The conferees have determined these premium rates to raise sufficient revenue with reference to the tax rates and other important features of the tax Code that determine the liability of the medicare Part A eligible population.  The conferees intend that if tax rates or these features are changed in future legislation, the premium rates should be recalibrated. 
  **940 *162 (d) Calculation for Government Retirees.--The Conference agreement generally follows the Senate amendment with changes designed to conform the adjustment for government retirees with the computation of the credit for the elderly and disabled.  For government retirees, tax liability is adjusted by subtracting 15 percent of the excess (if any) of (1) the lesser of (i) $6,000 ($9,000 in the case of a joint return where both spouses are medicare eligible for more than 6 full months, and $4,500 for married individuals filing separate returns), or (ii) government annuities includible in gross income during the taxable year, the lower quantity then reduced by social security benefits received during the taxable year;  over (2) the credit for the elderly and disabled allowable for the taxable year.  After 1989, the $4,500, $6,000 and $9,000 amounts are increased by social security cost-of- living adjustments ("COLAs") determined for calendar years after 1989, and rounded to the nearest multiple of $50. 
  In the case of a joint return where only one spouse is medicare eligible for more than 6 full months during the taxable year, only government annuities attributable to such spouse are taken into account for purposes of the adjustment for government retirees.  In the case of a married individual filing a separate return, such individual shall be treated as receiving not less than half of the social security benefits received by both spouses. 
  (e) Premium Indexing.--(1) In general.  The method of indexing the supplemental catastrophic coverage and prescription drug premiums was selected by the conferees (1) to assure that premium receipts will be sufficient to pay for all catastrophic coverage and prescription drug benefits (i.e., budget neutrality), and (2) to minimize the Treasury Secretary's discretion over the adjustment of supplemental premium rates. 
  The indexing formula minimizes discretion by using information on prior year program costs and receipts, rather than subjective projections, and by limiting the amount by which the supplemental premium can be increased in any year. 
  The indexing mechanism seeks to assure budget neutrality by several means: (1) prescription drug outlays may only be made from a new Federal Catastrophic Drug Insurance Trust Fund which is entirely financed by monthly and supplemental prescription drug premiums (and interest on fund balances);  (2) monthly and supplemental catastrophic coverage premiums are increased to recoup with interest shortfalls in prior years (monthly premiums are increased to make up for any limitation on the increase in the supplemental premium);  and (3) a contingency margin of at lest 20 percent is built into catastrophic coverage and prescription drug premiums. 
  For taxable years beginning after 1993, the supplemental premium rate is the sum of the adjusted catastrophic coverage premium rate and the adjusted prescription drug premium rate, subject to two limitations.  The supplemental premium rate may not (1) be less than the rate in effect for the preceding year;  and (2) be more than $1.50 per $150 of tax liability higher than the rate in effect for the preceding year.  If either of these two limitations are applicable, the supplemental premium rate is allocated between the catastrophic coverage and prescription drug premium rates in proportion *163 **941 to the respective amounts of these premium rates without regard to the limitations. 
  (2) Catastrophic coverage premium.--The adjusted catastrophic coverage premium rate for any calendar year after 1993 is equal to the rate for the preceding calendar year, without regard to the two limitations on the supplemental premium described above in any prior year, adjusted by a percentage equal to the sum of the outlay-premium and reserve account percentages. 
  The outlay-premium percentage is designed to index the supplemental catastrophic coverage premium rate by the difference between the projected growth rates of catastrophic coverage outlays and premiums.  For years after 1993, the growth in outlays and premiums is projected by a formula which uses data available for the second and third preceding years, plus more recent information on trends in the consumer price index. 
  The outlay-premium percentage for any calendar year is (1) the percentage change in per capita catastrophic outlays from the third to the second preceding calendar year;  minus (2) the percentage change in per capita catastrophic coverage premium liability from the third to the second preceding calendar year (determined as if the supplemental premium rate had not changed from the third to the second preceding year). 
  The per capita catastrophic outlay for any calendar year, as determined by the Secretary of HHS, is equal to outlays debited from the Medicare Catastrophic Coverage Account (the "Account," see section 17, below) for such year, divided by the average number of individuals entitled to receive Part A benefits during such year. 
  The per capita catastrophic coverage premium liability for any calendar year, as determined by the Secretary of the Treasury, is equal to supplemental premium liability attributable to the catastrophic coverage premium for taxable years beginning in such year, divided by the number of individuals who had premium liability for taxable years beginning in such year. 
  The outlay-premium percentage, described above, is adjusted up (or down) by 50 percent of the amount by which the consumer price index ("CPI") inflation rate in the second preceding year exceeds (or is less than) one percentage point. 
  The CPI inflation rate for any year is defined as the percentage by which the CPI for May of such year exceeds such index for May of the preceding year.  The CPI means the last CPI for all-urban consumers published by the Department of Labor, which is most consistent with the CPI for calendar year 1986. 
  The reserve account percentage is designed to adjust the supplemental catastrophic coverage premium rate to recoup 63 percent of any cumulative shortfall or deficit in the catastrophic coverage program (the other 37 percent is recouped by a corresponding adjustment in the flat premium).  For years after 1993, the shortfall or surplus in the catastrophic coverage program is determined from data available for the second proceeding year. 
  The reserve account percentage for any calendar year is the ratio of (1) the change in the catastrophic coverage premium rate for the second preceding year which the Secretary determines would have increased (or decreased) supplemental premium liability for such year by an amount equal to 63 percent of the shortfall (or surplus) **942 *164 in the Account in such year, over (2) the catastrophic coverage premium rate for the preceding calendar year, without regard to the two limitations on the supplemental premium described above. 
  The shortfall (or surplus) in the Account for any calendar year is determined as (1) 20 percent of catastrophic outlays debited against the Account;  minus (2) the Account balance at the end of such year (including flat and supplemental premium increase amounts attributable to reserve account percentages in prior years that have not yet been credited to the account. 
  (3) Prescription Drug Premium.--The adjusted prescription drug premium rate for any calendar year after 1993 is equal to the rate for the preceding calendar year, without regard to the two limitations, described above, which may have applied to the supplemental premium for any prior year, adjusted by a percentage determined in a manner similar to the catastrophic coverage premium, with the following changes:  (1) in determining the premium-outlay percentage, prescription drug outlays rather than catastrophic outlays are used;  (2) in determining the reserve account percentage, the Federal Catastrophic Drug Insurance Trust Fund balance (see section 16, below) is used rather than the Account balance;  (3) the reserve account percentage is 75 percent for 1994, 50 percent for 1995, and 25 percent for 1996 and 1997, instead of 20 percent; and (4) the outlay-premium percentage is deemed to be zero for calendar years before 1998. 
  For calendar years after 1992 the following procedure is to be followed for announcing supplemental premium rate changes.  The Secretary of the Treasury shall:  (1) not later than July 1, announce the preliminary increase in the supplemental premium for the following year;  and (2) not later than October 1, announce the actual supplemental premium rates for the following year.  (For additional detail see sections 16 and 17, below). 
  (f) Maximum Supplemental Premium.--For taxable years beginning before 1994, the maximum supplemental premium for an individual filing a single return is $800 in 1989, $850 in 1990, $900 in 1991, $950 in 1992, and $1050 in 1993. 
  For calendar years after 1993, the maximum supplemental premium is equal to such maximum in the preceding year (before rounding) increased by the percentage (if any) by which the medicare-part B value for the second preceding year exceeds such value for the third preceding year.  The maximum supplemental premium is rounded to the nearest multiple of $50.  The conferees designed the formula to maintain the maximum supplemental premium as a constant fraction of the value of Part B benefits not paid for by monthly premiums. 
  The medicare-part B value for any calendar year is defined as the excess of per capita Part B outlays the year over 12 times the generally applicable monthly Part B premium for months in such calendar year.  Per capita Part B outlays are outlays from Part B of title XVIII of the Social Security Act divided by the average number of individuals covered under such part during the year.  In computing the maximum supplemental premium for years before 1988, the medicare-Part B value is computed by excluding outlays and monthly premiums for covered outpatient drugs. 
  **943 *165 (g) Joint and Separate Returns.--(1) Joint returns.--In the case of a joint return where both spouses are medicare Part A eligible for more than 6 full months during the taxable year, such spouses are treated as a single individual, except that the maximum supplemental premium is twice the amount that applies for single returns. 
  In the case of a joint return where only one spouse is medicare eligible for more than 6 full months during the taxable year, income tax liability for the medicare-eligible spouse is determined as one-half of the tax liability of the joint return. 
  (2) Separate Returns.--In the case of a married individual filing a separate return who did not live apart from his or her spouse at all times during the taxable year, such individual is treated as medicare Part A eligible for 6 full months during the taxable year if the individual or the individual's spouse was so eligible.  In addition, the maximum supplemental premium is twice the amount that applies for single returns if, without regard to this provision, both spouses are Medicare Part A eligible for 6 full months during the taxable year. 
  These rules are intended to prevent the supplemental premium from creating an incentive for separate filing. 
  (h) Coordination with Tax Code Provisions.--(1) Medical expense deduction.-- As under the House bill, the supplemental premium is not deductible as an itemized medical expense. 
  (2) Not treated as a tax for certain purposes.--As under the House bill and the Senate amendment, the supplemental premium is not treated as an income tax for purposes of determining the amount of any tax credit or the amount of the alternative minimum tax.  Revenues from the supplemental premium are not covered over to any possession of the United States, and the supplemental premium is not automatically reflected in the tax laws of territories that "mirror" the U.S. tax Code.  In the case of a taxable years of less than 12 months, the supplemental premium shall be applied under regulations prescribed by the Secretary. 
  (3) Treated as a Tax for Subtitle F.--The supplemental premium generally is treated as if it were an income tax for administrative purposes, such as estimated payment and collection.  The conference agreement provides that estimated tax penalties do not apply with respect to supplemental premium liability for taxable years beginning in 1989.  The conferees intend that the Internal Revenue Service will where appropriate exercise its discretion to provide relief from estimated tax penalties in the first year in which an individual becomes liable for the supplemental premium (similar relief already is provided for newly retired or disabled individuals in sec. 6654(e)(3)(B)). 
  (4) Section 15 not to Apply.--The supplemental premium is not treated as a change in income tax rate. 
  (i) Reporting Requirements.--The Secretary of HHS shall include in the existing return to the Secretary of the Treasury relating to social security benefits, a determination of whether any individual was medicare Part A eligible for more than 6 full months during the year.  The Secretary of HHS is to include the same information on the statements sent to social security and railroad retirement **944 *166 beneficiaries, as well as the name of the agency which determines medicare eligibility. 
  The Secretary of HHS may provide such additional information to the Secretary of the Treasury as is required to assure compliance with the supplemental premium. 
  (j) Transfer to Trust Funds.--Receipts attributable to the supplemental prescription drug premium rate are appropriated to the CDI trust fund.  The Secretary of the Treasury is to transfer these appropriated amounts from the general fund to the CDI trust fund not less frequently than monthly, and at the close of the calendar year, determined on the basis of estimates;  adjustments are made in subsequent transfers to take account of estimating errors.  For individuals paying the maximum supplemental premium, receipts are allocated between the supplemental prescription drug and catastrophic coverage premiums pro rata on the basis of the respective premium rates. 
  Receipts attributable to the supplemental catastrophic coverage premium rate, which are not otherwise appropriated to the Federal Hospital Insurance Catastrophic Coverage Reserve Fund (the "Reserve Fund") are appropriated to the SMI trust fund.  The Secretary of the Treasury is to transfer these appropriated amounts from the general fund to the SMI trust fund not less frequently than monthly, and at the close of the calendar year, determined on the basis of estimates;  adjustments are made in subsequent transfers to take account of estimating errors.  For individuals paying the maximum supplemental premium, receipts are allocated between the supplemental prescription drug and catastrophic coverage premiums pro rata on the basis of the respective premium rates. 
  Effective date.--The supplemental premium is effective for taxable years beginning after December 31, 1988.

8. Delay in Organ Procurement Requirements (Section 26 of Senate amendment)

Present law 

  The Omnibus Budget Reconciliation Act of 1986 provided that Medicare payments for organ procurement would not be made unless:  (a) the organ procurement agency involved met specified requirements and was designated by the Secretary as the sole procurement agency in its service area, and (b) hospitals establish protocols for making a routine inquiry for organ donation by potential donors, and are members of the National Organ Procurement and Transplantation Network. 
  Under the Omnibus Budget Reconciliation Act of 1986, these provisions were to be effective as of October 1, 1987.  The Balanced Budget and Emergency Deficit Control Reaffirmation Act of 1987 changed this effective date to November 21, 1987.  The Omnibus Budget Reconciliation Act of 1987 extends the effective date for item (a) to March 31, 1988.

House bill 

  No provision.

**945 *167 Senate amendment 

  Extends to December 31, 1988, the date by which the Secretary must complete the organ procurement agency designation process, the effective date of the requirements for hospital protocols for organ procurement, and the effective date for requiring hospitals to be members of the National Organ Procurement Network. 
  Effective date.--Enactment.

Conference agreement 

  The conference agreement does not include the Senate provision.  The conferees note that a related provision was included in the Omnibus Budget Reconciliation Act of 1987.

9. Limitation on Medicare Out-of-Pocket Expenses (Section 201 of House bill; 
Sections 4 and 29 of Senate amendment)

Present law 

  Under current law, beneficiaries are liable for specified cost-sharing charges, in form of deductibles and coinsurance amounts, in connection with their use of inpatient hospital, skilled nursing facility, and hospice services, and blood under Part A. 
  Beneficiaries enrolling in Part B are required to pay a monthly premium.  The program generally pays 80 percent of the reasonable charge for physicians and other covered medical services (including immunosuppressive drugs furnished within one year of a covered organ transplant) after the beneficiary has met the $75 deductible.  The beneficiary is liable for the remaining 20 percent of the reasonable charge (coinsurance).  In addition, where a physician does not accept assignment (i.e., does not agree to accept Medicare's determination of reasonable charge amount as payment in full for covered services), the beneficiary is liable for the difference between Medicare's reasonable charge and the physician's actual charge (the "balance billed amount").  The beneficiary is also liable for a separate Part B deductible. 
  There is no upper limit on the amount of cost-sharing charges beneficiaries are required to pay in connection with covered Medicare services.

House bill 

  (a) In General.--Establishes an annual limit on beneficiary out-of-pocket expenses (not including balance billed amounts) for covered part B services. 
  (b) Payment When Limit Has Been Reached.--Provides that if an individual has incurred out-of-pocket Part B expenses in a calendar year (beginning in 1989) equal to the Part B catastrophic limit for that year, the program will pay 100 percent of Part B reasonable charges (or costs) for covered Part B services (including physicians' services, ambulatory surgical center services, and dialysis services).  In addition, after the beneficiary has reached the limit, no further blood deductible is required. 
  (c) Expenses Counting Toward the Catastrophic Limit.--Specifies that the following beneficiary expenses count toward the catastrophic limit: 
    **946 *168 (1) the Part B deductible, and blood deductible; 
    (2) Part B coinsurance charges;  and 
    (3) a maximum of $250 in covered outpatient mental health expenses. 
  (d) Catastrophic Limit.--Specifies that the Part B catastrophic limit for 1989 is $1,043.  The limit for any succeeding year is the limit for the preceding year increased by the Social Security cost-of-living adjustment (COLA), rounded to the nearest dollar.  The Secretary is required to promulgate the Part B catastrophic limit by November 15 of each year (beginning with 1988) that will be in effect for the following year. 
  (e) Payments to Prepaid Health Plans Paid on a Reasonable Cost Basis.-- Requires the Secretary to provide for an appropriate adjustment to payment rates for prepaid health plans paid on a reasonable cost basis to reflect the new catastrophic protection.  The adjustment is to reflect:  (1) the aggregate increase in payments which would otherwise be made for enrollees if they were not enrolled in the organization;  or (2) the amount that would be paid to the organization or a facility if payments were made on an individual by individual basis.  The organization is required to provide assurances, satisfactory to the Secretary, that it will not undertake to charge an individual during a year for covered services after the individual has reached the catastrophic limit (whether through the organization facility, or otherwise).  [See Item 19(b) ] 
  (f) Limitation on Charges When Catastrophic Limit Reached.--Specifies that providers (i.e., hospitals, skilled nursing facilities, comprehensive outpatient rehabilitation facilities, home health agencies, or hospice programs) with agreements with the Medicare program may not charge beneficiaries for services for which catastrophic benefit payments are made to the provider. 
  (g) Notice for Beneficiaries Reaching Catastrophic Limit.--Requires Medicare carriers to provide individuals, who have incurred sufficient out-of-pocket expenses, to qualify for catastrophic benefits, with a notice in a form appropriate for presentation to a physician.  The notice is to:  (1) state that the individual has reached the Part B catastrophic limit for the year;  and (2) encourage the physician not to charge the individual amounts in excess of Medicare's reasonable charge and to accept payment on an assignment related basis for the remainder of the year. 
  (h) No provision. 
  Effective Date.--Enactment (applies to items and services furnished after December 31, 1988).

Senate amendment 

  (a) In General.--Establishes an annual limit on beneficiary out-of-pocket expenses (not including balance billed amounts) for covered Part A and B services and entitles a Part B beneficiary to have payment made to him or on his behalf for specific catastrophic medical expenses. 
  (b) Payment When Limit Has Been Reached.--Provides for payment of 100 percent of catastrophic medical expenses.  "Catastrophic medical expenses" are defined with respect to an individual for a calendar year (beginning with 1988) as any beneficiary cost sharing amounts incurred by an individual after the individual has incurred *169 **947 specific out-of-pocket medical expenses equal to the catastrophic limit.  The program will pay beneficiary cost sharing amounts for:  (1) the hospital deductible, SNF coinsurance charges, hospice coinsurance charges, and the Part A blood deductible;  (2) the Part B deductible and Part B blood deductible;  and (3) Part B coinsurance charges. 
  (c) Expenses Counting Toward the Catastrophic Limit.--Specifies that the following beneficiary expenses count toward the catastrophic limit: 
    (1) the Part A hospital deductible, SNF coinsurance charges, hospice coinsurance charges, and blood deductible; 
    (2) the Part B deductible and blood deductible; 
    (3) Part B coinsurance charges; 
    (4) amounts expended for qualified services for the prevention of illness or injury.  A service meets this definition if: 
	(A) The service is one of the following:  glaucoma screening by tonometry, cholesterol screening, a "Pap" test for detecting breast cancer, an immunization or booster for tetanus, influenza, or bacterial pneumonia, an occult blood stool test, or tuberculosis sensitivity testing; 
	(B) The service has not been provided to the beneficiary in the preceding 12 months;  and 
	(C) The service is provided incident to a comprehensive physical which is performed by a physician, which includes a full history and other specified components, and which meets such other requirements as the Secretary may prescribe, including requirements to ensure a comprehensive approach for preventive health services. 
  Requires the Secretary to establish guidelines for the described preventive services no later than January 1, 1989. 
  (d) Catastrophic Limit.--Specifies that the Medicare catastrophic limit is  $1,850 for 1988 and $2,030 for 1989.  The limit for any succeeding year is the limit for the preceding year increased by the percentage, as determined by the Secretary, which will ensure that the percentage of Part B eligibles (other than those enrolled in HMOs or CMPs) whose out-of-pocket costs are projected to exceed the limit during that year will be the same as the percentage whose costs exceeded the limit in 1989.  The Secretary is required to promulgate the limit by November 15 of each year (beginning with 1987) that will be in effect for the following year. 
  (e) Payments to Prepaid Health Plans Paid on a Reasonable Cost Basis.-- Similar provision.  Adjustments in payment rates are also applicable for renal dialysis facilities.  Assurances to the Secretary specify that the organization or facility will not charge the individual during a year for any catastrophic medical expense incurred during that year. 
  (f) Limitation on Charges When Catastrophic Limit is Reached.--Similar provision. 
  (g) Notice for Beneficiaries Reaching Catastrophic Limit.--No provision. 
  (h) Beneficiary Costs of Catastrophic Insurance.-- 
    (1) Findings.--States that the Senate finds that:  (A) Medicare catastrophic insurance will provide beneficiaries with important and far- reaching protection, greatly reducing out-of-pocket **948 *170 liability for those who incur high medical expenses;  (B) the new benefits will be financed through premiums collected from all beneficiaries;  (C) the Department has announced that the Part B premium will increase by 38.5 percent in January, 1988;  (D) Medicare beneficiaries already are liable for Medicare premiums equal to 2.9 percent of their median income;  and (E) it is the responsibility of Congress to ensure that the additional premiums for catastrophic coverage do not reach such levels as to unreasonably increase the out-of-pocket liability of Medicare beneficiaries. 
    (2) Sense of the Senate.--Expresses that it is the sense of the Senate that conferees take all necessary steps to ensure that cost controls on new benefits, particularly coverage of prescription drugs, are sufficient to protect program integrity, prevent escalation of costs, and reduce amounts required for premium financing.  In addition, it is the sense of the Senate that Senate conferees be instructed to take all feasible steps to minimize beneficiary costs by keeping premiums at the lowest possible level, ensuring that year-to-year premium increases are gradual and predictable, ensuring that the income related premiums do not unduly burden middle-income older Americans, and ensuring that the combined basic and supplemental premiums do not exceed the value of the program to beneficiaries. 
  Effective date.--(a)-(g) Applies to items and services furnished after December 31, 1987.  In determining whether an individual has incurred out-of- pocket medical expenses in 1988 equal to the catastrophic limit, only expenses incurred on or after July 1, 1988, are taken into account.  (h) Effective on enactment.

Conference agreement 

  (a) In General.--The conference agreement includes the House provision with an amendment. 
  (b) Payment When Limit Has Been Reached.--The conference agreement includes the House provision. 
  (c) Expenses Counting Toward the Catastrophic Limit.--The conference agreement includes the Senate amendment with a modification.  The agreement does not include expenses for Part A cost-sharing, or for preventive services in the calculation of expenses counting toward the catastrophic limit. 
  The conference agreement, in section 204, provides coverage of screening mammography (including associated professional and technical services) effective January 1, 1990, subject to frequency limitations, quality standards, and special payment rules. 
  The agreement provides coverage for a biennial screening mammography for women aged 65 and over.  For disabled women under age 65, a baseline screening would be available between age 35 and 40.  Between ages 40 and 49, screenings would be available every other year, except that screenings could be provided each year for high risk women.  Between ages 50 and 64 screenings could be provided on an annual basis. 
  The agreement requires the Secretary, in consultation with the Director of the National Cancer Institute, to review periodically the appropriate frequency for performing screening mammographies, based on age or other factors.  The Secretary, on the basis of this **949 *171 review, may revise the frequency for covered screenings performed on or after January 1, 1992. 
  The agreement requires the Secretary to establish standards to assure the safety and accuracy of screening mammographies.  The standards must include the following requirements:  (i) the equipment used must be specifically designed for mammography and must meet radiologic standards established by the Secretary;  (ii) the screening must be performed by an individual who is either licensed by the State to perform radiologic procedures or is certified as qualified to perform such procedures by an appropriate organization recognized by the Secretary;  (iii) the results of the mammography must be interpreted by a physician who either is certified by the American Board of Radiology or is otherwise certified by a program recognized by the Secretary by regulation as assuring that the physician is qualified to interpret the results of screening mammography;  and (iv) there must be assurances that the results of the first screening paid for by Medicare will be placed in permanent medical records maintained for the woman. 
  The conferees understand that a bilateral four-view procedure is currently considered to be the standard of care in the United States for screening mammography.  The conferees therefore anticipate that this would be initially included in the quality standards to be developed by the Secretary as a requirement for coverage, subject to change with new technology and additional medical information.  The conferees also note that the reimbursement level provided for under this provision is premised on the understanding that a four-view procedure would be provided. 
  State survey and certification agencies and private accreditation programs  (if approved) could be used to verify compliance with required quality standards. 
  Payment would be 80% of the least of:  (i) the actual charge, (ii) the fee schedule allowance (with respect to both the professional and technical components of screening mammography) established under Section 1834(b) of the Social Security Act, or (iii) a reasonable charge limit.  The limit would be $50 in 1990 and would be indexed thereafter by the percent increase in the Medicare Economic Index (MEI). 
  Beginning January 1, 1992, the Secretary may reduce the reasonable charge limit, as it applies nationally or in an area, if the Secretary finds such action both appropriate and consistent with maintaining convenient access for beneficiaries to screening services. 
  The agreement provides for an appropriate allocation of the reasonable charge limit between professional and technical components in the case of hospital outpatient screening mammographies (and comparable situations) where there is a claim for professional services separate from the claim for associated technical services.  In these cases, payment for the technical component would be based on the allocated reasonable charge limit. 
  The agreement sets maximum allowable actual charge (MAAC) limits for screening mammographies performed by nonparticipating physicians.  These MAAC limits are based on the fee schedule established for radiologists under Section 1834(b) of the Act. 
  **950 *172 The MAAC limits are 125% of the reasonable charge limit in 1990, 120% of the reasonable charge limit in 1991, and 115% of the reasonable charge limit in 1991 and subsequent years.  The Secretary is empowered to impose sanctions against physicians or suppliers who knowingly and willfully impose charges in excess of the limits. 
  The MAAC limits would be in effect until such time as the Secretary implements a fee schedule for physicians' services based on the relative value scale mandated under Section 1845(e) of the Social Security Act. 
  The conferees are aware of concern that the $50 reasonable charge limit might limit the availability of mammography in physicians' offices even though the procedure may be available at clinics, hospital outpatient departments, and outpatient radiology facilities.  Accordingly, the conference agreement requires the Physician Payment Review Commission to study the cost of providing screening mammography in a variety of settings and at different volume levels. The report would be submitted to Congress by July 1, 1990. 
  Finally, the conference agreement requires GAO to conduct a study of the quality of screening mammography provided in clinics, hospital outpatient departments, and outpatient radiology facilities as compared with physician offices.  This report would also be due by July 1, 1990. 
  (d) Catastrophic Limit.--The conference agreement includes the Senate amendment with a modification.  The agreement sets the Part B catastrophic limit for 1990 at $1370.  The agreement requires the Secretary to set the limit for future years at an amount necessary to ensure that the percentage of Part B enrollees (not including enrollees in health maintenance organizations) whose expenses are expected to exceed the cap during that year is 7 percent. 
  The conference agreement requires the Secretary to promulgate, not later than September 1 of each year (beginning in 1990), the catastrophic limit which will be in effect for the following calendar year. 
  (e) Payments to Prepaid Health Plans Paid on a Reasonable Cost Basis.--The conference agreement includes the House provision, with amendments.  The provisions relating to charges for covered services after an individual has reached the catastrophic limit apply to organizations with a risksharing contract, as well as to those paid on a reasonable cost basis.  Different rules apply depending on whether the organization does or does not "buy out" Part B deductible and coinsurance charges for enrolled beneficiaries.  A plan is deemed to be a buy-out plan if the actuarial value of the coinsurance and deductible charges it imposes on enrollees for Part B services (other than for outpatient drugs) is less than 50 percent of the national average actuarial value of the Part B coinsurance and deductible for all Medicare beneficiaries. 
  In the case of a buy-out plan, actual cost-sharing amounts for Part B services incurred by a beneficiary while enrolled in the plan are not counted towards the catastrophic limit.  However, the enrollee is deemed to have incurred Part B cost-sharing expenses for each month of enrollment equal to the monthly national average actuarial value of Part B deductible and coinsurance amounts. 
  **951 *173 In the case of a plan than is not a buy-out plan, cost- sharing amounts for Part B services incurred by a beneficiary while enrolled in the plan are counted towards the catastrophic limit.  The plan may not enter into a Medicare contract or receive Medicare payment unless it provides assurance satisfactory to the Secretary that:  (i) it will maintain, in coordination with the appropriate Part B carriers, accounts of Part B cost- sharing expenses incurred by enrollees during each year, including out-of-plan services;  (ii) it will make the accounts available to an enrollee and to the carrier if an enrollee disenrolls during the year (or at any time, in the case of an organization paid under section 1833);  and (iii) it will not undertake to charge any enrollee for Part B services (other than outpatient drugs) after the enrollee has incurred cost-sharing expenses, whether through the organization or otherwise, equal to the catastrophic limit for the year. 
  The conferees expect that the Secretary, in establishing contracts with Part B carriers under section 1842, will require the carriers to provide information on expenses for out-of-plan services to the plans without charge. 
  If a beneficiary is enrolled in a plan which has its contract terminated by the Secretary during a year, no inpatient hospital deductible will be imposed on an individual who can demonstrate to the satisfaction of the Secretary that he or she was admitted to a hospital during the calendar year. 
  (f) Limitation on Charges When Catastrophic Limit Reached.--The conference agreement includes the Senate amendment. 
  (g) Notice for Beneficiaries Reaching Catastrophic Limit.--The conference agreement includes the House provision with a modification.  The required notice is to state that the individual has reached the Part B catastrophic limit for the year. 
  (h) Beneficiary Costs of Catastrophic Insurance.--The conference agreement does not include the Senate amendment.  The amendment expressed the sense of the Senate, and was duly passed by the Senate. 
  Effective date.--The conference agreement applies to items and services furnished on and after January 1, 1990.

10. Coverage of Catastrophic Expenses for Prescription Drugs (Section 202 of
House bill;  Sections 11 and 28 of Senate amendment)

Present law 

  Medicare generally does not cover outpatient prescription drugs which can be self-administered by the patient.  The program covers under Part B immunosuppressive drugs which are furnished within one year of an organ transplant covered by Medicare.

House bill 

  (a) In General.--Adds "covered outpatient drugs" to services included within the definition of "medical and other health services".  Defines a "covered outpatient drug" as one that is:  (1) approved for safety and effectiveness under the Federal Food, Drug, and Cosmetic Act, or, in the case of a drug which is a biological product, is licensed under the Public Health Service Act;  and (2) insulin certified *174 **952 under the Federal Food, Drug, and Cosmetic Act.  The term does not include any drug or insulin provided to an inpatient as part of inpatient hospital services, extended care services, or incident to physicians' services.  The term does not include immunosuppressive drugs which are furnished within 1 year of a covered organ transplant. 
  (b) Phase-In Coverage.--No provision. 
  (c) Deductible.-- 
    (1) Provides that expenses for covered outpatient drugs do not count toward the Part B deductible and that the Part B deductible is not applicable for covered outpatient drugs. 
    (2) Requires the individual, before the program makes payments for covered outpatient drugs, to establish that he has incurred (or has had paid in his behalf) expenses for covered outpatient drugs during the year equal to the drug deductible.  The Secretary is required, upon application by the individual, to promptly notify the individual (and, if submitted by or through a participating pharmacy, the pharmacy) as to whether he has met the deductible. 
    (3) Sets the deductible at $500 in 1989.  The increase in 1990 and 1991 is equal to the increase in the medical care component of the consumer price index (for the 1-year period ending the previous August).  In future years, it is increased by the percentage increase in the outpatient prescription drug index established by the Secretary.  The base point of the index is the prices of covered outpatient drugs as of August 1990.  In September of each year (beginning in 1991), the Secretary is to determine the percentage change for the preceding 12 months (rounded to the nearest dollar).  The Secretary is required to publish the deductible each year beginning in 1989. 
  (d) Adjustment in Deductible.--Provides for an adjustment if the Secretary's estimate of the additional Part B premium needed to finance the drug benefit indicates an increase of more than 20 percent over the previous year.  In this case, the Secretary would increase the deductible by an amount sufficient to reduce the costs of the program to the level that would be financed by a 20 percent premium increase.  (The premium is to cover 75 percent of total costs of the drug benefit;  see Item 15.) 
  (e) Authority to Reduce Deductible--No provision. 
  (f) Payment Amount.-- 
    (1) Specifies that, subject to the deductible, the amount paid with respect to a covered outpatient drug is equal to lesser of the actual charge or the applicable payment limit minus 20 percent of the actual charge.  The payment amounts are also applicable for payments for immunosuppressive drugs during the first year following a covered organ transplant. 
    (2) Specifies that the payment calculation periods are the 6-month periods beginning with January and July of each year. 
    (3) Requires the Secretary, (before each 6-month payment calculation period beginning on or after January 1, 1989), to provide information on payment limits to participating pharmacies and groups representing or assisting beneficiaries. 
    (4) Requires the Secretary to provide for an appropriate adjustment to payment rates for prepaid health plans paid on a **953 *175 reasonable cost basis to reflect the new catastrophic drug benefit.  The adjustment is to reflect:  (A) the aggregate increase in payments which would otherwise be made for enrollees if they were not enrolled in the organization;  or (B) the amount that would be paid to the organization or a facility if payments were made on an individual by individual basis.  The organization is required to provide assurances, satisfactory to the Secretary, that it will not undertake to charge an individual more than 20 percent of the reasonable cost plus any amount needed to satisfy the deductible. 
  (g) Payment Limits for Non-Multiple Source Drugs and Drugs With Restrictive Prescriptions.-- 
    (1) Provides that the payment limit for a drug which is either not a multiple source drug or a multiple source drug with a restrictive prescription is the sum of:  (A) the product of the number of dosage units or tablet units and the average per tablet or unit wholesale price;  plus (B) an administrative allowance. 
    (2) Requires the Secretary to determine (with respect to dispensing a covered outpatient drug in a payment calculation period beginning on or after January 1, 1989) the average per tablet or unit wholesale price based on the average wholesale price for purchases in reasonable quantities.  The determination is to be based on wholesale prices for the first day of the third month before the beginning of the payment calculation period.  The determination and calculation of the payment limits are to be made on a national basis, except that the determination and calculation may be done on a regional basis to take into account limitations in availability or variations in average wholesale prices for a drug product. 
    (3) Specifies that a drug has a restrictive prescription only if the prescription indicates, in the handwriting of the physician (or other person prescribing the drug), and with an appropriate phrase recognized by the Secretary, that the particular drug must be dispensed.  An appropriate phrase may be "brand medically necessary)." 
  (h) Payment Limit for Multiple Source Drugs Without Restrictive Prescriptions.-- 
    (1) Provides that the payment limit for a multiple source drug without a restrictive prescription is the sum of:  (A) the product of the number of tablets or dosage units and the unit limit, plus (B) the administrative allowance.  Specifies that the unit limit is 50 percent of the brand name reference price for the reference drug product for the period. 
    (2) Requires the Secretary to establish a brand name reference price for each reference drug product for each payment calculation period.  For the 6- month period beginning January 1, 1987, the brand name reference price for a drug product is the average per tablet or unit wholesale price (based on purchases of reasonable quantities) as of January 1, 1987. 
    Specifies that for each subsequent 6-month payment calculation period, the reference price is increased by the increase in the consumer price index (for the 6-month period ending in the third month of the previous calculation period). 
    **954 *176 Specifies that for a reference drug product which was not available on January 1, 1987, the base period is the first month of the first payment calculation period in which it is available. 
    Specifies that brand name reference prices are to be established on a national basis, except that the prices may be established on a regional basis to take into account limitations in availability or variations in the average wholesale price for a drug product. 
    (3) Defines a multiple source drug as a covered outpatient drug for which  (during the payment calculation period) there are 2 or more drug products which:  (A) are rated thereapeutically equivalent under the Food and Drug Administration's most recent publication of "Approved Drug Products With Therapeutic Equivalence Evaluations" which is available on the first day of the third month before the beginning of the period;  and (B) are sold or marketed during the period. 
    Specifies that a drug is considered as sold or marketed if it listed in the FDA publication unless the Secretary determines that the sale or marketing is not actually taking place. 
    (4) Defines a "reference drug period" as a multiple source drug in reference to which other drug products are rated as therapeutically equivalent in the FDA publication. 
  (i) Administrative Allowance.--Specifies that the administrative allowance is $4.50 for drugs dispensed in a payment calculation period beginning in 1989.  For each subsequent payment calculation period, the administrative allowance is increased by the percentage increase (if any) in the implicit price deflator for gross national product. 
  (j) Assuring Appropriate Utilization.-- 
    (1) Provides that the Secretary may provide that payment for covered outpatient drugs may not be made if they are prescribed or dispensed with excessive frequency or in excessive quantities.  The Secretary is required to establish a utilization review program for covered outpatient drugs to identify instances of unnecessary or inappropriate prescribing or dispensing practices and to identify quality of care problems. 
    (2) No provision. 
  (k) Treatment of Certain Prepaid Organizations.--Establishes rules with respect to prepaid organizations which do not impose charges on covered outpatient drugs.  For purposes of the drug provision, the actual charges of the organization are the organization's standard charges to members and other persons not entitled to drug benefits.  The standard charges are to be used for purposes of the drug deductible. 
  (l) Physician Guide.--Requires the Secretary to develop, and update annually an information guide for physicians on the comparative average wholesale prices of at least 500 of the most commonly prescribed covered outpatient prescription drugs.  To the extent practicable, the guide is to group drugs in a manner useful to physicians by therapeutic category or conditions for which they are prescribed.  The guide is to specify the wholesale prices on the basis of the amount required for a typical daily therapeutic regimen.  The Secretary is required to mail the guide by March 1 of each year (beginning in 1989) to each hospital with a provider **955 *177 agreement with Medicare and each physician who routinely provides Medicare services. 
  (m) Special Cost-control Measures.--No provision.  See Item 10(d) on adjustment in deductible for requirement that Secretary increase drug benefit deductible to prevent excessive increase in premiums. 
  (n) High Volume Pharmacies.--No provision. 
  (o) Report on Payment Limits.--Requires the Secretary to review the payment limits established for covered outpatient drugs and report to Congress by April 1, 1989, on the appropriateness of the limits, together with any recommendations for change. 
  (p) Report on Covered Outpatient Drug Index.--Requires the Secretary to report to Congress by January 1, 1991, on the covered outpatient drug index. 
  (q) Participating Pharmacies.-- 
    (1) Defines a participating pharmacy as one which is authorized under State law to dispense covered outpatient drugs and which has entered into an agreement with the Secretary.  Under the agreement, the entity agrees: 
	(A) Not to refuse to dispense covered outpatient drug items, stocked by the entity, to Medicare Part B beneficiaries and not to charge them more for such drugs than charged to the general public; 
	(B) To keep patient records (including records on expenses incurred by beneficiaries) for all covered outpatient drugs dispensed to beneficiaries; 
	(C) To assist beneficiaries in determining whether they have met the drug deductible including providing the necessary documentation; 
	(D) To provide, upon request of a beneficiary, a copy of his records to another participating pharmacy or Medicare carrier; 
	(E) To offer to counsel or offer to provide information to each beneficiary on the appropriate use of a dispensed drug and whether there are potential interactions between this drug and others dispensed to the beneficiary; 
	(F) To advise the beneficiary on the availability (consistent with State drug substitution laws) of therapeutically equivalent covered outpatient prescription drugs;  and 
	(G) To submit, effective January 1, 1992, all claims requests electronically, except this requirement may be waived by the Secretary in cases of undue hardship. 
  Pharmacies operated by prepaid organizations for the exclusive benefit of its members are not required to dispense covered outpatient drugs to nonmembers. 
    (2) Requires the Secretary to provide each participating pharmacy with a distinctive emblem and, before each payment calculation period, information on payment limits established under the drug benefit. 
    (3) Requires the Secretary to provide for periodic audits of participating pharmacies to insure that they do not impose charges on beneficiaries in excess of those charged to the general public. 
    **956 *178 (4) Payments for covered outpatient drugs may only be made on an assignment basis in the case of participating pharmacies. 
  (r) Civil Monetary Penalty.--No provision. 
  (s) Limitation to 60 Day Prescription.--Prohibits Part B payments for covered outpatient drugs if dispensed in excess of a 60-day supply. 
  (t) Additional Premium for Prescription Drug Benefit.--Refers to section 106(a) of the bill.  (See Item 15.) 
  (u) Use of Carriers in Administration.-- 
    (1) Requires carriers making determinations or payments with respect to covered outpatient drugs to:  (A) offer to receive payment requests electronically;  and (B) respond to requests by participating pharmacies as to whether an individual has met the deductible.  The Secretary may enter into agreements for processing of drug claims on a regional basis. 
    (2) No provision. 
  (v) Modification of HMO/CMP Provisions.-- 
    (1) Requires HMOs and CMPs with Medicare risk sharing contracts to take into account drug expenses incurred in a year by individuals who enroll after January 1 of a year. 
    (2) No provision. 
    (3) No provision. 
  (w) Medicaid Requirements.--See Item 33. 
  (x) Beneficiary Drug Cost Survey and CBO Report.-- 
    (1) Requires the Secretary to conduct a statistically valid survey, and report to Congress by March 1, 1989, on expenses incurred by beneficiaries for covered outpatient drugs.  The Secretary is required to consult with the General Accounting Office (GAO) and the Congressional Budget Office (CBO) concerning survey design.  The survey is to provide information on the distribution of expenses for covered outpatient drugs for Medicare beneficiaries generally and the distribution of expenses by age, sex, income, and institutional status. 
    (2) Requires the CBO (within 2 months of submission of the report) to estimate Medicare expenditures for fiscal year 1990-93 for covered outpatient drugs. 
    (3) No provision. 
  (y) Prescription Drug Payment Review Commission.--Requires the Director of the Office of Technology Assessment (OTA) to provide for the appointment of a Prescription Drug Payment Review Commission to be composed of individuals with expertise in the provision and financing of covered outpatient prescription drugs.  The Director of OTA shall appoint the 11 Commission members by October 1, 1988, for staggered 3-year terms.  The membership must include recognized experts in health care economics, medicine, pharmacology, pharmacy, and prescription drug reimbursement, as well as one Medicare beneficiary.  The Commission is required to make annual recommendations to the Secretary. 
  (z) Additional Studies.-- 
    (1) Requires the Secretary to conduct studies on: 
	(A) Extent of private or other third-party drug coverage for beneficiaries; 
	(B) Comparison of published average wholesale price and actual pharmacy acquisition costs by type of pharmacy; 
	**957 *179 (C) Overhead costs of retail pharmacies; 
	(D) Potential application of new claims processing and billing technologies; 
	(E) Methods for utilization review; 
	(F) Alternative payment methodologies that promote greater program efficiencies;  and 
	(G) Potential for induced demand resulting from the drug benefit. 
    (2) Requires the Secretary, as part of the studies, to conduct a longitudinal study on the use of covered outpatient drugs by beneficiaries with respect to medical necessity, potential for adverse drug interactions, and patient stockpiling or wastage.  The Secretary is required to report to Congress on the results of the studies by January 1, 1991. 
    (3) No provision. 
  (aa) Study of Treatment of Prescription Drugs.--No provision. 
  (bb) Simplification of Recordkeeping.--No provision. 
  Effective date.--Applies to drugs dispensed on or after January 1, 1989.  (u) and (y) effective on enactment.  (v) applies to new enrollments effected on or after January 1, 1989.

Senate amendment 

  (a) In General.--Adds "covered outpatient drugs" to services included within the definition of "medical and other health services".  Defines a covered outpatient drug as one which is:  (1) approved for safety and effectiveness under the Federal Food, Drug, and Cosmetic Act, or is recognized in the "United States Pharmacopoeia" (and is available only under a prescription);  or (2) in the case of a prescription drug which is a biological product, is licensed under the Public Health Service Act.  The term does not include any drug or biological which would have been paid for under Medicare prior to enactment of this law.  The term does not include immunosuppressive drugs which are furnished during the first year following a covered transplant. 
  (b) Phase-In Coverage.-- 
    (1) Specifies that in 1990, the term covered outpatient drug includes a drug which is an intraveneously administered anti-infective agent, a cancer chemotherapeutic agent (including a drug used to enhance the safety and efficacy or counteract the toxicity of anticancer drugs) or immunosuppressive drugs after the first year following a covered organ transplant. 
    (2) Specifies that in 1991 and 1992, the term covered outpatient drug includes drugs specified under item (1) and any cardiovascular or diuretic drug. 
  (c) Deductible.-- 
    (1) Similar provision. 
    (2) Identical provision. 
    (3) Sets the deductible at $600 in 1990.  In subsequent years, it is increased by the percentage by which the Part B beneficiary drug expenditure amount for the 12-month period ending the previous August exceeds such amount for the preceding 12 months (rounded to the nearest dollar).  [See Item 15 below for definition of beneficiary drug expenditure amount.]  The Secre **958 *180 tary is required to publish each September (beginning in 1990) the deductible for the following year. 
  (d) Adjustment in Deductible.--No provision. 
  (e)to Reduce Deductible.--Provides that if the Secretary determines there is sufficient revenue to pay all of the benefits and administrative costs, and to provide an adequate contingency margin (as determined by the Secretary), the Secretary may reduce the deductible amount to $500 in 1991, $400 in 1992, and $300 in 1 993. 
  (f) Payment Amount.-- 
    (1) Similar provision, except specifies that the applicable payment limit is subject to reductions applied to high volume pharmacies. 
    (2) Specifies that the payment calculation period is the 12-month period beginning every January (after 1989). 
    (3) Similar provision except:  (A) applies to payment calculation periods beginning on or after January 1, 1990;  and (B) also requires provision of information on any reductions applied for high volume pharmacies. 
    (4) Permits a prepaid health plan paid on a reasonable cost basis to elect to be paid 80 percent of the reasonable cost of immunosuppressive and covered outpatient drugs.  Such organization may not charge individuals more than 20 percent of the reasonable cost plus any amount needed to satisfy the deductible. 
  (g) Payment Limits for Non-Multiple Source Drugs and Drugs With Restrictive Prescriptions.-- 
    (1) Similar provision. 
    (2) Similar provision except:  (A) applies to determinations for payment calculation periods beginning on or after January 1, 1990;  (B) specifies that the average per tablet or unit wholesale price is the most recently published figure;  and (C) requires the calculation to be made on a national basis if the drug is available on a national basis. 
    (3) Similar provision, except applies to written prescriptions.  Specifies that for telephone prescriptions, the physician or other person (through the use of an appropriate phrase) states that the particular drug must be dispensed. 
  (h) Payment Limit for Multiple Source Drugs Without Restrictive Prescriptions.-- 
    (1) Provides that the payment limit for a multiple source drug without a restrictive prescription is the sum of (A) the product of the number of tablets (or other dosage units) and 150 percent of the lowest average per tablet or unit wholesale price for the drug;  and (B) the administrative allowance. 
    (2) Requires the Secretary to determine with respect to covered outpatient drugs for the payment calculation period (beginning on or after January 1, 1990) the average per tablet or per unit wholesale price for the drug for purchases in reasonable quantities.  Specifies that for the period beginning January 1, 1987, the average is the average per tablet or per unit wholesale price for the drug as of January 1, 1987. 
    Specifies that for subsequent payment calculation periods, the amount is the lesser of:  (A) the most recently published average *181 **959 per tablet or per unit wholesale price;  or (B) the average per tablet or unit price established for the previous payment calculation period increased by the percentage change in the Consumer Price Index for the 12-month period ending the preceding August. 
    Requires the Secretary to establish the average per tablet or per unit wholesale price, in the case of a covered outpatient drug which is not available as of January 1, 1987, for the first month of the first payment calculation period in which it is available. 
    Requires the Secretary to make determinations on a national basis if the drug is available on a national basis.  If not, the Secretary may make determinations and calculate payment limits on a regional basis to take into account the availability of drug products and variations in average wholesale prices. 
    (3) Defines a multiple source drug as a covered outpatient drug for which (during the payment calculation period), there are 2 or more drug products (or in the case of a covered outpatient drug subject to a patent, 3 or more drug products) generally available to beneficiaries through retail pharmacies which the Secretary determines are:  (A) pharmaceutically equivalent, bioequivalent, adequately labeled, and manufactured in compliance with the Current Good Manufacturing Practice regulations;  and (B) sold or marketed during the period. 
    Specifies that drug products are pharmaceutically equivalent if the products contain identical amounts of the same active drug ingredient in the same dosage form and meet compendial or other applicable standards of strength, quality, purity, and identity.  Drugs are bioequivalent if they do not present a known or potential bioequivalence problem, or if they do present such a problem, are shown to meet an appropriate bioequivalence standard. 
    Specifies that a drug is considered to be sold or marketed during a period if it is listed in the Food and Drug Administration's most recent publication of "Approved Drug Products With Therapeutic Equivalance Evaluations" for the third month before the beginning of the period, unless the Secretary determines that such sale or marketing is not actually taking place. 
    (4) No provision. 
  (i) Administrative Allowance.--Similar provision, except:  (A) administrative allowance is $3.50 for nonparticipating pharmacies for the payment calculation period beginning January 1, 1990;  and (B) the amounts are increased annually rather than biannually. 
  (j) Assuring Appropriate Utilization.-- 
    (1) Provides that the Secretary may provide that payment for covered outpatient drugs may not be made in specific instances if they are prescribed or dispensed with excessive frequency or in excessive quantities.  The Secretary is required to establish a utilization review program for covered outpatient drugs to identify patterns of unnecessary or inappropriate prescribing or dispensing practices, including excessive charging in the dispensing of drugs and to identify patterns of substandard care. 
    **960 *182 (2) Requires the Secretary in carrying out the utilization review program, to use diagnosis and indication codes and establish standards for the prescribing, dispensing, and utilization for each covered outpatient drug.  In establishing the standards, the Secretary (after providing notice in the Federal Register and not less than a 60-day comment period) may incorporate standards from current authoritative medical references as he may select. 
  (k) Treatment of Certain Prepaid Organizations.--Identical provision. 
  (l) Physician Guide.--Similar provision, except guide must be mailed by January 1 of each year (beginning in 1990). 
  (m) Special Cost-Control Measures.--Requires the Secretary to institute necessary cost control measures if he determines that the monthly catastrophic drug benefit premium will exceed the limits established under this bill.  (See Item 15.)  In carrying out this provision, the Secretary may not exclude from coverage or limit payment for any specific covered outpatient drug or specific class of covered outpatient drugs or change the methodology for calculating whether the individual has met the deductible.  However, the Secretary may exclude from coverage all drugs listed in a major classification of the most recently issued version of Veterans' Administration Medication Classification System. 
  (n) High Volume Pharmacies.--Authorizes the Secretary, after 1990, to reduce by regulation the payment limits established (both for nonmultiple source and multiple source drugs) dispensed by a high volume pharmacy (as defined by the Secretary).  The reductions are to be based on differences between high volume pharmacies and other pharmacies with respect to operating costs, quantity discounts, and other economies.  The Secretary is required to consult with high volume pharmacists, elderly groups and private insurers in making such adjustments.  A minimum 90-day public comment period is required for proposed regulations. 
  (o) Report on Payment Limits.--Requires the OTA and the Secretary to submit to the Congress before beginning of the calendar year (for years after 1990) recommendations for adjustments to the payment limits.  The Secretary is required to request the National Academy of Sciences, acting through the Institute of Medicine, to enter into a contract to make such recommendations. Each is required to consult with pharmacists, pharmaceutical manufacturers, elderly groups, and private insurers in making such recommendations. 
  (p) Report on Covered Outpatient Drug Index.--No provision. 
  (q) Participating Pharmacies.-- 
    (1) Similar provision except: 
	(A) Does not apply in the case of any entity which dispenses covered outpatient drugs exclusively to beneficiaries enrolled in HMOs and CMPs; 
	(B) Identical provision; 
	(C) To assist beneficiaries in determining whether or not their expenses for covered outpatient drugs exceed the deductible and to certify to the Secretary, with respect to such beneficiaries that their expenses exceed the deductible and make available supporting documentation. Nothing *183 **961 is to be construed as authorizing the Secretary to require submission of the documentation with respect to prescriptions other than pursuant to an audit, upon certification under this provision, or for monitoring purposes from a sample of up to 7.5 percent of participating pharmacies; 
	(D) Identical provision; 
	(E) Specifies that the provision of information to beneficiaries is to be consistent with State law respecting the provision of such information; 
	(F) Identical provision; 
	(G) Changes the effective date to January 1, 1991. 
    (2) Identical provision. 
    (3) Identical provision. 
    (4) Identical provision. 
  (r) Civil Monetary Penalty.--Provides that civil monetary penalties may be imposed in the case of participating or nonparticipating pharmacy which presents, or causes to be presented, a request for payment for covered outpatient drugs at a charge greater than that charged the general public. 
  (s) Limitation to 60 Day Prescription.--Similar provision except permits up to a 90 day supply in the case of an individual receiving chronic maintenance drug therapy as defined by the Secretary. 
  (t) Additional Premium for Prescription Drug Benefit.--No specific cross reference (See Item 15). 
  (u) Use of Carriers in Administration.-- 
    (1) Similar provision, except includes fiscal intermediaries in title. 
    (2) Specifies that 95 percent of clean claims for covered outpatient drugs are to be paid within 45 days of receipt. 
    Specifies that contracts with carriers shall provide that no payment shall be issued, mailed, or otherwise transmitted for covered outpatient drugs within 30 days after the claim is received. 
    (3) Authorizes the Secretary to enter into contracts with intermediaries and carriers for performance of functions relating to home intravenous drug therapy on a regional basis. 
  (v) Modification of HMO/CMP Provisions.-- 
    (1) Identical provision. 
    (2) Specifies that the calculation of the premium rate and the actuarial value of the deductible and coinsurance for individuals enrolled only in Part A or Part B is to be made separately for the drug benefit. 
    (3) Specifies that additional benefits required to be provided by an HMO/CMP may include reduction of premium rate or other charges made with respect to drugs. 
  (w) Medicaid Requirements.--See Item 33. 
  (x) Beneficiary Drug Cost Survey and CBO Report.-- 
    (1) Similar provision, except requires the Secretary also to consult with consumer groups and representatives of the pharmaceutical and pharmacist industries.  Report on survey due by January 19, 1989. 
    (2) Identical provision. 
    (3) Requires the GAO (within 2 months of submission of the report) to report on the validity of the survey and the extent to **962 *184 which pharmacies accept assignment and barriers, if any, to such acceptance. 
  (y) Prescription Drug Payment Review Commission.--No provision. 
  (z) Additional Studies.-- 
    (1) Similar provision, except does not include Item B.  Adds study requirement on the possibility of including drugs which have not yet been approved under the Federal Food, Drug, and Cosmetic Act, but which are commonly used in the treatment of cancer or immunosuppressive therapy as covered outpatient drugs.  The study shall be conducted in consultation with an advisory board of consumers, experts in the field of cancer therapy and immunosuppressive therapy, representatives of pharmaceutical manufacturers, and such other individuals as the Secretary may select. 
    (2) Similar provision except requires an interim report by not later than January 1989. 
    (3) Requires the Secretary and the GAO to each conduct and periodically update a study on comparison of published average wholesale prices and actual pharmacy acquisition costs by type of pharmacy.  A report is to be submitted to Congress on the results of each study and update with the first report due no later than January 1, 1989. 
  (aa) Study of Treatment of Prescription Drugs.-- 
    (1) Requires the OTA to conduct a study to identify additional or alternative covered outpatient drugs that can be included under the Medicare definition for 1991 and 1992. 
    (2) Requires the Secretary to request the National Academy of Sciences, through the Institute of Medicine, to enter into a contract under which the Institute, in consultation with representatives of appropriate research and health care organizations, will also conduct the study described in (1).  The Secretary is to be responsible for related expenses incurred by the Academy. 
    Specifies that in conducting the study, the Office and the Institute are to give particular attention to those drugs that meet any or all of the following criteria: 
	(A) The drug is used by a large number of beneficiaries; 
	(B) The drug can be covered without significant administrative difficulties; 
	(C) Coverage will provide useful information with respect to utilization and cost of covered outpatient drugs under Medicare; 
	(D) Coverage will not cause an unreasonable increase in premiums under Medicare; 
	(E) The drug is expensive when used as part of a chronic drug regimen. 
    Requires the OTA and the Institute to submit to the Secretary and appropriate congressional committees an interim report within 6 months of enactment, and a final report containing specific findings and recommendations within 12 months. 
  (bb) Simplification of Recordkeeping.--Requires the Secretary, by October 1, 1988, to enter into an agreement with two or more private *185 **963 entities to conduct demonstration projects to test the use of magnetic cards, electronic billing, and other technological devices in the administration of the drug benefit. 
    Specifies that the Secretary shall select among applications submitted by entities in the form prescribed by the Secretary.  The Secretary shall determine the time necessary to carry out the project and submit a report within 6 months of completion. 
    Specifies that the projects are to be conducted at statistically relevant locations and be used for providing quick data for projecting total cost of the drug benefit. 
    Requires the Secretary to develop, in consultation with representatives of participating pharmacies, consumers, and other interested individuals, a standard receipt to be used by Medicare beneficiaries in making purchases from participating pharmacies.  The receipt is to be distributed by January 1, 1990.  The Secretary is to take appropriate steps to insure that such pharmacies used the receipt. 
    Effective date.--Enactment.

Conference agreement 

    (a) In General.--The conference agreement includes the House provision with an amendment.  The agreement includes coverage for two additional categories of prescription drugs.  The first category includes those drugs (i) which were commercially used or sold prior to the Drug Amendments of 1962 and (ii) which are identical, similar or related to those described in clause (i) provided that the Secretary has not made a final determination that the drugs described in clause (i) or (ii) are "new drugs."  These drugs are the so- called "pre-1938" drugs and are not subject to current requirements regarding pre-market approval by the Food and Drug Administration (FDA) for safety and efficacy. 
    The conference agreement also includes coverage for certain so-called DESI drugs.  Under the provisions of the 1962 amendments to the Federal Food, Drug, and Cosmetic Act, all new drugs must be shown to be effective and safe rather than just safe as had been required previously.  This legislation also applied retroactively to all drugs approved as safe from 1938 to 1962.  The program established to review the effectiveness of these drugs was named the Drug Efficacy Study Implementation (DESI) program.  Under the program, drugs were labelled effective, probably effective, possibly effective, or ineffective.  The FDA reviewed any additional evidence submitted by the manufacturer for those drugs determined to be less than effective.  If the FDA decides that a drug product lacks substantial evidence of effectiveness for the conditions it is intended to treat, it publishes a notice of opportunity for hearing in the Federal Register on a proposal to withdraw approval for marketing.  This affords the manufacturer an opportunity for a hearing before a final determination is made.  The conference agreement includes coverage for DESI drugs for which the Secretary has not issued a notice for an opportunity for a hearing and for which the Secretary has determined there is compelling justification for its medical need.  Also included are identical, similar or related drugs.  It is the understanding of the conferees that the only DESI drug which would be covered by this provision, because a notice for an **964 *186 opportunity for a hearing has not been issued, is nitroglycerin patches. 
    The agreement further clarifies that the term "covered outpatient drugs" does not include drugs which are already being reimbursed under current law because they are provided as part of, or incident, to other covered services. 
    (b) Phase-in Coverage.--The conference agreement includes the Senate amendment with modifications.  The agreement provides coverage for two categories of drugs in 1990--drugs used in immunosuppressive therapy and covered home intravenous (IV) drugs. 
    Drugs used in immunosuppressive therapy are currently covered for only one year after a transplant that is covered by Medicare.  The conference agreement would retain this coverage, which would remain subject to current rules on coinsurance.  The conference agreement would add subsequent coverage as well, irrespective of whether the transplant was covered by Medicare. This subsequent coverage would be subject to the same rules regarding deductible and coinsurance as apply to other newly covered prescription drugs. 
    The agreement provides for coverage of all "covered outpatient prescription drugs" effective January 1, 1991.  The agreement provides for a phase-in of the benefit by reducing the requisite beneficiary coinsurance over a three- year period. 
    Coinsurance is set at 50% in FY 1990 and FY 1991, 40% in FY 1992, and 20% in FY 1993 and each year thereafter.  The agreement limits coinsurance to 20%, starting in 1990 with no phase-in, for home IV drugs and immunosuppressive drugs used during the first year after a Medicare covered transplant.  (For subsequent use of immunosuppressive drugs, coinsurance would be determined by the general rule.) 
    The agreement defines a covered home IV drug as one that is intravenously administered in a home setting.  The term includes antibiotic drugs, unless the Secretary has determined, for a specific drug or for the indication for which it is applied, that it cannot generally be safely or effectively administered in a home setting.  The term includes additional IV drugs (other than antibiotics) only if the Secretary determines that for the specific drug and the indication for which it is being applied, that it can generally be administered safely and effectively in a home setting.  The Secretary could establish guidelines or precautions necessary to assure the safety and effectiveness of specific IV drugs in a home setting. 
    The agreement does not require the Secretary to consult with an advisory panel in making these determinations.  The conferees note that the Secretary could refer review of safety and effectiveness issues to the Public Health Service's Office of Health Technology Assessment. 
    The conferees expect that the Secretary will complete a review of the safety and effectiveness of home IV cancer chemotherapy drugs as soon as possible. 
    A drug, which would otherwise be covered as an outpatient drug, is excluded from coverage if the drug is intravenously administered in a home setting and does not satisfy the definition of a covered home IV drug.

**965 *187 (c) Deductible.-- 

    (1) The conference agreement includes the Senate amendment. 
    (2) The conference agreement includes the House provision.  In determining whether a beneficiary has met the deductible, the Secretary would count all expenses paid on behalf of the beneficiary, such as those paid pursuant to an insurance policy.  In calculating the deductible, the Secretary must include amounts actually paid by the beneficiary (or on the beneficiary's behalf) and may not reduce such amounts by applying Medicare payment screens below the deductible. 
    (3) The conference agreement includes the Senate amendment with a modification.  The agreement sets the deductible at $550 in 1990, $600 in 1991, and $652 in 1992.  In future years the deductible will be indexed so as to ensure that the percentage of Part B enrollees (not including enrollees in health maintenance organizations) whose expenses for covered outpatient drugs are expected to exceed the deductible during that year is 16.8%.  This is the same percentage as the percentage of enrollees whose costs are expected to exceed the deductible in 1991.  The conference agreement specifies a deductible for 1992 in the law rather than relying on indexing by the Secretary, because actual program data necessary for reliable indexation would not be available in time for setting the 1992 deductible. 
    The agreement requires the Secretary to publish by May 1 of each year  (beginning in 1992) a proposed regulation establishing the deductible for the next year.  The Secretary would be required to publish a final regulation during the last 3 days of September.  The final deductible established in September may not exceed deductible proposed in May. 
    The conference agreement provides that the drug deductible will not apply for home IV drugs dispensed as part of a continuous course of therapy initiated while the beneficiary was a hospital inpatient.  Further, the drug deductible does not apply with respect to immunosuppressive drugs furnished within one year following a covered organ transplant. 
  (d) Adjustment in Deductible.--The conference agreement does not include the House provision. 
  (e) Authority To Reduce Deductible.--The conference agreement does not include the Senate amendment.  Because the deductible after 1992 will be indexed to ensure that 16.8% of beneficiaries reach the deductible, the Secretary would be authorized to lower or raise the deductible. 
  (f) Payment Amount.-- 
    (1) The conference agreement includes the Senate amendment with a modification.  The agreement specifies that the amount paid for a covered outpatient drug is equal to the "payment percent" multiplied by the lesser of the actual charge or the applicable payment limit.  The payment percent is 100% minus the required coinsurance.  Thus, in 1990 (and thereafter), the payment percent is 80% for home IV drugs and for immunosuppressive drugs used during the first year post transplant.  The payment percent for other covered outpatient drugs is 50% in 1990 and 1991, 60% in 1992, and 80% thereafter. 
  **966 *188 The agreement deletes the reference to high volume pharmacies. 
    (2) The conference agreement includes the House provision with an amendment specifying that the first payment calculation period begins January 1, 1990. 
    (3) The conference agreement deletes the Senate amendment requiring that the information on payment limits be provided on a list sent to pharmacies. The conferees note, however, that this information will be available through the electronic system.  The reference to high volume pharmacies also is deleted. 
    (4) The conference agreement includes the Senate amendment, with modifications.  The provisions relating to charges for covered services after an individual has met the catastrophic deductible for outpatient drugs apply to organizations with a risk-sharing contract and those paid on a reasonable cost basis as well as to those health care prepayment plans that have elected to provide the catastrophic drug benefit.  Different rules apply depending on whether the organization does or does not "buy out" drug charges below the catastrophic deductible amount for enrolled beneficiaries.  A plan is deemed to be a buy-out plan if the deductible charge it imposes on enrollees for covered outpatient drugs is less than 50 percent of the Medicare catastrophic deductible for outpatient drugs. 
  In the case of a buy-out plan, actual expenses for outpatient drugs incurred by a beneficiary while enrolled in the plan are not counted towards the catastrophic limit.  However, if an enrollee disenrolls during a year, he or she is deemed to have incurred expenses for covered drugs during each month of enrollment during the year equal to the monthly national average drug expenses during that year for all Medicare beneficiaries.  The Secretary is required, in December of each year, to estimate the national average expense for covered drugs for the following year. 
  In the case of a plan that is not a buy-out plan, expenses for covered outpatient drugs incurred by a beneficiary while enrolled in the plan are counted towards the catastrophic limit.  The plan may not enter into a Medicare contract or receive Medicare payment unless it provides assurances satisfactory to the Secretary that:  (i) it will maintain, in coordination with the Part B carriers, accounts of expenses for covered drugs incurred by or on behalf of enrollees during each year, and will make the accounts available to an enrollee and to the carrier if an enrollee disenrolls during the year;  and (ii) in determining whether an enrollee has met any deductible under its own plan, the organization will take into account all those expenses for covered drugs that are to be counted towards the catastrophic drug deductible. 
  The conferees expected that the Secretary, in establishing contracts with Part B carriers under section 1842, will require the carriers to provide information on expenses for out-of-plan services to the plans without charge. 
  (g) Payment Limits for Non-Multiple Source Drugs and Multiple Source Drugs With Restrictive Prescriptions.-- 
    (1) The conference agreement includes the House provision with a modification.  The Medicare payment limit for a single **967 *189 source drug or a multiple source drugs with a restrictive prescription is the lessor of: 
	(A) the 90th percentile of actual charges for the drug adjusted (as appropriate by the Secretary) to reflect the number of dosage units or tablet units dispensed;  or 
	(B) the administrative allowance plus the number of tablets or dosage units dispensed times the per tablet or per unit average wholesale price. The agreement specifies that the 90th percentile limit would be computed on a state-wide, carrier-wide or other appropriate geographic area basis (as determined by the Secretary) using charge data from the second previous payment calculation period.  The 90th percentile limit would not be used before January 1, 1992 because the necessary data would not be available. 
    (2) The conference agreement includes the House provision with an amendment.  The agreement requires the Secretary to conduct a biannual survey of a representative sample of direct sellers, wholesalers, or pharmacists (as appropriate) to determine the applicable average wholesale price or comparable direct price for each single source drug as of the first day of the first month of the previous payment calculation period.  The Secretary would be prohibited from taking into account any discounts that might be provided by wholesalers or direct sellers to pharmacies in determining the applicable average wholesale or direct prices. 
  Because the survey is a necessary part of the drug benefit and is vital to ensuring the integrity of reimbursement limits, the conference agreement permits the Secretary to impose civil money penalties of up to $10,000 if a wholesaler or direct seller refuses, after a request by the Secretary, to provide information required for the survey or provides information that is false.  The conference agreement also requires pharmacies to cooperate with the survey and provides penalties for non-compliance.  (See subparagraph (g), below.)  Information gathered pursuant to the survey would be confidential and could not be disclosed by the Secretary, except as the Secretary determines to be necessary to administer the drug benefit. 
  The Secretary would not be required to conduct a survey with respect to a specific drug if the Secretary determines that such a survey would not be appropriate because of low volume of sales or other appropriate reason.  The survey requirement could also be waived for covered outpatient drugs dispensed during 1990.  In these circumstances, the Secretary would rely on published average wholesale prices from reliable sources and would have the authority to set the average wholesale price on the basis of the lowest reliable published price. 
  The agreement specifies that the Secretary shall make the determination of the average wholesale price based on the price or prices of purchases in reasonable quantities.  The Secretary is further required to make the determinations and calculate the payment limit on a national basis.  However, the Secretary could make such determinations on a regional basis to take into account limitations on the availability of drug products and variations in average wholesale prices among regions. 
    **968 *190 (3) The conference agreement includes the Senate amendment with an amendment.  In the case of telephone prescriptions, a drug would only be subject to a restrictive prescription if the physician (or other person) through use of an appropriate phrase (as required for written prescriptions) states that a particular brand must be dispensed and submits a written confirmation to the pharmacy involved within thirty days after the date of the telephone prescription.  If such confirmation is not submitted, payment would be based on limits for the corresponding multiple source drug. 
  (h) Payment Limit For Multiple Source Drugs Without Restrictive Prescriptions.-- 
    (1) The conference agreement includes the Senate amendment with an amendment.  The payment limit for a multiple source drug without a restrictive prescription is the sum of:  (A) the product of the number of dosage units or tablet units dispensed and the unweighted median of the per unit average wholesale prices of the available drug products plus (B) an administrative allowance. 
  To determine the median, the Secretary would array the average wholesale prices (by appropriate dosage or tablet unit) for all FDA approved drug products that are rated by the FDA as therapeutically equivalent, including the corresponding brand name drug.  (See subparagraph (3), below. 
    (2) The conference agreement includes the Senate amendment with a modification.  In calculating the unweighted median, the Secretary is generally expected to use the average wholesale price for multiple source drugs based on reliable published sources.  However, where appropriate, the Secretary may conduct a biannual survey of average wholesale prices of specific multiple source drugs.  Such a survey is comparable to (and could be conducted in conjunction with) the annual survey of such prices for single source drugs.  The conferees intend that the Secretary may exclude a drug from the calculation of the median if it is not being actively marketed. 
    (3) The conference agreement includes the House provision with an amendment.  The agreement provides that in order for drugs to be multiple source drugs, the FDA must determine that they are pharmaceutically equivalent and bioequivalent as defined by the Medicare statute.  This definition is the same as that currently used by the FDA.  The agreement assumes that such FDA determination would be made at the time FDA approves the drug;  it does not require a new or subsequent determination. 
  If the FDA changes the definition of therapeutic equivalence through a formal rule-making procedure (including a 90 day comment period), the requirement of pharmaceutical equivalence and bioequivalence as contained in the Medicare statute would not apply and the drug would only be required to meet the revised FDA definition of therapeutic equivalence. 
    (4) The conference agreement does not include the House provision. 
  (i) Administrative Allowance.--The conference agreement includes the Senate amendment with an amendment setting the administrative*191 **969 allowance for participating pharmacies at $4.50 in 1990 and 1991 and for nonparticipating pharmacies at $2.50 in 1990 and 1991.  Thereafter, the allowances are indexed by the GNP price deflator. 
  (J) Assuring Appropriate Utilization.-- 
    (1) The conference agreement includes the Senate amendment with modifications.  The agreement does not include the provision authorizing the Secretary to deny payment for drugs prescribed or dispensed with excessive frequency or in excessive quantities.  The conferees note that such new authority is unnecessary.  The Secretary already has authority under Section 1862(a)(1) of the Social Security Act to deny payment for items and services that are not reasonable and necessary for the diagnosis or treatment of illness or injury.  Pursuant to this authority, the Secretary could deny payment for drugs prescribed or dispensed with excessive frequency or in excessive quantities. 
  The conference agreement requires the Secretary to establish a program to identify:  (i) instances and patterns of unnecessary or inappropriate prescribing or dispensing practices;  (ii) instances or patterns of substandard care;  and (iii) potential adverse drug reactions. 
  The conferees expect that participating pharmacists will review the medication profile of beneficiaries for potential adverse reactions before filling prescriptions.  The conferees further intend that carriers will review claims retrospectively to identify practitioners exhibiting a pattern of inappropriate drug prescribing or dispensing. 
  The conference agreement also requires the Secretary to establish an educational program to educate physicians and pharmacists about inappropriate prescribing and dispensing practices.  This program is expected to include a range of educational interventions, ranging from written to face-to-face communications. 
    (2) The conference agreement includes the Senate amendment with modifications. 
  The conference agreement does not include the Senate provision which would have required the use of diagnosis codes on all prescriptions.  The conferees believe this requirement would have been unduly burdensome for physicians. Instead, the conference agreement requires physicians to report the appropriate diagnosis code (or codes) on all claims for services they provide.  This information would be available for immediate use for utilization review of physician services (and could be used for prepayment screens) and could be used in the future to facilitate drug utilization review by merging Part B with drug claims data. 
  To enforce the requirement of submission of diagnosis codes, the Secretary would be authorized to deny payment on assigned claims if the required diagnostic information is not provided.  In the case of non-assigned claims, if a physician knowingly and willfully fails to respond to a request by a carrier to provide required information not initially included, the physician could be subject to civil money penalties of up to $2,000.  Moreover, if a physician knowingly and willfully continues not to provide the required diagnostic information on the initial claims after being notified of the specific obligation *192 **970 to provide such information, the physician could be subject to civil monetary penalties and or exclusion from Medicare under Section 1842(j)(2)(A) of the Social Security Act. 
  The conferees intend that the Secretary will take appropriate measures to insure the confidentiality of patient-specific information which has been obtained. 
  The conference agreement includes the Senate provision on drug utilization review standards with modifications.  The Secretary would be required to establish standards for the use of each covered outpatient drug based on accepted medical practice.  In establishing these standards, the Secretary would be required to incorporate standards from one (or more) current authoritative compendia as the Secretary may select. 
  The conferees expect that included among the compendia the Secretary will consider for use are the United States Pharmacopoeia Dispensing Information, volume 1 (Drug Information for the Health Care Professional), the American Medical Association's Drug Evaluations, and American Hospital Formulary Service Drug Information.  The conferees expect that the Secretary will use only those compendia which base such standards on a review of published scientific and medical information, which provide for a public comment and review process, and which provide adequate assurances that the panelists who establish standards are free of financial (or other) conflicts of interest. 
  The Secretary, through rule-making, may modify these standards, for use in the Medicare program, on the basis of published scientific and medical information indicating that such standards are not consistent with the safe and effective use of such drug. 
  The conference agreement also specifies that nothing in Title XVIII of the Social Security Act should be construed as authorizing the Secretary to establish a formulary by excluding from coverage:  (i) any specific covered outpatient drug or class of drugs or (ii) the specific use of any covered outpatient drug with respect to a specific indication, unless the exclusion is pursuant to Section 1862(a)(1) and is based on a finding by the Secretary that such use is not safe or effective.  The Secretary could, however, exclude certain drugs pursuant to Section 1862(c), relating to exclusions for drugs subject to a proposed order by the FDA to withdraw marketing approval, or 1861(t)(4)(A), relating to the definition of covered home IV therapy drugs (See subparagraph (b), above). 
  (k) Treatment of Certain Prepaid Organizations.--The conference agreement does not include the House provision or the Senate amendment.  (See subparagraph (q), below.) 
  (l) Physician Guide.--The conference agreement includes the Senate amendment with a clarification.  The Secretary is required to mail the guide by January 1 of each year, beginning in 1991, to participating hospitals, to each physician who routinely provides Part B services, to Social Security offices, to senior citizen centers, and to other appropriate places. 
  (m) Special Cost Control Measures.--The conference agreement includes the Senate amendment with a modification.  The agreement requires the Secretary, immediately upon enactment, to begin compiling information on prices charged by manufacturers and by retail pharmacies for covered outpatient drugs.   The Secretary *193 **971 shall compare increases in drug prices for each six month period beginning January 1, 1987, with the average semi-annual increase in such prices during the January 1, 1981 to January 1, 1987 period.  The agreement also requires the Secretary to review all available information on the use of prescription drugs by Medicare beneficiaries.  The conference agreement requires the Secretary to file a report with the House Committees on Ways and Means and Energy and Commerce and the Senate Committee on Finance in May and November of 1989 and 1990 and in May of each succeeding year containing this information. 
  Each report submitted after 1991 will also include an explanation of the extent to which increases in expenditures for covered outpatient drugs are the result of price increases by manufacturers and pharmacists and increased drug use by beneficiaries and will include information:  (i) on the projected budgetary status of the prescription drug trust fund for the succeeding year; (ii) projected increases in manufacturer's and pharmacists' prices;  (iii) the projected level of utilization of covered outpatient drugs by beneficiaries; and (iv) projected administrative costs. 
  The conference agreement requires the Secretary to submit monthly reports to the Congress, from October 1991 through April 1993, showing monthly outlays and receipts of the Federal Catastrophic Drug Insurance Trust Fund. 
  The agreement further specifies that the Secretary's May 1, 1992 and 1993 reports will determine whether the anticipated outlays and receipts of the new trust fund are sufficient to achieve the established contingency reserve margin for 1993 and 1994.  If not, the report will recommend necessary changes (which will also be published in the Federal Register by May 1 as a proposed regulation).  Any such recommended changes should appropriately address each of the causes of increased or unanticipated costs for the program. 
  If the Secretary has published a proposed regulation by May 1 of 1992 or 1993, the Secretary may publish a final regulation during the last 3 days of September of such year to implement the changes proposed.  Such changes will become effective as of January 1 of the next year and will apply only during such year and will take effect notwithstanding any other provisions of this part. 
  Several limitations, however, would apply to the Secretary's cost control authority.  First, the final regulation may not provide for a net reduction in outlays in excess of the net reduction provided in the proposed regulation. Second, the Secretary may not provide for a formulary in violation of the prohibition contained in subparagraph (j).  Third, the Secretary may not change the methodology for calculating whether the drug deductible has been met (but could change the level of the deductible).  Finally, the Secretary could not increase the coinsurance above the level in effect during the previous year. 
  The conferees intend that, in designing any cost control recommendations, the Secretary will attempt to insure that beneficiary access will not be adversely affected. 
  The conferees expect and encourage the Secretary to make other recommendations concerning legislative changes that would improve the administration of the new outpatient prescription drug **972 *194 benefit. Such recommendations would be subject to approval by the Congress as part of the normal legislative process. 
  The conferees understand that the proposed and final regulations will not be reflected in the Congressional Budget Office's August baseline for FY 1993 and FY 1994. 
  (n) High Volume Pharmacies.--The conference agreement includes the Senate amendment with a modification limiting the Secretary's authority to reducing the administrative allowance for mail service pharmacies.  Such reductions (if any) must be based on differences between mail service pharmacies and other pharmacies with respect to operating costs and other economies. 
  (o) Report on Payment Limits.--The conference agreement deletes this provision.  The conferees intend to request, by letter, the Office of Technology Assessment to prepare a study on possible alternative payment methodologies. 
  (p) Report on Covered Outpatient Drug Index.--The conference agreement does not include the House provision. 
  (q) Participating Pharmacies.-- 
    (1)(A).--The conference agreement includes the Senate amendment.  The conferees note that some prepaid health plans operate pharmacies which charge members of the plan less than the pharmacy charges members of the general public.  In this case, the conferees intend that the test of compliance with this provision be based on the pharmacy's charges to members of the general public who are not members of the prepaid health plan. 
    (1)(B).--The conference agreement includes the House provision. 
    (1)(C).--The conference agreement includes the House provision with a modification.  The Secretary would be required by January 1, 1991 to establish an electronic point-of-sale claims processing system for use by carriers and participating pharmacies.  Participating pharmacies would be required to transmit information regarding all covered outpatient drugs dispensed to Medicare beneficiaries by such pharmacies regardless of deductible status. 
  The conferees consider the electronic billing system integral to the smooth administration of the prescription drug benefit.  The conferees expect that the Secretary will devote the necessary resources to make the electronic system fully and successfully operational by January 1, 1991.  Moreover, the conferees expect that the system will be thoroughly tested prior to that date. 
    (1)(D).--The conference agreement does not include the House or Senate provision. 
    (1)(E).--The conference agreement includes the Senate amendment. 
    (1)(F).--The conference agreement includes the Senate amendment. 
    (1)(G).--The conference agreement includes the Senate amendment with an amendment deleting the exemption for undue hardship.  As noted above, the agreement requires the Secretary to implement an electronic point-of-sale system by January 1, 1991.  The agreement further requires the Secretary to provide, upon request, such electronic equipment and technical *195 **973 assistance (other than costs associated with obtaining, maintaining, or expanding telephone service) as the Secretary determines may be necessary for a pharmacy to submit claims through the electronic system.  Because the equipment would be provided where necessary an exemption for hardship cases is not needed. 
  The conference agreement requires participating pharmacies to provide information requested by the Secretary in conjunction with biannual surveys conducted by the Secretary to determine average wholesale prices.  (see Item 10g). 
  All of the preceding requirements for participating pharmacies would be first effective for covered outpatient drugs dispensed on or after January 1, 1991. Claims for drugs dispensed during 1990 would be handled by existing Medicare carriers and the beneficiary's deductible status would be determined by these carriers as under current law. 
  The Secretary would have authority to specify claims processing and payment procedures in the event of temporary failure of the electronic claims processing system. 
    (2).--The conference agreement includes the Senate amendment with an amendment deleting the requirement that the Secretary submit lists of payment limit to pharmacies in advance of the payment calculation period. 
    (3).--The conference agreement includes the Senate amendment with a modification.  The agreement provides that the audits would assure compliance with requirements for participation and would assure the accuracy of information submitted by pharmacies. 
    (4).--The conference agreement includes the Senate amendment with an amendment clarifying that the requirement to accept assignment begins at the point where the Secretary, through the electronic point-of-sale system or otherwise, notifies the pharmacy that the beneficiary has met the deductible. 
  (r) Civil Monetary Penalty.--The conference agreement includes the Senate amendment authorizing civil monetary penalties for pharmacies that charge Medicare beneficiaries more than they charge the general public.  For purposes of this provision, the price charged to the general public is the pharmacy's price to a customer who is not a member of any group which has obtained a discounted price from that pharmacy, such as an HMO. 
  The conference agreement also authorizes civil monetary penalties for pharmacies that fail to provide information requested by the Secretary as part of the biannual survey of wholesale prices (see Item 10g). 
  (s) Limitation to 60 Day Prescription.--The conference agreement includes the Senate amendment with an amendment.  No payment may be made for any expense incurred for a covered outpatient drug if it is dispensed in a quantity exceeding a 30 day supply, except that the Secretary may authorize a longer supply (not exceeding 90 days, except in exceptional circumstances).  Such extended supply policies may apply to specific drugs or classes of drugs and may be subject to appropriate conditions as the Secretary may establish. 
    **974 *196 (t) Additional Premium for Prescription Drug Benefit.--See Item No. 15. 
    (u) Use of Carriers in Administration.-- 
    (1) The conference agreement includes the Senate amendment with modifications. 
  Current law requires that a Medicare carrier be an insurer of health care services.  The conference agreement waives this requirement and authorizes the Secretary to contract with other entities for implementation and operation of the electronic point-of-sale claims processing system and for related functions.  Such entities include voluntary associations, corporations, partnerships, or other nongovernmental organizations.  Such contracts may be on a regional basis. 
  If the Secretary requires a carrier to subcontract with such an entity for this purpose, the conferees expect the Secretary to take this arrangement into account in evaluating the carrier's performance.  The failure of such entity to properly carry out its responsibilities should not adversely affect the carrier's performance rating. 
  The conferees further intend that the term "related functions" would apply to functions closely related to the implementation and operation of the electronic system, such as initial claims denials made through the system.  Other functions, such as the handling of beneficiary inquiries and carrier fair hearings, would remain with the traditional Medicare carriers. 
  The agreement permits the Secretary to use fixed-price contracts for electronic claims processing (and related functions) but requires the Secretary to:  (i) publish in the Federal Register general criteria and standards used for evaluating contractors and provide opportunity for public comment;  (ii) publish in the Federal Register any new policy or procedure that substantially affects the performance of contracts 30 days before such policy or procedure is to take effect;  and (iii) negotiate necessary contractual modifications with contractors before requiring them to perform any additional functions. 
  The conferees expect that the Secretary would initially contract with more than one entity to establish more than one electronic system. 
  The agreement specifies that current law requirements regarding coordination of benefits payments with Medicare supplemental insurers will not apply to covered outpatient drugs until January 1, 1993. 
    (2) The conference agreement includes the Senate amendment with a modification.  The agreement requires contractors processing claims for prescription drugs to provide for a monthly payment cycle.  All claims received and approved for each participating pharmacy or individual submitting claims in the period since the previous payment date would be paid at the end of the payment cycle. 
  The conferees understand that under this system, claims would be paid, on average, 15 days after receipt.  If payment is delayed more than 5 days after the requisite payment date, interest shall accrue until payment is made. 
    **975 *197 (3) The conference agreement includes the Senate amendment. 
  (v) Modification of HMO/CMP Provisions.-- 
    (1) The conference agreement does not include the House provision or the Senate amendment. 
    (2) The conference agreement includes the Senate amendment. 
    (3) The conference agreement includes the Senate amendment. 
  (w) Medicaid Requirements.--See Item No. 33. 
  (x) Beneficiary Drug Cost Survey and CBO Report.-- 
    (1) The conference agreement includes the Senate amendment with a modification.  Data obtained from the 1987 National medical Expenditure Survey (NMES) would be used in lieu of conducting a new survey.  Based on this data, the Secretary would submit a report on expenses incurred by Medicare beneficiaries for outpatient drugs to Congress by April 1, 1989. Also by this date, the Secretary would provide the Director of the Congressional Budget Office any data from the survey that the Director may request to make the estimates required under subparagraph (2) below. 
    (2) The conference agreement includes the Senate amendment with an amendment specifying the CBO report is due by June 1, 1989, or 60 days after the date the Secretary provides the requested data under subparagraph (1). The report is to include estimated outlays and revenues (with projected trust fund balances) for the period from FY 1990 through FY 1993. 
    (3) The conference agreement does not include the Senate amendment. 
  (y) Prescription Drug Payment Review Commission.--The conference agreement includes the House provision with an amendment.  The Commission is to be established by January 1, 1989.  The conferees expect that one of the eleven commissioners would be associated with a brand name drug manufacturer while another would be associated with a generic drug manufacturer. 
  The Commission is directed to submit an annual report to Congress by May 1 of each year, beginning May 1, 1990.  The report would concern methods of determining payment for the outpatient prescription drug benefit authorized under this legislation.  Beginning in 1992, the annual report must include comments on both the budgetary status of the Federal Catastrophic Drug Insurance Trust Fund and recommendations for any changes necessary to reduce outlays in order to achieve the established contingency margin for the following year.  These recommendations are to take into account the causes of increased or unanticipated outlays for covered drugs in the year. 
  Beginning in 1992, the annual report would also include information on increases in manufacturers' prices for prescription drugs, increases in pharmacies' charges for such drugs, utilization of the outpatient prescription drug benefit by beneficiaries, and administrative costs associated with the benefit. 
  (z) Additional Studies.--The conference agreement includes the Senate amendment with modifications.  The requirement for a report on third party coverage is not included.  The conferees note **976 *198 that under subparagraph (x) the Secretary is required to conduct a study of drug expenditures by the elderly.  It is expected that the issue of third party coverage will be addressed in that study. 
  The conference agreement provides for a one-time study by the GAO which would include:  (i) a comparison of average wholesale drug prices and actual acquisition costs by type of pharmacy;  (ii) an analysis of the discounts offered by pharmacies to other third-party insurers;  and (iii) an analysis of overhead costs of retail pharmacies.  The study would be due to Congress by May 1, 1991. 
  Pharmacies participating in Medicare or Medicaid would be required to provide the GAO with reasonable access to records needed to conduct the study;  non- compliance would be subject to exclusion from Medicare or Medicaid under Section 1128(a) of the Social Security Act.  The conferees expect that the GAO would not release any data from the study in a manner which could be identified with individual pharmacies. 
  The conference agreement does not include a requirement for a study on the potential application of new claims processing and billing technologies. The conferees note that the agreement requires the Secretary to implement an electronic point-of-sale claims processing system. 
  The conference agreement requires a study of methods to improve utilization review of covered outpatient drugs.  The study is due to the Congress by January 1, 1993. 
  The conference agreement does not include the requirement that the Secretary study alternative payment methodologies for covered outpatient drugs.  The conferees note that under subparagraph (o) above, the conferees intend to request the Office of Technology Assessment to conduct a similar study. 
  The conference agreement also does not include the study on induced demand. The conferees expect that this issue will be addressed in the study required under subparagraph (x). 
  The conference agreement specifies that the longitudinal study of the use of covered outpatient drugs by Medicare beneficiaries is to be conducted as a follow-up to the 1987 NMES study.  The report is due January 1, 1993. 
  The conference agreement expands the scope of the requisite study on experimental cancer drugs to include other experimental drugs and biologicals. This report is due January 1, 1990. 
  The conference agreement also requires the Secretary to study the potential of mail service pharmacies to reduce the cost of covered outpatient drugs for beneficiaries and for the Medicare program and to report to Congress by January 1, 1990. 
  (aa) Study of the Treatment of Prescription Drugs.--The conference agreement does not include the Senate amendment. 
  (bb) Simplification of Recordkeeping.--The conference agreement includes the Senate amendment with modifications.  The agreement requires the Secretary to develop a standard claims form and a standard format for electronically submitted claims to be used by Medicare and other third parties for covered outpatient drugs.  The Secretary would consult with representatives of pharmacies and other interested individuals in developing these standards.  The Secretary would be required to distribute official sample copies by October 1, 1989. 
  **977 *199 The conference agreement does not include the requirement for demonstration projects testing various electronic billing systems.  The conferees note that the Secretary is required to implement a point-of-sale electronic claims processing system. 
  Effective Date.--Applies to items dispensed on or after January 1, 1990, except for the following. 
  Prompt payment requirements for carriers take effect on January 1, 1991, but are not to be construed as requiring payment before February 1, 1991, thereby permitting implementation of staggered billing cycles. 
  Provisions relating to modification of HMO/CMP contracts apply to new enrollments effective on or after January 1, 1990. 
  Diagnostic coding requirements apply to services furnished on or after April 1, 1989.

11. Coverage of Home Intravenous Drug Therapy (Section 7A of Senate amendment)

Present Law 

  (a) General.--Drugs and biologicals, which cannot be self-administered and which are furnished as an incident to a physician's professional service, are included within the definition of "medical and other health services," and are covered under Part B.  Such coverage also includes antigens prepared by a physician and administered by or under the supervision of a physician. 
  (b) Payment.--No provision. 
  (c) Certification.--Except for certain inpatient or outpatient services provided by hospitals, payments for services to providers under Part B may only be made if a physician certifies (and recertifies where such services are furnished over an extended period) that the services are necessary. 
  (d) Certification of Providers.--The Secretary, in carrying out his functions related to determination of conditions of participation of providers of services, shall consult with appropriate national listing and accreditation bodies, and may consult with appropriate local agencies.  If a State imposes higher requirements on institutions as a condition of payment under titles I, XVI, or XIX (Medicaid) of the Social Security Act, the Secretary shall impose like requirements under Medicare. 
  (e) Intermediate Sanctions for Home Intravenous Drug Therapy Providers.--No provision. 
  (f) Publication Requirement.--No provision.

House bill 

  No provision.

Senate amendment 

  (a) General.--Provides for Medicare coverage of intravenous drug therapies provided in the home.  Home intravenous therapy is defined as items and services that:  (1) are provided to an individual who is under the care of a physician;  (2) are provided in the residence used as the individual's home; (3) are provided by a qualified home intravenous drug therapy provider or by others under arrangement *200 **978 with such provider;  and (4) are provided under a plan established and periodically reviewed by a physician. 
  Coverage for home intravenous drug therapy includes nursing, pharmacy and related services as are necessary to safely and effectively conduct an intravenously administered anti-infective or cancer chemotherapeutic drug regimen through the use of a covered outpatient drug or use of any other intravenously administered drug which the Secretary (in consultation with providers, clinicians and consumers) determines may be safely provided in the home. 
  A qualified home intravenous drug therapy provider is defined as a home health agency certified by the Secretary as meeting certain conditions of participation, or other entity certified by the Secretary as meeting certain conditions of participation.  The conditions of participation require that the home health agency or other entity:  (1) is capable of providing or arranging for the provision of home intravenous drug therapy;  (2) maintains clinical records;  (3) has written policies to govern the provision of services;  (4) makes services available 24 hours per day, seven days a week as necessary;  (5) coordinates all services with the patient's physician;  (6) conducts a quality assessment and assurance program, including drug regimen review and coordination of patient care;  (7) assures that only trained personnel provide chemotherapy or any other service where training is required to safely provide the service;  (8) assumes responsibility for the quality of services provided by others under arrangements;  and (9) meets such other conditions as the Secretary determines are necessary for the safe and effective provision of services and as necessary for the efficient administration of the benefit. 
  (b) Payment.--Requires the Secretary to establish a fee schedule for home intravenous drug therapy prior to the beginning of each calendar year, beginning prior to calendar year 1990.  The fee schedule is to be established on a per diem basis.  The fee schedule is to be based on a study of current reimbursement for similar items and services provided under Medicare, on the customary charges for such therapy, and on such other information as the Secretary deems appropriate. 
  Reimbursement for home intravenous drug therapy is 100 percent of the lesser of the actual charge and the fee schedule amount.  Payments for these items and services is not subject to the annual Part B deductible amount. 
  (c) Certification.--Provides that coverage for home intravenous drug therapy is limited to cases in which a physician certifies that (1) such therapy is required by the individual, (2) a plan for furnishing the therapy has been established and is periodically reviewed by a physician, (3) the therapy is furnished while the individual is under the care of a physician, and (4) the therapy is provided in a place of residence used as the individual's home. 
  (d) Certification of Providers.--Adds home intravenous drug therapy providers to the list of providers for which the Secretary shall consult with appropriate State agencies and recognized national listing or accrediting bodies, and appropriate local agencies in determining the conditions of participation. 
  **979 *201 (e) Intermediate Sanctions for Home Intravenous Drug Therapy Providers.--Provides that the Secretary shall develop and implement "intermediate sanctions," in lieu of canceling the certification of the provider, that may be imposed for a period of up to one year against home intravenous drug therapy providers that are determined by the Secretary to no longer meet the conditions of participation.  The Secretary shall provide appropriate appeals procedures relating to the imposition of such intermediate sanctions.  The intermediate sanctions shall include civil money penalties and suspension of all or part of reimbursement amounts that would otherwise be made under Medicare.  Such sanctions are in addition to sanctions otherwise available under State or Federal law. 
  The Secretary shall develop and implement specific procedures with respect to when and how each of the intermediate sanctions may be imposed, the amount of any fines and the severity of each penalty.  The procedures are to be designed to minimize the time between the identification of violations and imposition of the sanction, and shall provide for the imposition of increasingly severe fines for repeated or uncorrected deficiencies. 
  (f) Publication Requirement.--Provides that the Secretary shall publish a list of categories of drugs that are considered covered outpatient drugs with respect to home intravenous drug therapy not later than January 1, 1990. 
  Effective date.--Applies to items and services furnished on or after January 1, 1990

Conference agreement 

  (a) General.--The conference agreement includes the Senate amendment with amendments. 
  Covered home IV drug therapy services include nursing, pharmacy, and related items and services (such as medical supplies, IV fluids, delivery, and equipment) as are necessary for the safe and effective administration of covered home IV drugs.  Drug therapy services would not be subject to the Part B deductible or to coinsurance. 
  Drugs used for home IV drug therapy are not included in the definition of covered home IV drug therapy services, and are not included in the reimbursement for these services.  Instead, these drugs are covered and reimbursed under the catastrophic prescription drug benefit.  (See Item 10 concerning coverage of IV drugs). 
  A qualified home IV drug therapy provider must comply with requirements contained in the Senate provision.  The conference agreement adds the requirement that the provider must adhere to written protocols with respect to provision of services and expands the requirement pertaining to use of trained personnel to cover provision of all home IV drugs.  Further, the entity must be licensed, or approved as meeting the requirements for licensure, if State or local law provides for licensure of home IV drug providers. 
  A home health agency may qualify as a home IV drug therapy provider if it meets these requirements.  In this case, the home health agency would not have to be recertified with respect to any conditions that it had previously met to be certified as a home health agency. 
  **980 *202 (b) Payment.--The conference agreement includes the Senate amendment with amendments.  Under the agreement, Medicare payment would be the lower of the provider's actual charge or the fee schedule amount. 
  The fee schedule would be established by the Secretary by regulation before January 1, 1990 and would provide payment on a per diem basis.  In establishing the fee schedule, the Secretary could consider cost information, charge information, and payment rates for similar items and services covered under Medicare.  The Secretary could not, however, require routine cost reporting. 
  The conference agreement provides the Secretary with broad flexibility in establishing the fee schedule.  The conferees expect that the Secretary will use this flexibility to establish a fee schedule which assures adequate access to services while preventing excessive payments.  The conferees note that exclusive reliance on customary charges has previously resulted in excessive reimbursement levels for similar services. 
  The conferees expect that the availability of home IV therapy will facilitate shorter hospital lengths of stay for a variety of illnesses.  The conference agreement therefore requires the Prospective Payment Assessment Commission to study and report to the Congress and the Secretary by March 1, 1991 concerning adjustments to DRG payments which may be appropriate in view of the expected savings to hospitals. 
  Finally, the conference agreement prohibits a home IV therapy provider from providing services to a Medicare beneficiary based on a referral from a physician who has an ownership interest in, or receives compensation from, the provider.  The prohibition would also apply to ownership or compensation arrangements involving an immediate family member of the referring physician. The referring physician is the physician who prescribes the home IV drug therapy or establishes the plan of care for such therapy. 
  Several exceptions to this prohibition are provided:  (i) ownership of publicly traded stock purchased on terms available to the general public;  (ii) sole community rural home IV therapy providers as defined by the Secretary; (iii) compensation reasonably related to items or services actually provided by the physician which does not vary in proportion to the number of referrals made;  (iv) physicians whose only relationship with the provider is as an uncompensated officer or director of the provider;  and (v) other exceptions established by the Secretary by regulation, for ownership or compensation arrangements which the Secretary determines do not pose a substantial risk of program abuse.  The exception under clause (iii) would not apply for compensation paid by the home IV provider to the referring physician for direct patient care services.  It is expected that the physician would bill Medicare (or the beneficiary) for such services. 
  Payment would be denied for services provided pursuant to a prohibited referral.  The home IV provider would also be prohibited from billing for such services on an unassigned basis.  Moreover, a physician who knowingly and willfully makes a prohibited referral or a provider who knowingly and willfully accepts such a referral would subject to civil monetary penalties of up to $15,000 for each such referral and/or exclusion from the Medicare program. 
  **981 *203 The conferees intend that this prohibition not be construed in any way as altering (or reflecting on) the scope and application of the anti-kickback provisions contained in Section 1128B of the Social Security Act. 
  The conferees are aware of the growing prevalence of physician ownership and compensation arrangements which are developed and marketed by providers of medical services.  These arrangements are often initiated with the intent of binding together the financial interests of referring physicians with those of the providers. 
  Because of the resulting economic alliance, physicians are less likely to exercise independent judgment in making referral recommendations.  Moreover, such alliances pose a risk of inducing over utilization even if the physician's income does not vary in proportion to the number of referrals made. 
  Some of these arrangements may involve indirect referral fees.  Investment opportunities may be restricted to physicians who are able refer substantial business to the provider, and such investments often have returns which are substantially higher than what would be expected for comparable investments. 
  For these reasons, the conference agreement includes a requirement that the HHS Inspector General conduct a study of physician ownership of, and compensation by, other suppliers of Medicare covered services to which they make referrals.  The report would (i) include a description of the full range of such arrangements and the means by which they are marketed to physicians; (ii) evaluate the potential of such arrangements to influence physician decisionmaking and to result in inappropriate utilization;  (iii) assess the practical difficulties involved in enforcement actions under current anti- kickback provisions;  and (iv) make recommendations regarding possible changes in the law to strengthen protections against program abuse.  The report would be due to Congress by May 1, 1989. 
  (c) Certification.--The conference agreement includes the Senate amendment with an amendment. 
  The conference agreement requires that all home IV therapy services be reviewed and approved for medical necessity and quality by a Peer Review Organization (PROs) during a three-year period (1990-1992). 
  Prior approval by a PRO is required for home IV therapy initiated immediately upon hospital discharge.  Except in exceptional circumstances (specified by the Secretary), home IV therapy services initiated on an outpatient basis (without a preceding hospital stay) must be approved by the PRO within one working day after the initiation of therapy.  PROs would be required to complete reviews within one working day of receipt of a request for review. 
  To assure the validity and uniformity of PRO reviews, the conference agreement requires the Secretary to establish criteria that would be used by PROs in conducting reviews with respect to the appropriateness of home IV therapy services.  Such criteria should assure that beneficiaries are discharged from hospitals to home IV therapy only if this is appropriate from a medical standpoint and the patient (or a family member) is able to carry out the home care regimen properly. 
  **982 *204 The conferees expect that after 1982, the Secretary could require PROs to conduct some focused reviews and could require prior approval in appropriate circumstances. 
  (d) Certification of Providers.--The conference agreement includes the Senate amendment with a clarifying amendment specifying that a home IV drug therapy provider is a "provider" of services as defined under Medicare. 
  The conference agreement further requires the Secretary, in consultation with State agencies and other organizations to develop conditions of participation for home IV drug therapy providers. 
  (e) Intermediate Sanctions for Home Intravenous Drug Therapy Providers.--The conference agreement includes the Senate amendment. 
  (f) Publication Requirement.--The conference agreement includes the Senate amendment. 
  Effective date.--Applies to services furnished on or after January 1, 1990.

12. In-Home Care for Certain Chronically Dependent Individuals (Section 203 of House bill)

Present law 

  No provision.

House bill 

  (a) Services Covered.--Adds a new benefit to Part B of Medicare:  in-home care for a chronically dependent individual for up to 80 hours in any calendar year.  [Such care provided on any day for 3 hours or less is counted as 3 hours.] 
  Defines "in-home care" as including (1) services of a homemaker/home health aide (who has successfully completed a training program approved by the Secretary);  (2) personal care services;  and (3) nursing care provided by a licensed professional nurse.  Requires that these services be furnished, under the supervision of a registered professional nurse, by a home health agency or others under arrangements with the agency.  Also requires that the services be furnished in a place of residence used as the chronically dependent individual's home. 
  (b) Persons Eligible.--Provides that the above services be available to chronically dependent individuals who are Medicare beneficiaries.  Defines "chronically dependent individual" as a person who (1) is dependent on a daily basis on a primary caregiver who is living with the individual and is assisting the individual without monetary compensation in the performance of at least 2 specified activities of daily living (ADLs);  and (2) without this assistance could not perform these ADLs.  Specifies that the individual be dependent in at least 2 of the following ADLs:  eating, bathing, dressing, toileting, or transferring in and out of a bed or in and out of a chair. 
  (c) Payment.--Provides that payment for in-home services be made on the basis of hourly rates based on reasonable costs of furnishing care. 
  Requires the Secretary to provide for an appropriate adjustment to payment rates for prepaid health plans paid on a reasonable cost **983 *205 basis to reflect the new catastrophic protection.  The adjustment is to reflect:  (1) the aggregate increase in payments which would otherwise be made for enrollees if they were not enrolled in the organization;  or (2) the amount that would be paid to the organization or facility if payments were made on an individual by individual basis.  The organization is required to provide assurances, satisfactory to the Secretary, that it will not undertake to charge an individual more than 20 percent of reasonable costs plus any deductible amounts. 
  (d) Certification.--Requires a physician to certify, in the case of in-home services provided to a chronically dependent individual during a 12-month period, that the individual was chronically dependent during the immediately preceding 3-month period. 
  (e) Standards for Utilization.--Specifies that payment may not be made for in-home care for chronically dependent individuals unless such care is reasonable and necessary to assure the health and condition of the individual is maintained in the individual's non-institutional residence.  The Secretary is required to take appropriate efforts to assure the quality and provide for the appropriate utilization of in-home care for chronically dependent individuals. 
  (f) Study of Alternative Out-of-Home Services.--Requires the Secretary to study and report to Congress, within 18 months of enactment, on the advisability of providing to chronically dependent individuals (eligible for services under this provision) with out-of-home services (such as adult day health services or nursing facility services) as an alternative to in-home care. 
  (g) Study of In-Home Care.--Requires the Secretary to study and report to Congress by June 1, 1991, on the extent of use, cost, and effectiveness of in- home care provided chronically dependent individuals under this provision. [See also item 25] 
  Effective date.--(a) through (e) apply to items and services furnished on or after January 1, 1989, and before January 1, 1992.  Study provisions (f) and (g) effective on enactment.

Senate amendment 

  No provision.

Conference agreement 

  (a) Services Covered.--The conference agreement includes the House provision, with the amendment noted below regarding the 12 month period of eligibility for the services. 
  (b) Persons Eligible.--The conference agreement includes the House provision, with an amendment.  It retains the definition of chronically dependent individual.  However, such an individual qualifies for these services only if the individual has been determined either:  (i) to have incurred expenses for Part B coinsurance and deductible payments in an amount equal to the catastrophic limit on Part B cost-sharing for the year;  or (ii) to have incurred expenses for covered outpatient drugs equal to the outpatient drug deductible for the year.  In-home services would then be available to such a beneficiary for 12 months from the date the beneficiary was determined by the Medicare carrier to have incurred such expenses. 
  **984 *206 If a beneficiary met a second limit within twelve months after meeting a prior limit, this would initiate a new twelve month period of eligibility.  In this situation, the beneficiary would be entitled to receive up to 80 hours of care during the new eligibility period, but could not carry over any hours not used during the prior eligibility period.  Moreover, in no event could a beneficiary receive more than 80 hours of care during a calendar year. 
  An individual receiving these services would be responsible for 20 percent coinsurance, notwithstanding that he or she had already met the Part B catastrophic limit in the current year.  However, these coinsurance payments could be counted towards the catastrophic limit, during the calendar year in which they were incurred. 
  The Secretary would be required to take appropriate measures to assure that HMO members who would otherwise qualify for this benefit are properly identified. 
  (c) Payment.--The conference agreement includes the House provision. 
  (d) Certification.--The conference agreement includes the House provision. 
  (e) Standards for Utilization.--The conference agreement includes the House provision. 
  (f) Study of Alternative Out-of-Home Services.--The conference agreement includes the House agreement. 
  (g) Study of In-Home Care.--The conference agreement does not include the House provision. 
  Effective Date.--The conference agreement applies to services furnished on or after January 1, 1990.

13. Extending Home Health Services (Section 204 of House bill;  Sections 7 and 8 of Senate amendment)

Present law 

  (a) Intermittent/Daily Home Health Care.--Home health services are covered under Medicare if the services are required because the individual is homebound and requires skilled nursing care on an intermittent basis or physical or speech thereapy.  Current program guidelines specify that to meet the requirement for intermittent skilled nursing care, an individual must have medically predicable recurring need for skilled nursing services.  The guidelines define "intermittent" as permitting daily skilled nursing visits for up to eight hours a day for up to two or three weeks if medically reasonable and necessary.  Daily is defined as five, six, or seven days per week. 
  (b) Homebound.--Comparable provision included in the Omnibus Budget Reconciliation Act of 1987, section 4024 of Public Law 100-203.

House bill 

  (a) Intermittent/Daily Home Health Care.--Specifies that nursing care and home health aide services are considered intermittent if they are furnished less than 7 days a week.  These services may be provided 7 days a week for an initial period up to 35 consecutive days.  More than 35 consecutive days may be covered if the physician *207 **985 certifies that exceptional circumstances require additional care on a daily basis. 
  Effective date.--(a) Applies to services furnished on or after January 1, 1989.

Senate amendment 

  (a) Intermittent/Daily Home Health Care.--Provides that nursing care and home health aide services may be provided 7 days a week (with one or more visits per day) for up to 21 days with a physician's certification of the need for such care.  For a beneficiary enrolled in Part B, up to 45 days of consecutive care would be allowed if he was discharged from a hospital or skilled nursing home within 30 days prior to beginning home health care. 
  Effective date.--(a) Applies to items and services furnished after December 31, 1987.

Conference agreement 

  (a) Intermittent/Daily Home Health Care.--The conference agreement includes the Senate amendment with a modification.  The agreement provides that nursing care and home health aide services may be provided 7 days a week (with one or more visits per day) for up to 38 consecutive days.  The conferees intend that current coverage policies which allow for additional days of care under unusual circumstances would continue to be covered under Medicare. 
  The conference agreement further extends the favorable presumption under the waiver of liability provisions for skilled nursing facilities and home health agencies.  The Secretary is prohibited from modifying the presumption criteria for these waivers through October 1990. 
  The conference agreement requires the Administrator of the Health Care Financing Administration to appoint an 11 member Advisory Committee on Home Health Claims.  At least five members shall be representatives of home health agencies or visiting nurse associations.  The remaining members are to be representative of physicians' groups, senior citizens' groups and fiscal intermediaries, with no more than 3 members representative of fiscal intermediaries.  The advisory committee is to study the reasons for the increase in the denial rate for home health claims during 1986 and 1987, the ramifications of such increase, and the need to reform the process involved in such denials.  A report on the committee's findings is due to the Health Care Financing Administration and to the Congress within one year of enactment. 
  (b) Homebound.--The conference agreement does not include the Senate provision.  The conferees note that a comparable provision was included in the Omnibus Budget Reconciliation Act of 1987. 
  Effective date.--The conference agreement applies to home health services furnished on or after January 1, 1990.

**986 *208 14. Increase in Maximum Payment Allowed for Outpatient Mental Health Services (Section 205 of House bill)

Present law 

  A special limit is applicable with respect to expenses incurred in a calendar year in connection with the treatment of a mental, psychoneurotic or personality disorder of a beneficiary who is not an inpatient of a hospital at the time services are rendered.  Medicare recognizes 62.5 percent of reasonable charges for such services.  It pays 80 percent of the recognized amount up to a maximum of $250.  The Omnibus Budget Reconciliation Act of 1987 increases the maximum payment amount to $450 in 1988 and $1,100 in 1989.

House bill 

  Increases the medicare outpatient mental health payment limit to $1,000. 
  A maximum of $250 in out-of-pocket expenses may be counted toward the catastrophic limit.  The effective beneficiary coinsurance rate remains the same. 
  Effective date.--Applies to expenses incurred for services furnished on or after January 1, 1989.

Senate amendment 

  No provision.

Conference agreement 

  The conference agreement does not include the House provision.  The conferees note that a provision was included in Section 4070 of the Omnibus Budget Reconciliation Act of 1987 which increased the maximum payment amount for mental health services beyond that provided in this legislation.

15. Adjustments in Medicare Part B Premium (Section 206 of House bill;  Sections 5 and 27 of Senate amendment)

Present law 

  (a) Part B Premiums.--Under current law, premiums for Medicare Part B are charged to Part B enrollees on a monthly basis according to an amount established in advance for each calendar year.  The monthly Part B premium for 1988 is $24.80. 
  During September of each year, the Secretary determines the monthly actuarial rate for the succeeding calendar year for Part B enrollees age 65 and over equal to one-half of the benefits and administrative costs for aged Part B enrollees, including a contingency margin. 
  The Secretary also determines during September of each year the monthly actuarial rate for disabled enrollees under age 65 for the succeeding calendar year equal to one-half of the benefits and administrative costs estimated to be payable from the Part B trust fund for services and related administrative costs for disabled enrollees under age 65, including a contingency margin. 
  The current method of determining the monthly premium (temporarily in effect for 1984-89) is to use a formula that sets the premium rate at 50 percent of the monthly actuarial rate for enrollees **987 *209 age 65 and over (i.e., 25 percent of the amount needed to cover program costs for aged beneficiaries).  Disabled enrollees pay the same premium. 
  If there is no Social Security cost-of-living increase (COLA) in a year, the Part B premium is not increased that year.  For 1986-89, a beneficiary who has his Part B premium deducted from his Social Security check and experiences a premium increase that is greater than the COLA adjustment, the premium increase is reduced to avoid a reduction in the individual's Social Security check. 
  Beginning January 1, 1990, the premium will be calculated according to prior law, which provided that the premium would be the lower of:  (1) an amount sufficient to cover one-half of the costs of the program for the aged, or (2) the current premium amount increased by the Social Security COLA. 
  (b) Catastrophic Coverage Premium.--No provision. 
  (c) Premium for Prescription Drug Benefit.--No provision. 
  (d) Benefit Premium for In-Home Care Benefit.--No provision. 
  (e) Monthly Premiums for Residents of U.S. Commonwealths and Territories.-- All Medicare beneficiaries voluntarily enrolled in Part B are subject to the same Part B premium payment rules and receive the same Medicare benefits, including those residing in the U.S. commonwealths and territories.  An individual need not be entitled to Part A benefits to voluntarily enroll in Part B. 
  (f) Monthly Premiums for Individuals Enrolled Under Part B But Not Entitled to Benefits Under Part A.--All Medicare beneficiaries voluntarily enrolled in Part B are subject to the same Part B premium payment rules and receive the same Medicare benefits, including those not entitled to benefits under Part A. 
  (g) Transfers to Catastrophic Health Insurance Trust Fund.--No provision.

House bill 

  (a) In General.--Provides for increases to the monthly Part B premium to finance the catastrophic coverage benefit (through the transitional adjustment in 1991 and 1992), the prescription drug benefit (beginning in 1989), and the in-home care benefit (in 1989, 1990, and 1991.) 
  (b) Catastrophic Coverage Premium.-- 
    (1) Premium Amount.--Provides for a transitional adjustment increase to the monthly Part B premium otherwise determined of $1.00 in 1991 and $1.30 in 1992. 
    (2) Indexing.--Provides that the transitional increase in 1991 will not be taken into account when determining Part B increases in subsequent years under section 1839(a)(3), but the transitional increase in 1992 will be taken into account when determining Part B increases in 1993 and each subsequent year. 
  (c) Premium for Prescription Drug Benefit.--Amends section 1839  (amount of the Part B premium) to provide for an additional monthly premium for the prescription drug benefit. 
    (1) Premium Amount.--Provides that the basic monthly drug premium increase for a year is, subject to certain limits, the monthly actuarial rate.  The monthly actuarial rate for the prescription drug benefit for 1989 is $2.30. 
    **988 *210 Provides that for subsequent years, the Secretary will determine in September of each year, beginning with 1989, (a) the total benefits and administrative costs estimated to be paid from the Part B trust fund for each succeeding year for covered outpatient drugs and related administrative costs, and (b) a monthly actuarial rate for covered outpatient drugs applicable for the succeeding calendar year estimated so that the aggregate amount of the increase in drug premiums collected or received for such year will equal 75 percent of the total estimated cost of drug benefits and administrative costs. 
    Requires the Secretary to determine in September of each year, beginning in 1990, the aggregate amount of the increase in drug premiums collected or received during the previous year, the total benefits and administrative costs paid from the Part B trust fund during the previous year for covered outpatient drugs and related administrative costs, and whether the premiums were greater or less than 75 percent of the total paid from the Part B trust fund for drugs.  Provides that if the Secretary determines that there was a surplus or deficit in the previous year, the monthly actuarial rate for covered outpatient drugs for the succeeding calendar year must be adjusted by the amount of the surplus or deficit. 
    If the drug premium increase is not a multiple of 10 cents, it will be rounded to the nearest multiple of 10 cents. 
    Requires the Secretary in September of each year beginning with 1989 to determine, for purposes of calculating the prescription drug factor used to adjust the supplemental premium yearly, the total monthly drug premium increases estimated to be collected or received in the succeeding year.  The calculation is to be made as if the monthly actuarial rate (without regard to any adjustment for surplus or deficit in the previous year) were substituted for the basic monthly drug premium increase. 
    (2) Limit on Drug Benefit Premium Amount.--Provides a limit on the basic monthly drug premium amount as follows:  not to exceed $3.40 in 1990, and in 1991 and subsequent years, not to exceed 120 percent of the basic monthly drug premium increase for months in the preceding year. 
    (3) Definitions.--No provision. 
    (4) Report on Projected Excess Premium Increases.--Requires the Secretary to report to Congress in May of each year beginning with 1990 concerning whether the Secretary anticipates that the monthly actuarial rate for the drug benefit for the succeeding year will exceed the limit on the basic monthly drug premium increase for that year.  If so, the Secretary is required to include in the report recommendations for changes in policies under Part B sufficient to reduce Part B expenditures for covered outpatient drugs for the succeeding year so that the monthly actuarial rate (as reduced by such expenditure reductions) will not exceed the limit on the basic monthly drug premium amount for the year. 
  (d) Premium for In-Home Care Benefit.-- 
    (1) Premium Amount.--Requires the Secretary, during September of 1988, 1989, and 1990, to determine (1) the total benefits and related administrative costs estimated to be paid from **989 *211 the Part B trust fund in the succeeding calendar year for in-home care, and (2) a monthly actuarial rate for in-home care applicable in the succeeding calendar year.  The monthly actuarial rate, subject to the adjustment described below, is an amount the Secretary estimates would be necessary so that the aggregate amount of the increase in premiums collected or paid for the year will equal 100 percent of the total benefits and administrative costs paid from the Part B trust fund. 
    Requires the Secretary in September of 1990, to determine the aggregate amount of the monthly premium increases collected or received for the in-home care benefit during the previous year, the total benefits and administrative costs which were paid in the previous year from the Part B trust fund for in- home care, and whether the amount of the premiums is greater or less than 100 percent of the total costs. 
    Provides that if the Secretary determines that there was a surplus or deficit in 1989, the Secretary must adjust the monthly actuarial rate otherwise determined for in-home care for 1991 to reduce or increase the aggregate amount of the monthly premium increase accordingly. 
    Provides that the monthly Part B premium of each individual enrolled in Part B for each month in a year after December 1988 and before January 1992 will be increased by the monthly actuarial rate for that year for the in-home care benefit, except that if the increase is not a multiple of 10 cents, it will be rounded to the nearest multiple of 10 cents. 
    (2) Limit on In-Home Care Benefit premium Amount.--Provides that the increase in the monthly premium for the in-home benefit may not exceed in 1989, $0.30;  in 1990, $0.50;  and in 1991, 120 percent of the monthly premium increase in 1990.  If the monthly actuarial rate for 1991 exceeds 120 percent of the monthly premium increase in 1990, the Secretary is required to decrease the maximum number of hours of in-home care in 1991 by such an amount that will assure that the aggregate amount of the monthly premium increase collected or paid for 1991 for all enrollees is equal to the total benefits and administrative costs estimated to be paid from the Part B trust fund in 1991 for in-home care. 
    Provides for certain conforming amendments. 
  (e) Monthly Premiums for Residents of U.S. Commonwealths and Territories.-- 
    (1) Part B Premium.--Provides a separate Part B premium calculation for Medicare beneficiaries who are residents of a commonwealth or territory, defined as Puerto Rico, the Virgin Islands, Guam, American Samoa, or the Northern Mariana Islands. 
    For such residents during a month in 1988 or 1989, their monthly Part B premium otherwise determined is increased by one-twelfth of the product of: the average per capita additional benefits and related administrative costs due to the amendments in this bill, excluding benefits under section 202 (prescription drugs and insulin) and section 203 (in-home care), as determined by the Secretary during September of the previous year, times the following ratio.  The ratio (determined by the **990 *212 Secretary for that commonwealth or territory during September 1987) is (1) the per capita actuarial value of Medicare benefits for residents of the commonwealth or territory who are entitled to both Part A and Part B benefits, divided by (2) the per capita actuarial value of the Medicare benefits for residents of the United States who are entitled to both Part A and Part B benefits. 
    Provides that for 1990, the monthly Part B premium for such residents would be the monthly Part B premium otherwise determined for months in 1989, plus the increase for 1989 described above, increased by the Social Security COLA percentage increase for 1990. 
    For succeeding years, the Part B premium is the previous year's monthly amount, increased by the Social Security COLA for that year. 
    Provides that if any premium amount is not a multiple of 10 cents, it is rounded to the nearest multiple of 10 cents. 
    (2) Drug Premium for Residents of Commonwealth or Territories.--Provides that for residents of a commonwealth or territory, the monthly Part B premium is increased by the product of 133 1/3 percent of the basic monthly drug premium for that year, times the ratio determined by the Secretary for that commonwealth or territory.  The ratio is the per capita actuarial value of Medicare benefits for residents of the commonwealth or territory entitled to Medicare Part A and Part B, divided by the per capita actuarial value of Medicare benefits for residents of the United States entitled to Medicare Part A and Part B. 
  (f) Monthly Premiums for Individuals Enrolled Under Part B But Not Entitled to Benefits Under Part A.-- 
    (1) Part B Premium.--Provides a separate Part B premium calculation for Part B only individuals.  Defines such persons as those who:  (1) are not residents of a commonwealth or territory as defined in the bill;  (2) are entitled to Part B benefits;  and (3) are not entitled to, or on application without payment of an additional premium would not be entitled to, benefits under Part A. 
    Provides that in 1989, the monthly Part B premium is the monthly Part B premium otherwise determined under current law, increased by one-twelfth of the per capita additional benefits and related administrative costs that the Secretary estimates will be paid under Part B during 1989 because of the amendments made by this bill, excluding benefits under section 202 (prescription drugs and insulin) and section 203 (in-home care). 
    Provides that in 1990, the monthly Part B premium is the 1989 monthly premium otherwise determined under section 1839(a)(3), plus the increase for 1989 determined above, increased by the percentage increase in the Social Security COLA for 1990.  For succeeding years, provides that the monthly Part B premium is the amount for months in the previous year increased by the percentage increase in the Social Security COLA for that year.  If any amount is not a multiple of 10 cents, it will be rounded to the nearest multiple of 10 cents. 
    **991 *213 (2) Drug Premium for Part B Only Individuals.--Provides that for individuals enrolled under Part B but not entitled to benefits under Part A, the monthly Part B premium will be increased by 133 1/3 percent of the basic monthly drug premium increase for that year. 
  (g) Transfers to Catastrophic Health Insurance Trust Fund.--No provision. 
  Effective date.--Provides that the transitional adjustment described in (b), above, applies to monthly premiums for months beginning with January 1991;  (c) (related to premiums for the prescription drug benefit) applies to monthly premiums for months beginning with January 1989;  (d) (related to premiums for in-home care) applies to monthly premiums for months beginning with January 1989 and ending with December 1991;  (e) (related to premiums for residents of commonwealths and territories) applies to monthly premiums for months beginning with January 1988;  and (f) (related to premiums for Part B only individuals, and for the conforming amendments) applies to monthly premiums for months beginning with January 1989.

Senate amendment 

  (a) In General.--Provides for increases to the monthly Part B premium to finance the catastrophic coverage benefit (beginning in 1988) and the prescription drug benefit (beginning in 1990). 
  Provides that the Part B premium would be calculated as under current law, except that the monthly actuarial rate for aged enrollees and for disabled enrollees would be referred to as the monthly actuarial basic rate for each group, respectively, and that such rate would exclude the costs of comprehensive catastrophic coverage benefits (defined as those payable by Medicare as a result of the enactment of sections 2(a), 3(a), 7(b), 7A, and 11 of this bill) and related administrative costs. 
  Suspends hold harmless provision for 1988 and reimposes hold harmless for 1989 and thereafter. 
  (b) Catastrophic Coverage Premium.-- 
    (1) Premium Amount.--Provides that the monthly catastrophic coverage premium amount for 1988 for individuals covered by Part A and Part B of Medicare is $4. 
    (2) Indexing.--Provides that the monthly coverage premium amount for succeeding calendar years is the previous year's amount, increased by the following percentage.  The percentage equals: 
	(a) the percentage (if any) necessary to increase the estimated total revenues collectible from the monthly catastrophic coverage premiums and the supplemental premiums (determined without regard to the drug premium rate adjustment amount) for the succeeding year by the amount by which the estimated total catastrophic coverage benefits and related administrative costs (including administrative costs for outpatient drug coverage) for such succeeding year exceed such revenues, plus 
	(b) a percentage related to establishing and maintaining a contingency or a reserve fund. 
    **992 *214 Provides that the percentage increase for a contingency or a reserve fund for a calendar year before 1993 is the percentage the Secretary determines to be necessary to ensure that before 1993 there is established a contingency fund equal to 20 percent or (if greater) a reserve fund equal to 5 percent.  For calendar years after 1992, the percentage is the percentage necessary to maintain either of such funds at such percentages. 
    Defines "contingency fund" for any calendar year as the percentage determined by dividing (1) the amount of unexpended catastrophic coverage premiums and supplemental premiums (without regard to the drug premium rate adjustment amount) as determined at the end of such year, by (2) the actuarial comprehensive catastrophic benefit amount for the succeeding calendar year. 
    Defines "reserve fund" for any calendar year as the percentage determined by dividing (1) the amount of unexpended and unobligated catastrophic coverage premiums and supplemental premiums (without regard to the drug premium rate adjustment amount) as determined at the end of such year, by (2) the actuarial comprehensive catastrophic benefit amount for the succeeding calendar year. 
    Provides that if any monthly premium amount is not a multiple of 10 cents, it will be rounded to the nearest multiple of 10 cents. 
    Defines "catastrophic coverage benefits" as the benefits payable by Medicare because of the enactment of the catastrophic coverage provisions in section 2(a), 3(a), 4 and 7(b) of this bill. 
    Defines "actuarial comprehensive catastrophic benefit amount" for any calendar year as the amount that the Secretary estimates will equal the total of the catastrophic coverage benefits (and related administrative costs) that will be payable from the Federal Catastrophic Health Insurance Trust Fund in that calendar year for Part B enrollees. 
    Provides that for calendar years after 1988, for enrollees who were entitled to Social Security benefits for November and December of the preceding year and who have the Part B premium deducted from their Social Security checks for December and January, their monthly Part B premium cannot be increased due to the catastrophic benefits if such increase would reduce their Social Security Benefits payable for that January below the benefits payable for that December (after the deduction of the Part B premium). 
  (c) Premium for Prescription Drug Benefit.--Amends Section 1839 (amount of the Part B premium) to provide that the Part B premium be increased by the monthly catastrophic drug benefit premium amount for the prescription drug benefit: 
    (1) Premium Amount.--Provides that the monthly catastrophic drug benefit premium amount for any calendar year after 1989 for individuals who are covered by Part B will be an amount equal to 50 percent (40 percent for calendar year 1990 and 45 percent for calendar year 1991, as provided in section 27 of the bill) of the per enrollee actuarial catastrophic drug benefit amount for such year, plus (a) in calendar year 1990, an amount necessary to cover 7.5 percent of the per enrollee **993 *215 actuarial catastrophic drug benefit amount for 1991 (for a contingency fund), and (b) for calendar years after 1990, an amount (when added to any unexpended amount in the contingency fund for the previous year) necessary to cover 7.5 percent of the per enrollee actuarial catastrophic drug benefit amount for such calendar year. 
    Provides in section 27 of the bill that for calendar years after 1990, if the Secretary determines that (a) it is appropriate to increase the contingency fund to assure a smooth transition from cash outlays accounting to costs incurred accounting over a multiyear period, and (b) the monthly catastrophic drug benefit premium amount for that year is less than the drug premium limit, the Secretary is authorized to increase the drug premium by no greater than 15 percent, not to exceed the drug premium limits in the bill. Once the transition has been completed, requires the Secretary to maintain the drug benefit contingency fund on the basis of such cost incurred accounting method. 
    Provides that if the monthly drug benefit premium amount is not a multiple of 10 cents, if will be rounded to the nearest multiple of 10 cents. 
    (2) Limit on Drug Benefit Premium Amount.--Provides that in calendar years after 1991, the monthly catastrophic drug benefit premium amount cannot exceed $0.90 for 1990 (as provided in section 27 of the bill), $2.00 for 1991, $3.50 for 1992, $4.05 for 1993 (as provided in section 27 of the bill), and for any succeeding year, the amount for the preceding year increased by the percentage by which the Part B beneficiary drug expenditure amount for the 12-month period ending in August in that preceding year exceeds the Part B beneficiary drug expenditure amount for the 12-month period ending in August in the second preceding year. 
    (3) Definitions.--Defines "catastrophic drug coverage benefits" to mean benefits payable under Part B of Medicare because of the enactment of section 7A (coverage of home intravenous drug therapy) and section 11 (coverage of catastrophic expenses for prescription drugs) of this bill. 
    Defines "per enrollee actuarial catastrophic drug benefit amount" to mean, with respect to a year, an amount equal to the actuarial catastrophic drug benefit amount for the year divided by the total number of individuals that the Secretary estimates will be enrolled under Part B for the year. 
    Defines "actuarial catastrophic drug benefit amount" to mean, with respect to a calendar year, the amount that the Secretary estimates will equal the total of the catastrophic drug coverage benefits (and related administrative costs) that will be paid in cash outlays from the Federal Catastrophic Drug Insurance Trust Fund in such calendar year for Part B enrollees. 
    Defines "Part B beneficiary drug expenditures amount" to mean, with respect to a 12-month period, the average per capita amount expended for a period on outpatient prescription drugs by Part B enrollees (other than such enrollees enrolled *216 **994 in a health maintenance organization, a competitive medical plan, or a health care prepayment plan). 
    Projected Excess Premium Increases.--No provision.  (See section 11 of the Sen ate amendment relating to Secretarial authority to institute cost control me a sures to assure that the drug premiums do not exceed the premium limits.) 
  (d) Premium for In-Home Care Benefit.--No provision. 
  (e) Monthly Premiums for Residents of U.S. Commonwealths and Territories.--No provision. 
  (f) Monthly Premiums for Individuals Enrolled Under Part B But Not Entitled to Benefits Under Part A.-- 
    (1) Part B Premium.--Provides that the monthly catastrophic coverage premium amount (which is added to the monthly Part B premium otherwise determined) for individuals who are covered by Part B but not by Part A is an amount that bears the same ratio to the monthly catastrophic coverage premium amount for individuals covered by both Part A and Part B of Medicare, as the actuarial Part B catastrophic benefit amount for that year bears to the actuarial comprehensive catastrophic benefit amount for that year. 
    Defines the actuarial Part B catastrophic benefit amount for a calendar year as the amount the Secretary estimates will equal the catastrophic coverage benefits and related administrative costs payable from the Federal Catastrophic Health Insurance Trust Fund for that year with respect to such enrollees (excluding any amounts attributable to changes under Sections 2(a), 3(a), and 7(b) of this bill in services performed and related administrative costs incurred in that year for individuals covered under Part A). 
    Provides that if the monthly premium amount is not a multiple of 10 cents, it will be rounded to the nearest multiple of 10 cents. 
    (2) Drug Premium for Part B Only Individuals.--No provision.  (The drug premium for Part B only individuals is calculated in the same manner as for Medicare beneficiaries covered by both Part A and Part B). 
  (g) Transfers to Catastrophic Health Insurance Trust Fund.--Provides that there will be transferred from time to time from the Part B trust fund to the Federal Catastrophic Health Insurance Trust Fund amounts from Part B premiums that are attributable to the catastrophic coverage changes in services performed and related administrative costs incurred in a calendar year (under sections 2(a), 3(a), and 7(b) of this bill). 
  Provides that there will be transferred from time to time from the Part B trust fund to the Federal Catastrophic Drug Insurance Trust Fund amounts from the catastrophic drug benefit premiums. 
  Effective date.--Applies to premiums for months beginning after December 31, 1987.

Conference agreement 

  (a) In General.--The conference agreement provides for increases to the monthly Part B premium otherwise determined to finance the catastrophic coverage benefit and the prescription drug benefit.  For 1993, revenues from the additional flat Part B premium are estimated *217 **995 to provide approximately 37 percent of the financing for the catastrophic coverage and prescription drug benefits, with the supplemental premium (see section 7, above) providing an estimated 63 percent of revenues.  After 1993, the conferees intend that the proportion contributed by the flat premium will be 37 percent;  however, the proportion could vary as a result of limits on the allowable change in the supplemental premium. 
  The conference agreement requires the Secretary of Health and Human Services and the Secretary of the Treasury jointly to (1) publish in the Federal Register, by not later than July 1 of each year beginning with 1993, a notice of the proposed preliminary catastrophic coverage and prescription drug monthly premiums for the following year;  (2) report to Congress by no later than September 1 of each year the final premiums for the following year;  and (3) publish in the Federal Register during the last three days in September of each year the final premiums for the following year. 
  The flat premium is adjusted to account for any changes in the supplemental premium resulting from limits specified in this Act (see section 7 for a description of these limits).  The adjustment to the flat rate premium is calculated in three steps.  First, the current year actual supplemental premium rate is subtracted from what the supplemental premium rate would have been if it had not been adjusted by the limits.  This difference is known as either the excess or the shortfall rate.  Then, the total supplemental premiums imposed in the second preceding year are compared to the total supplemental premiums as adjusted by the excess or shortfall rate.  Finally, this difference is adjusted by the percentage by which the per capita catastrophic coverage premium liability (see section 7) for the second preceding year exceeds or is less than such liability for the fourth preceding year.  The resulting amount is then used to establish the new per person monthly flat premium. 
  The conference agreement provides that the sum of the additional monthly premiums for catastrophic coverage and prescription drug coverage for months after 1993 cannot be less than the sum of these additional premiums for months in the preceding year.  If this combined monthly premium is affected by the application of this provision, the premium increase is allocated between the catastrophic coverage premiums and the prescription drug premiums in the same proportion as if this provision had not applied. 
  If any flat premium increase for a month is not a multiple of 10 cents, it will be rounded to the nearest multiple of 10 cents.  If so rounded, premiums will be allocated between the catastrophic coverage monthly premium and the prescription drug monthly premium on the basis of their respective amounts determined without regard to any rounding. 
  The conference agreement includes the Senate amendment regarding the "hold harmless" provision with a modification that the provision applies to both social security benefits and Railroad Retirement benefits and that such benefits may not decrease due to an increase in the Part B premium in any year. 
  (b) Catastrophic Coverage Premium.--(1) Premium Amount.--The conference agreement provides that the monthly catastrophic coverage premium will be as follows for months occurring in 1989 through 1993:

 *218 1989 .. $4.00
 1990 ... 4.90
 1991 ... 5.46
 1992 ... 6.75
 1993 ... 7.18
  
   **996 (2)  Indexing.--The conference agreement provides that for months in a year after 1993, the catastrophic coverage monthly premium will be the preceding year's premium (without regard to any increase in the premium because it was less than the previous years' premium or because of any adjustment due to limits on the supplemental premium), adjusted by a percentage representing the sum of:  (i) the outlay premium percentage, and (ii) the reserve account percentage. 
  The outlay-premium percentage is the percent by which the per capita catastrophic outlays in the second preceding year exceed (or are less than) such outlays in the third preceding year.  An adjustment is provided for changes in the Consumer Price Index (CPI) as follows: 
  If the CPI's inflation rate increased from the third to the second preceding year, the outlay-premium percentage is adjusted by adding 50 percent of the excess (if any) of (i) the excess of the CPI inflation rate in the second over the third preceding year, over (ii) one percentage point.  If the CPI inflation rate decreased from the third to the second preceding year, the outlay-premium percentage is adjusted by subtracting 50 percent of the excess (if any) of (i) the excess of the CPI inflation rate in the third over the second preceding year, over (ii) one percentage point.  For this purpose, the CPI inflation rate for any year is defined as the percentage by which the CPI for May of such year exceeds such index for May of the preceding year. 
  The reserve account percentage for any calendar year is the percentage change in the catastrophic coverage monthly premium for the second preceding year which the Secretary determines would have increased (or decreased) the flat premiums for such year by an amount equal to 37 percent of the shortfall (or surplus) in the Medicare Catastrophic Coverage Account (the "Account") in such year.  The shortfall (or surplus) in the Account for any calendar year is determined as the amount by which 20 percent of the catastrophic outlays from the Account in the second preceding year exceed (or are less than) the Account balance at the end of such year (taking into account falt and supplemental premium increases attributable to reserve percentages in prior years that have not yet been credited to the Account). 
  (c) Premium for Prescription Drug Benefit.--The conference agreement provides that the monthly prescription drug premium will be as follows for months occurring in 1991 through 1993:

 1991 .. $1.94
 1992 ... 2.45
 1993 ... 3.02
  
   For months in a year after 1993, the prescription drug premium will be the preceding year's premium, (without regard to any increase because the premium was less than the previous year's premium or because of any adjustment due to the limits on the supplemental premium), adjusted by a percentage determined in a **997 *219 manner similar to that for the monthly catastrophic coverage premium, with the following changes:  (1) in determining the outlay percentage, prescription drug outlays rather than catastrophic coverage outlays are used; (2) in determining the reserve percentage, the Federal Catastrophic Drug Insurance Trust Fund balance (see section 16, below) is used rather than the Account balance;  (3) the reserve percentage is 75 percent for 1994, 50 percent for 1995, and 25 percent for 1996 and 1997, instead of 20 percent;  and (4) the outlay percentage is deemed to be zero for calendar years before 1998. 
  (d) Premium for In-Home Care Benefit.--The conference agreement does not include the House provision.  Revenues to fund the in-home (respite care) benefit are included in the monthly and supplemental catastrophic coverage premiums. 
  (e) Monthly Premiums for Residents of U.S. Commonwealths and Territories.-- The conference agreement includes the House provision, with the following amendments.  For individuals who are residents of Puerto Rico or of another U.S. commonwealth or territory (including the U.S. Virgin Islands, Guam, American Samoa, or the Northern Mariana Islands), the monthly Part B premium otherwise determined would be increased by a catastrophic coverage monthly premium and a prescription drug monthly premium. 
  For months in 1989, the catastrophic coverage monthly premium is $1.30 for a resident of Puerto Rico and $2.10 for a resident of another U.S. commonwealth or territory.  For months in 1990, the catastrophic coverage monthly premium is $3.56 for a resident of Puerto Rico and $5.78 for a resident of another U.S. commonwealth or territory. 
  For months in a subsequent year, the catastrophic coverage monthly premium is the resident's preceding year's premium increased by the Secretary's estimate (in September of that preceding year) of the percentage increase in the per capita catastrophic outlays from the Catastrophic Account for the year over such outlays for the preceding year. 
  For months in 1990, the prescription drug monthly premium is $0.14 for a resident of Puerto Rico and $0.22 for a resident of another U.S. commonwealth or territory.  For months in 1991, the prescription drug monthly premium is $1,21 for a resident of Puerto Rico and $1.93 for a resident of another U.S. commonwealth or territory. 
  For months in a subsequent year, the prescription drug monthly premium is the resident's preceding year's premium increased by the Secretary's estimate (in September of that preceding year) of the percentage increase in the per capita prescription drug outlays from the Federal Catastrophic Drug Insurance Trust Fund for the year over such outlays for the preceding year. 
  The Secretary is required to report to Congress, in 1993, on the appropriateness of the level of the Part M premium increases for residents of Puerto Rico and of other U.S. commonwealths and territories. 
  (f) Monthly Premiums for Individuals Enrolled Under Part B But Not Entitled to Benefits Under Part A.--The conference agreement includes the House provision, with amendments.  The agreement provides that for individuals who are entitled to Part B of Medicare *220 **998 but are not entitled to Part A, or would not be entitled to Part A but for payment of the Part A premiums, and who are not residents of a commonwealth or territory, the monthly Part B premiums will be determined as follows.  The monthly Part B premium otherwise determined will be increased by a catastrophic coverage monthly premium and a prescription drug monthly premium. 
  For months in 1990, the catastrophic coverage monthly premium is $8.57, and for months in a subsequent year the premium is one-twelfth of the average actuarial expenses that the Secretary estimates (during the previous September) will be incurred for benefits and administration costs attributable to Part B for which outlays may be made from the Medicare Catastrophic Coverage Account during the year. 
  The prescription drug monthly premium is $0.53 for months in 1990, $4.61 for months in 1991, and for months in a subsequent year the premium is one-twelfth of the average actuarial expenses that the Secretary estimates (during the previous September) will be incurred for benefits and administration costs attributable to Part B for which outlays may be made from the Federal Catastrophic Drug Insurance Trust Fund during the year. 
  (g) Transfers to Catastrophic Health Insurance Trust Fund.--The conference agreement does not include the Senate amendment.  The catastrophic coverage monthly premium is credited to the Medicare Catastrophic Coverage Account and transferred to the SMI Trust Fund. 
  (h) Conforming Amendments.--The conference agreement provides for certain conforming amendments, including (1) those to disregard the receipts and outlays attributable to changes made by this Act when determining (i) the monthly actuarial rate used to establish the Part B premium for aged and disabled beneficiaries, and (ii) the appropriate contingency margin for the PART B trust fund;  (2) a provision to disregard the flat and supplemental catastrophic coverage and prescription drug premiums when computing appropriations to the Part B trust fund from the Treasury;  and (3) those authorizing payments from the Federal Catastrophic Drug Insurance Trust Fund to organizations with risk-sharing contracts and establishing a method for allocating payment to such organizations from the Part A, Part B, and the Federal Catastrophic Drug Insurance Trust Funds. 
  Effective Date.--The conference agreement applies (except as otherwise specified in such amendments) to monthly premiums for months beginning with January 1989.

16. Establishment of Federal Catastrophic Drug Insurance Trust Fund (Section 6A or Senate Amendment)

Present law 

  A separate trust fund exists in the Treasury of the United States for each part of the Medicare program:  the Federal Hospital Insurance Trust Fund (Part A) and the Federal Supplementary Medical Insurance Trust Fund (Part B). 
  The Part A trust fund includes annual deposits of the hospital insurance taxes collected from employers, employees, and the self-employed, and the monthly Part A premiums from individuals not **999 *221 otherwise eligible for Part A.  The Part B trust fund includes deposits of the monthly Part B premiums paid by or on behalf of Part B enrollees, and contributions by the Federal Government from general revenues. 
  Section 1841 of the Social Security Act applies to the Federal Supplementary Medical Insurance Trust Fund as follows:  Section 1841(b) creates and specifies the duties of a board of trustees for the trust fund;  section 1841(c) provides for the investment of certain trust fund funds;  section 1841(d) authorizes the selling of certain obligations acquired by the trust fund;  section 1841(e) provides for the crediting of interest on or proceeds from the sale or redemption of any obligations held by the trust fund;  section 1841(f) provides for periodic transfers to the trust fund from the Federal Old-Age and Survivors Insurance Trust Fund, the Federal Disability Insurance Trust Fund, and the Railroad Retirement Account;  section 1841(g) provides for payments from the trust fund for Part B benefit payments and related administrative costs; section 1841(h) provides for payment from the trust fund for costs incurred by the Office of Personnel Management in deducting Part B premiums from Federal annuities;  and section 1841(i) provides for payment from the trust fund for certain costs incurred by the Railroad Retirement Board.

House bill 

  No provisions.

Senate amendment 

  Creates on the books of the Treasury of the United States a trust fund known as the Federal Catastrophic Drug Insurance Trust Fund. 
  Provides that such trust fund consists of (1) any gifts and bequests made to the trust fund or to the Department of Health and Human Services for the benefit of the trust fund or any activity financed by the trust fund, and (2) the following amounts transferred to such trust fund:  (a) drug benefit premiums transferred from the Part B trust fund, and (b) the drug premium rate adjustment component of the Medicare supplemental premium transferred from the general fund of the Treasury. 
  Provides that subsections (b) through (i) of section 1841 of the Social Security Act apply to such trust fund in the same manner as they apply to the Part B trust fund. 
  Requires that all Medicare payments for the home intravenous drug therapy benefit and the prescription drug benefit be made from this trust fund. 
  Effective date.--Applies to items and services furnished after, and premiums for months beginning after, December 31, 1987.

Conference agreement 

  The Conference agreement generally follows the Senate amendment.  All payments for benefits and administrative costs relating to covered outpatient drugs are to be made from the CDI Trust Fund.  The CDI Trust Fund has no borrowing authority. 
  Receipts attributable to the supplemental prescription drug premium rate are appropriated to the CDI trust fund.  The Secretary **1000 *222 of the Treasury is to transfer these appropriated amounts from the general fund to the CDI trust fund not less frequently than monthly, and at the close of the calendar year, determined on the basis of estimates;  adjustments are made in subsequent transfers to take account of estimating errors.  For individuals paying the maximum supplemental premium, receipts are allocated between the supplemental prescription drug and catastrophic coverage premiums pro rata on the basis of the respective premium rates. 
  The Secretary of HHS shall transfer premiums attributable to the prescription drug monthly premium directly to the CDI trust fund rather than through the SMI Trust Fund. 
  The Secretaries of HHS and Treasury jointly shall:  (1) not later than July 1 of 1993 and each year thereafter, announce the preliminary monthly and supplemental prescription drug premiums for the following year;  (2) not later than July 1 of 1992 and each year thereafter, publish in the Federal Register the outlays from, and the year-end balance in the CDI trust fund for the preceding year;  (3) during the last 3 days of September of 1993 and each year thereafter, publish in the Federal Register the monthly prescription drug premiums for the following year;  and (4) not later than October of 1993 and end each year thereafter, announce the supplemental prescription drug premium rate for the following year.  The Comptroller General shall report to Congress, not later than September 1 of 1992 and each year thereafter, on the completeness and accuracy of the July 1 Federal Register publication, and after 1992, on the July 1 premium announcement. 
  With respect to the CDI trust fund, "outlays" and "receipts" are defined as gross outlays and receipts within the meaning of the "Monthly Treasury Statement of Receipts and Outlays of the United States Government," as published by the Treasury Department. 
  Effective date.--The CDI trust fund provisions are effective after December 31, 1988.

17. Establishment of Federal Catastrophic Health Insurance Trust Fund (Section 6B of Senate Amendment)

Present law 

  A separate trust fund exists in the Treasury of the United States for each part of the Medicare program:  the Federal Hospital Insurance Trust Fund (Part A) and the Federal Supplementary Medical Insurance Trust Fund (Part B). 
  The Part A trust fund includes annual deposits of the hospital insurance taxes collected from employers, employees, and the self-employed, and the monthly Part A premiums from individuals not otherwise eligible for Part A. The Part B trust fund includes deposits of the monthly Part B premiums paid by or on behalf of Part B enrollees, and contributions by the Federal Government from general revenues. 
  Section 1841 of the Social Security Act applies to the Federal Supplementary Medical Insurance Trust Fund as follows:  Section 1841(b) creates and specifies the duties of a Board of Trustees for the trust fund;  section 1841(c) provides for the investment of certain trust fund funds;  section 1841(d) authorizes the selling of certain *223 **1001 obligations acquired by the trust fund; section 1841(e) provides for the crediting of interest on or proceeds from the sale or redemption of any obligations held by the trust fund;  section 1841(f) provides for periodic transfers to the trust fund from the Federal Old-Age and Survivors Insurance trust fund, the Federal Disability Insurance trust fund, and the Railroad Retirement Account;  section 1841(g) provides for payments from the trust fund for Part B benefit payments and related administrative costs;  section 1841(h) provides for payment from the trust fund for costs incurred by the Office of Personnel Management in deducting Part B premiums from Federal annuities;  and section 1841(i) provides for payment from the trust fund for certain costs incurred by the Railroad Retirement Board.

House bill 

  No provision.

Senate amendment 

  Creates the books of the Treasury of the United States as a trust fund known as the Federal Catastrophic Health Insurance Trust Fund. 
  Provides that such trust fund consists of (1) any gifts and bequests made to the trust fund or to the Department of Health and Human Services for the benefit of the trust fund or any activity financed by the trust fund, and (2) the following amounts transferred to such trust fund:  (a) amounts from the Part B premiums attributable to the catastrophic benefit changes (excluding the drug benefit) in this bill, transferred from the Part B trust fund, and (b) the aggregate monthly supplemental premiums (excluding the drug premium rate adjustment) plus the amount the Secretary of the Treasury estimates Federal outlays are reduced under Medicaid because of the catastrophic provisions of this bill (after taking into account the provisions of section 14 of the bill related to Medicaid savings and State requirements), transferred from the general fund of the Treasury. 
  Provides that subsections (b) through (i) of section 1841 of the Social Security Act apply to such trust fund in the same manner as they apply to the Part B trust fund. 
  Requires that all Medicare payments for the catastrophic benefits in sections 2(a), 3(a), 4, and 7(b) of this bill be made from this trust fund. 
  Effective date.--Applies to items and services furnished after, and premiums for months beginning after, December 31, 1987.

Conference agreement. 

  (a) Medicare Catastrophic Coverage Account.--The conference agreement does not include the Senate amendment.  A separate Medicare Catastrophic Coverage Account (the "Account") is established on the books of the Treasury of the United States, to be maintained by the Secretary of the Treasury. 
  No funds are transferred into or out of the account.  The principal purpose of the Account is to index the monthly and supplemental catastrophic coverage premium rates and to assure that over time revenue from these premiums are at least as large as the outlays *224 **1002 from the Parts A and B trust funds attributable to the Medicare Catastrophic Coverage Act of 1988.  (See discussion of premium indexing under section 7 above.) 
  Under rules prescribed by the Secretary of HHS, the Account is to be debited for catastrophic outlays.  Catastrophic outlays are defined as outlays from the HI and SMI trust funds estimated to be attributable to the Catastrophic Coverage Act of 1988;  HI and SMI outlays are to be separately debited from the Account.  The Account is to be credited for monthly catastrophic coverage premiums received in the SMI trust fund and supplemental catastrophic coverage premiums received in the SMI trust fund and the Reserve Fund.  Such credits and debits shall be made as of the last date of each month based upon receipts and outlays occurring during such month, as estimated by the Secretaries of HHS and Treasury.  Interest (at the rate used for purposes of the SMI trust fund) is credited on any positive average Account balance in a calendar quarter and debited on any negative average Account balance in a calendar quarter.  Thus, if the Account balance is negative, the Account is debited for principal and interest deemed to be owed to the SMI trust fund. 
  The Secretaries of HHS and Treasury jointly shall:  (1) not later than July 1 of 1993 and each year thereafter, announce the preliminary monthly and supplemental catastrophic coverage premiums for the following year;  (2) not later than July 1 of 1990 and each year thereafter, publish in the Federal Register the outlays debited from, and the year-end balance in the Account for the preceding year;  (3) during the last 3 days of October of 1993 and each year thereafter, publish in the Federal Register the monthly and catastrophic coverage premiums for the following year;  and (4) not later than October 1 of 1993 and each subsequent year, announce the supplemental catastrophic coverage premium rate for the following year.  The Comptroller General shall report to Congress, not later than September 1 of 1990 and each year thereafter, on the completeness and accuracy of the July 1 Federal Register publication and, after 1992, and July 1 premium announcement. 
  Catastrophic health insurance benefits, other than prescription drug and home intravenous therapy benefits, are paid out of the existing medicare Parts A and B trust funds. 
  Receipts attributable to the supplemental catastrophic coverage premium rate, which are not otherwise appropriated to the Federal Hospital Insurance Catastrophic Coverage Reserve Fund (the "Reserve Fund"), are appropriated to the SMI trust fund.  The Secretary of the Treasury is to transfer these appropriated amounts from the general fund to the SMI trust fund not less frequently than monthly, and at the close of the calendar year, determined on the basis of estimates;  adjustments are made in subsequent transfers to take account of estimating errors.  For individuals paying the maximum supplemental premium, receipts are allocated between the supplemental prescription drug and catastrophic coverage premiums pro rata on the basis of the respective premium rates. 
  The Secretary of HHS shall transfer receipts from the monthly catastrophic coverage premium to the SMI trust fund in the same manner as the existing Part B monthly premium. 
  **1003 *225 These supplemental and monthly catastrophic coverage premiums are intended to increase Federal government receipts by the cost of catastrophic coverage benefits (plus a contingency margin). 
  No additional revenues are transferred to the Part A trust fund. 
  Effective date.--The Account is effective after December 31, 1988. 
  (b) Federal Hospital Insurance Catastrophic Coverage Reserve Fund.--To prevent an adverse effect on the HI trust fund balance, a new trust fund, to be known as the "Federal Hospital Insurance Catastrophic Coverage Reserve Fund," (the "Reserve Fund") is established on the books of the Treasury of the United States.  The Conferees anticipate that Congress may at some future time transfer funds from the Reserve Fund to the HI trust fund to bolster the solvency of the trust fund.  No expenditures from the Reserve Fund are permitted. 
  The rules for managing the Reserve Fund generally are similar to the rules that apply to the SMI trust fund. 
  Beginning in 1989, supplemental catastrophic coverage premiums are appropriated to the Reserve Fund, but not exceeding the amount of outlays from the HI trust fund that are debited against the Account.  The Secretary of the Treasury is to transfer these appropriated amounts from the general fund to the Reserve Fund not less frequently than monthly, and at the close of the calendar year, determined on the basis of estimates;  adjustments are made in subsequent transfers to take account of estimating errors.  For individuals paying the maximum supplemental premium, receipts are allocated between the supplemental prescription drug and catastrophic coverage premiums pro rata on the basis of the respective premium rates. 
  The Secretary shall in July 1990 transfer an amount of supplemental catastrophic coverage premiums to the Reserve Fund equal to interest deemed to accrue (at the rate used for purposes of the SMI trust fund) from the time HI outlays are debited from the Account in 1989, until the time an equal amount of supplemental catastrophic coverage premiums are transferred to the Reserve Fund. 
  Receipts attributable to the supplemental catastrophic coverage premium are first transferred to the Reserve Fund and then, to the extent available, transferred to the SMI trust fund, as described in section 17, above.  (Such premium receipts are credited to the Account, whether transferred to the Reserve Fund or the SMI trust fund.) 
  With respect to the Reserve Fund, "outlays" and "receipts" are defined as gross outlays and receipts within the meaning of the "Monthly Treasury Statement of Receipts and Outlays of the United States Government," as published by the Treasury Department. 
  Effective date.--The Federal Health Insurance Reserve Fund provisions are effective after December 31, 1988.

**1004 *226 18. Trustee Comments on Actuarial Soundness of Basic and
Supplemental Catastrophic Benefit Premiums (Section 18 of Senate amendment)

Present law 

  The Social Security Act currently requires that the Trustees of the Hospital Insurance (HI) and Supplementary Medical Insurance (SI) trust funds report to the Congress not later than April 1 of each year on the operation and status of the trust funds during the preceding fiscal year and on their expected operation and status during the current fiscal year and the next 2 fiscal years.

House bill 

  No provision.

Senate amendment 

  Amends section 1817(b) relating to the HI trust fund and 1841(b) relating to the SMI trust fund by inserting a requirement that the Trustees comment in their annual reports with respect to the extent to which the monthly catastrophic coverage premium and the supplemental premium cover the cost of the catastrophic benefits (as defined in section 1839(g)(2)(C)(i) added by this Act) and related administrative expenses payable from the trust funds. 
  Effective date.--Effective for trustees' annual reports beginning with those issued for fiscal year 1988.

Conference agreement 

  Under the Conference agreement, the Trustees annual reports on the HI and SMI trust funds are to identify those receipts and outlays in each trust fund which are deemed to be receipts and outlays in the Medicare Catastrophic Coverage Account (see section 17, above).  In addition, the HI report is to include information pertaining to the Federal Hospital Insurance Catastrophic Coverage Reserve Fund. 
  The trustees of the CDI trust fund and the Account are to report to the Congress, not later than April 1 of each year, on the operation and status of the CDI trust fund and Account during the preceding fiscal year and on their expected operation and status during the current fiscal year and the next two fiscal years. 
  Effective date.--Effective for Trustees' annual reports beginning with those issued for fiscal year 1989.

19. Treatment of Prepaid Health Plans (Section 207 of House bill;  Section 10
of Senate amendment).

Present law 

  Section 1876 of the Social Security Act, as amended by the Tax Equity and Fiscal Responsibility Act of 1982, provides for Medicare payments to Health Maintenance Organizations (HMOs) and Competitive Medical Plans (CMPs) on either a risk or a cost contracting basis.  In general, risk contracting plans are financially responsible for the cost of all benefits their enrollees would otherwise be eligible for under Medicare.  Reimbursement of HMOs and CMPs is determined *227 **1005 based on estimates of the average adjusted per capita cost (AAPCC) and the adjusted community rate (ACR).

House bill 

  (a) Adjustment of AAPCC's and Contracts for Risk-Based Eligible Organizations.--Requires the Secretary to:  (1) take into account amendments made by this act in estimating the AAPCC under section 1876(a) for eligible organizations with risk sharing contracts under section 1876(a) for portions of contract years occurring after December 31, 1987;  (2) modify such contracts, for such portions of contract years, to reflect any adjustments made to the AAPCCs (as required above);  and (3) require such organizations to make appropriate adjustments (including adjustments in premiums and benefits) in terms of their agreements with Medicare beneficiaries to take into account the changes in law required by this act. 
  (b) Provisions Applicable to Organizations Receiving Reasonable Cost Reimbursement.--Specifics that the following new provisions of this act apply to organizations reimbursed on the basis of reasonable costs:  Section 201(a)(1) relating to payment for catastrophic benefits;  section 202(b)(1)(C) relating to payment for covered out-patient drugs;  section 203(c)(3) relating to payment for in-home care. 
  Requires the Secretary to provide for an appropriate adjustment in Medicare payment amounts to cost-based HMOs for added benefits. 
  Requires such organizations to assure the Secretary that they will not charge individuals eligible for: 
    Medicare catastrophic coverage for covered services after the individual has incurred out-of-pocket expenses equal to the catastrophic limit;  or 
    More than 20 percent of reasonable cost of covered drugs plus amounts payable due to deductible;  or 
    More than 20 percent of reasonable costs of respite services plus an amount payable due to the deductible. 
  Effective date.--Enactment.

Senate amendment 

  (a) Adjustment of AAPCC's and Contracts for Risk-Based Eligible Organizations.--Similar provision except requires the Secretary to:  (1) modify any AAPCC under section 1876(a) for an eligible organization with a risk- sharing contract to take into account the amendments made by section 2(a) of this bill relating to benefits for hospital inpatient services, section 3(a) relating to deductibles and coinsurance for individuals under parts A and B, section 4 relating to limitations on out-of-pocket expenses, section 7(b) relating to payment for in-home care, section 7A relating to home intravenous drug therapy, and section 11 relating to prescription drugs;  (2) modify each such contract for portions of contract years occurring after December 31, 1987 to reflect the modifications made (as required above);  and (3) require such organizations to make appropriate adjustments in terms of its agreements with Medicare beneficiaries to take into account such amendments. 
  **1006 *228 (b) Provisions Applicable to Organizations Receiving Reasonable Cost Reimbursement.--No provision.  See section 4 of the Senate amendment (Item 9e) relating to limitations on cost sharing. 
  Effective date.--Enactment.

Conference agreement 

  (a) Adjustment of AAPCCs and Contracts for Risk-Based eligible Organizations.--The conference agreement requires the Secretary to modify contracts under sections 1833 and 1976 for portions of contract years occurring after December 31, 1988.  Prepaid plans are required to adjust their benefit packages to take the new benefits into account.  The AAPCC will be adjusted to take the new benefits into account under current authority.  For provisions describing the treatment of copayments and deductibles when a beneficiary is enrolled in a pre-paid plan reimbursed on a risk basis, see item 9(e). 
  In assessing the value of benefits under prepaid plans paid on a risk basis the Secretary is required to make a separate actuarial determination for drug benefits and for all other covered benefits. 
  (b) Provisions Applicable to Organizations Receiving Reasonable Cost Reimbursement.--The conference agreement does not include the House provision. For provisions applicable to organizations reimbursed on a reasonable cost basis, see items 9(e), 10(f), and 12(c). 
  Effective date.--The conference agreement is effective on enactment.

20. Mailing of Notice of Medicare Benefits and Participating Physician
Directories (Section 208 of the House bill;  Section 9 of Senate amendment)

Present law 

  Under existing law, there is no requirement for an annual notice to Medicare beneficiaries about the scope of benefits available to them under the Medicare program.  Information on Medicare coverage is generally available through the Social Security Administration district offices.  As part of the participating physician program created by Public Law 98-369, the Deficit Reduction Act (DEFRA), HHS prepares directories of participating physicians, by area and specialty.  These directories are made available in local Social Security offices, through hospitals, and through aging and consumer groups. Also, enrollees are informed by a notice in their Social Security check envelopes that they can obtain a copy free from their Medicare carrier.  As of October 1, 1986, all "Explanation of Medicare Benefits" notices sent to beneficiaries on unassigned claims have to include a reminder of the participating physician and supplier program.

House bill 

  (a) Distribution of Notice of Medicare Benefits.--Amends the Medicare statute by adding new section 1804.  Section 1804(a) requires the Secretary to distribute annually a notice containing:  (1) a clear, simple explanation of the benefits available under Medicare and health care services for which benefits are not available under Medicare;  and (2) a description of the limited benefits for **1007 *229 long-term care services available under this title and generally available under State plans approved under Medicaid. Requires the notice to be mailed annually to individuals entitled to Medicare Part A or Part B benefits. 
  (b) Authorization of Funds.--Amends the Medicare statute by adding a new provision (1804(b)) which authorizes, to be appropriated in equal portions from the HI and SMI trust funds, such sums as may be required to provide for the annual publication and distribution of the notice described in (a). 
  (c) Distribution of Participating Physician Directories.--Amends section 1842(h)(6) of the Medicare law relating to participating physician directories to require that an area directory of participating physicians be sent to each individual enrolled under Part B and residing in that area. 
  (d) Timing.--Requires the Secretary to provide notice annually. 
  (e) Consultation Required.--No provision. 
  Effective date.--First applies to annual rates and directories for 1988.  The annual notice would be sent by January 31, 1988, or 3 months after the date of enactment of this legislation.

Senate amendment 

  (a) Distribution of Notice of Medicare Benefits.--Requires the Secretary to notify each individual who is entitled to benefits under Medicare of:  (1) the benefits that are available under the insurance programs established under Medicare (and the major categories of health care that are not covered under those programs);  (2) the limitations on payment (including deductibles and coinsurance amounts) that are imposed under such programs;  and (3) the ways in which such limitations differ for individuals who are covered under the program established under Part B and individuals who are not covered under Part B. 
  (b) Authorization of Funds.--No provision. 
  (c) Distribution of Participating Physician Directories.--No provision. 
  (d) Timing.--Requires the Secretary to provide the notice described in (a) when an individual applies for benefits under Part A or enrolls under Part B, and annually thereafter. 
  (e) Consultation Required.--Requires the notices to be prepared in consultation with groups representing the elderly and with health insurers. 
  Effective date.--The requirement for notices for new beneficiaries is effective January 1, 1988.  The notice to all beneficiaries applies to annual notices beginning for 1988.

Conference agreement 

  (a) Distribution of Notice of Medicare Benefits.--The conference agreement includes the House provision with modifications.  The notice must include, in addition, information on Medicare's limitations on payment (including deductible and coinsurance amounts). 
  (b) Authorization of Funds.--The conference agreement does not include the House provision.  General authority already exists in Section 201(g)(1)(A) of the Social Security Act to use Part A and Part B Trust Fund amounts for administrative expenses of the Medicare program. 
  **1008 *230 (c) Notice Concerning Participating Physicians.--The conference agreement does not include the House provision requiring distribution of participating physicians directories, but instead modifies current law requirements for notice to beneficiaries regarding the participation program. 
  The agreement revised the reminder of the participation program currently required on the explanation of medical benefit (EOMB) notices for unassigned claims.  The revised reminder would include:  (i) a clear statement of the extra amounts (if any) charged by the physician above the Medicare approved charge;  (ii) a brief statement of the advantages of receiving services from a participating physician;  and (iii) the carrier's toll-free number with an offer of assistance in obtaining names of participating physicians of appropriate specialty and an offer of a free copy of the appropriate participating physician directory. 
  The conferees expect that the Secretary will consult closely with groups representing beneficiaries and physicians in developing the notice to assure that it can be easily understood by the elderly and conveys an accurate understanding of program policies. 
  The conferees expect that the revised reminder would be printed in a prominent type face (where possible) near the beginning of the explanation of medical benefits. 
  The conference agreement also modifies current requirements for an annual notice to beneficiaries concerning the participating physician program.  The revised notice (which would be in the form of a brochure) would be mailed to each beneficiary each year and would contain:  (i) a description of the participation program;  and explanation of the advantages of obtaining services from a participating physician or supplier;  (ii) an explanation of the assistance offered by carriers in obtaining the names of participating physicians and suppliers;  and (iii) the local carrier's toll free number for inquiries concerning the program and for requests for free copies of appropriate directories. 
  The conferees note that the provisions are based on options developed by the Physician Payment Review Commission in its March 1988 report to Congress and are similar to measures used by private insurers to publicize and facilitate the use of their participating physician networks. 
  (d) Timing.--The conference agreement includes the House provision regarding distribution of the annual notice required under subparagraph (a) with an amendment that such notices must also be mailed annually when an individual applies for benefits under Part A or enrolls under Part B. 
  (e) Consultation Required.--The conference agreement specifies that the Secretary must first distribute the notice required under subparagraph (a) to beneficiaries not later than January 31, 1989.  The revised EOMB notice applies to services furnished on or after January 1, 1989.  The revised annual notice regarding the participation program would apply to annual notices beginning with 1989.

**1009 *231 21. Benefits Counseling and Assistance for Certain Medicare
and Medicaid Beneficiaries (Section 9A of Senate amendment)

Present law 

  No provision.

House bill 

  No provision.

Senate amendment 

  (a) Training and Technical Assistance.--Authorizes the Secretary to enter into agreements with private or public nonprofit agencies or organizations for the purpose of training volunteers.  These volunteers are to provide counseling to elderly individuals, ages 60 and above, receiving benefits under Medicare or Medicaid with respect to eligibility for such benefits and are to provide assistance in preparing documentation that may be required to receive such benefits.  In addition to other specified forms of technical assistance, the Secretary may provide material to be used in making elderly persons aware of the availability of assistance under volunteer assistance programs.  The Secretary may also provide technical publications and materials to be used by the volunteers. 
  (b) Powers of the Secretary.--Authorizes the Secretary:  (1) to provide assistance to organizations which demonstrate that their volunteers are adequately trained and competent to render effective benefits counseling and assistance to the elderly;  (2) to provide for and assist in the training of such volunteers;  (3) to provide reimbursement to volunteers for transportation, meals, and other expenses incurred by them during training or in providing counseling and assistance, and to provide such other support as the Secretary deems appropriate;  (4) to provide for the use of services, personnel and facilities of the Federal executive agencies and of State and local public agencies with their consent, with or without reimbursement;  and (5) to prescribe such rules and regulations as the Secretary deems necessary. 
  (c) Employment of Volunteers.--Provides that service as a volunteer under this section shall not be considered Federal employment.  Volunteers are not subject to provisions of law relating to Federal employment, except that the volunteers are subject to the prohibition against the unauthorized disclosure of confidential information as if they were Federal employees.  Reimbursement for expenses received by the volunteers are exempt from taxation. 
  (d) Authorization of Appropriations.--Authorizes to be appropriated  $2.5 million for fiscal years after 1987. 
  Effective date.--Enactment.

Conference agreement 

  (a) Training and Technical Assistance.--The conference agreement includes the Senate amendment, with an amendment requiring the Secretary to establish a 3- year demonstration project with a private or public nonprofit agency or organization for the purpose of training volunteers. 
  (b) Powers of the Secretary.--The conference agreement includes the Senate amendment, with a modification that deletes the authority *232 **1010 of the Secretary to prescribe rules and regulations deemed necessary to carry out the provisions of this section. 
  (c) Employment of Volunteers.--The conference agreement includes the Senate amendment. 
  (d) Authorization of Appropriations.--The conference agreement includes the Senate amendment, with an amendment authorizing appropriations, in appropriate parts from the HI and the SMI trust funds for fiscal years 1989, 1990, and 1991, such sums as may be necessary to conduct the demonstration project. 
  Effective date.--The conference agreement is effective for calendar years 1989, 1990 and 1991.

22. Case Management Demonstration Projects (Section 16 of Senate amendment)

Present law 

  "Case management" is a system under which a designated person or organization has responsibility for overseeing health care services for individuals assigned to the person or organization.  Where case management is used, an insurer usually will not pay (or will pay less) for those services that are provided without permission of the case manager.  Under current law, there are no requirements for Medicare beneficiaries to receive case management services, and case management is not a covered service under Medicare.  Utilization and quality control peer review organizations (PROs) are responsible for reviewing the necessity and quality of services for Medicare beneficiaries.

House bill 

  No provision.

Senate amendment 

  (a) Description of Projects.--Requires HHS to establish not less than six demonstration projects under which a PRO agrees to provide case management services to Medicare beneficiaries with selected catastrophic illnesses. 
  (b) Purpose of Projects.--Specifies that the purpose of the demonstrations is to provide the Secretary and Congress with the information necessary (1) to evaluate the appropriateness of providing case management services under Medicare for individuals with catastrophic illnesses, and (2) to determine the most effective approach to implementing a case management system under the program for such individuals. 
  (c) Agreement.--Requires the agreement with the PRO to specify (1) the catastrophic illnesses for which case management services will be provided, (2) the payments to be made to the PRO for carrying out the project, and (3) such other terms and conditions as the Secretary and the PRO may agree to. 
  (d) Waivers.--Requires the Secretary to waive any provisions of Part B of title XI (relating to general provisions and Peer Review) and title XVIII of the Social Security Act (relating to Medicare) that the Secretary determines would prevent the establishment of a demonstration project under this provision. 
  **1011 *233 (e) Duration.--Provides that the demonstration projects shall be conducted for a 1-year period.  The Secretary may terminate the project before the end of the year if he determines that the State conducting the project is not in substantial compliance with the terms of the agreement with the PRO. 
  (f) Information and Reports.--(A) Requires a PRO with an agreement under section (a) to provide the Secretary with such information as the Secretary determines to be needed to evaluate the results of the project conducted by the PRO.  (B) Requires the Secretary to submit an interim report based on information derived from the first 6 months of project operations, containing the findings, recommendations and conclusions of the evaluation of the project as described above. 
  (g) Authorization to Use Certain Funds.--Requires the Secretary to transfer from the HI and SMI trust funds amounts not to exceed $2 million to carry out the demonstration projects.  Provides that amounts are to be transferred without regard to amounts appropriated in advance in appropriation acts. Requires payments from the trust funds to be made in such amounts as the Secretary determines to be fair and equitable. 
  Effective date.--Requires the Secretary to have the demonstrations in place 12 months after enactment.  The interim reports are due 6 months from the date on which the demonstrations are initiated.

Conference agreement 

  (a) Description of Projects.--The conference agreement includes the Senate amendment, with an amendment requiring the Secretary to establish 4 demonstration projects under which an appropriate entity agrees to provide case management services to Medicare beneficiaries with selected catastrophic illnesses, particularly those with high costs of health care services.  A further amendment requires that at least one of the demonstration projects be conducted by a peer review organization (PRO). 
  (b) Purpose of Projects.--The conference agreement includes the Senate amendment, with an amendment that the demonstration projects are to evaluate the appropriateness of, and determine the most effective approach of, providing case management services for Medicare beneficiaries with high costs of medical care. 
  (c) Agreement.--The conference agreement includes the Senate amendment, with an amendment that the demonstration project agreements must specify the high cost cases to which case management services will be provided. 
  (d) Waivers.--The conference agreement includes the Senate amendment, with an amendment requiring the Secretary to waive (in addition to provisions of Part B of Title XI of the Social Security Act) any of Medicare's limitations or restrictions on benefits necessary to conduct the demonstration projects. 
  (e) Duration.--The conference agreement includes the Senate amendment, with an amendment that the data collection phase of the demonstration projects will be conducted for a 2-year period, with an additional period of time to write the report and submit it to Congress. 
  **1012 *234 (f) Information and Reports.--The conference agreement includes the Senate amendment, with an amendment that the interim report will be based on information derived from the first year of project operations, and the final report will be based on data derived from the projects. 
  (g) Authorization to Use Certain Funds.--The conference agreement includes the Senate amendment, with an amendment requiring the Secretary to transfer, from the HI and the SMI trust funds in proportions the Secretary determines are appropriate, an amount not to exceed $2,000,000 in each of 2 years for administrative costs to carry out the demonstration projects. 
  Effective date.--The conference agreement requires the Secretary of HHS to establish the demonstration projects within 12 months after the date of enactment.

23. Changes in Certification of Medicare Supplemental Health Insurance
Policies (Section 209 of House bill;  Section 13 of Senate amendment)

Present law 

  (a) Establishment of New Medigap Standards.--Under section 1882 of the Social Security Act, insurers who market private insurance policies to fill the gaps in Medicare's coverage may have the policies certified as Medicare supplemental health insurance policies by the Secretary if the policies meet minimum standards.  These standards were developed and approved by the National Association of Insurance Commissioners (NAIC) on June 6, 1979, and are incorporated by reference in section 1882 of the Social Security Act.  Policies that are certified by the Secretary may be marketed as Medicare supplemental policies.  However, if a State has adopted laws and/or regulations at least as stringent as those of the NAIC, policies regulated by the State are deemed to meet Federal requirements. 
  (b) Required Mailing of Notice.--Section 1882(e) requires the Secretary to provide to individual Medicare beneficiaries information that will permit them to assess the value of the Medicare supplement policies to them and the relationship of any such policies to benefits under the Medicare program. 
  (c) Required Submission of Advertising.--There is currently no Federal requirement that insurance companies submit their Medigap advertisements for review to the State Commissioners of Insurance. 
  (d) Transition for Current Policies.--There is no present law relating to transition periods for current Medigap policies. 
  (e) Free Look Period.--Under the existing NAIC standards, Medigap policies are required to provide a "free look" period of 10 days for policies sold by mail, during which a policyholder may return the policy and get a full refund of any premium paid. 
  (f) Reporting of Information Relating to Loss Ratios.--Section 1882(b)(1) provides for loss ratio targets for Medicare supplemental policies that set a goal for the percentage of insurance premiums that must be returned to policyholders in the form of benefits.  Medigap policies must be expected to pay benefits at least equal to 60 **1013 *235 percent of the earned premiums for individual policies and 75 percent for group policies.

House Bill 

  (a) Establishment of New Medigap Standards.-- 
    (1) Requires the Secretary to report to Congress not later than 150 days after the date of enactment of this act, on changes that should be made in the requirements of section 1882(c) of the Social Security Act for certification of Medicare supplemental policies to take into account the changes made by this act, and by any other pertinent acts enacted by the first session of the 100th Congress, and by any recommendations developed by the NAIC; 
    (2) Expresses the sense of Congress that:  (A) Congress will promptly act on such recommendations and provide for appropriate changes in the requirements of 1882(c), and (B) States will be expected to adjust their laws in a timely manner to comply with changes in such requirements. 
  (b) Required Mailing of Notice.--Adds a new provision to section 1882 requiring that in order to meet the requirements for certification as a Medicare supplementary insurance policy, a policy offered in a State and in effect on January 1, 1988 must send a letter by January 31, 1988 to its policyholders who are entitled to Medicare, explaining:  (a) the improved benefits resulting from this and other legislation enacted by the first session of the 100th Congress and (b) how these improvements affect the benefits contained in these policies and the premiums for these policies.  Applies to Medicare supplemental policies as of February 1, 1988. 
  (c) Required Submission of Advertising.--Amends section 1882(b) to require that entities issuing Medigap policies submit their advertisements (whether through written, radio or television medium) used (or, at the option of the State, to be used) for the policy in the State, to the State Commissioner of Insurance for his or her review in accordance with State law. 
  (d) Transition for Current Policies.-- 
    (1) Suspends (with the exception of Medigap policies sold in States described in (2) below) from January 1, 1988 through December 31, 1988, current Federal penalties under section 1882 for selling policies to Medicare beneficiaries which (a) were sold before the date of the enactment of this act, and (b) would not substantially duplicate health benefits to which they are otherwise entitled under Medicare but for the changes made by this act. 
    (2) Gives additional time to certain States (to be identified by the Secretary) in which penalties will be suspended.  These are States which require legislation (other than legislation appropriating funds) in order for Medicare supplemental policies to be changed to avoid a penalty under section 1882, but the legislature of the State is not scheduled to meet in the 1988 legislative session in which such legislation may be considered.  The exception in these States extends to the first day of the first calendar quarter beginning after the close of the first legislative session of the State legislature that begins on or after January *236 **1014 1, 1989, for which legislation described above may be considered. 
  (e) Free Look Period.--No provision. 
  (f) Reporting of Information Relating to Loss Ratios.--No provision. 
  Effective dates.--Enactment, except that (b) regarding notices to beneficiaries applies to Medicare supplemental policies as of February 1, 1988, and (c) applies to such policies with respect to advertising used on or after January 1, 1988.

Senate amendment 

  (a) Establishment of New Medigap Standards.--Amends section 1882 by making conforming changes and adding a new provision relating to NAIC amendments of its model regulation of Medicare supplemental (Medigap) policies to reflect the changes in law made by this Act: 
    (1) Provides that if the NAIC revises the existing model standards for Medigap policies within 90 days after enactment, then those standards will apply as the standard for certification, beginning 1 year later. 
    (2) Specifies that if the NAIC does not amend the standards within 90 days, the Secretary is required to issue Federal model standards for Medigap policies reflecting the changes in law made by this act, within 90 days, to become effective 1 year later. 
    (3) Specifies that no Medigap policy may be certified by the Secretary, no certification shall remain in effect and no State regulatory program will be found in compliance with Section 1882, unless such policy meets (or such program provides for the application of standards equal to or more stringent than) the standards set forth in the amended NAIC Model Regulation or the Federal model standards (as the case may be). 
  (b) Required Mailing of Notice.--Amends Section 1882(e) to require the Secretary to:  (a) inform Medicare beneficiaries (and, to the extent feasible, individuals about to become entitled to Medicare) about current laws that prohibit certain marketing and sales abuses and the manner in which they may report any such action or practice to an appropriate official of HHS and (b) establish a toll-free telephone number for individuals to report suspected violations of the laws relating to Medigap standards.  Also requires the Secretary to provide Medicare beneficiaries with a listing of the addresses and telephone numbers of State and Federal agencies and offices where information and assistance relating to Medicare supplemental policies may be obtained. 
  (c) Required Submission of Advertising.--No provision. 
  (d) Transition for Current Policies.--No provision. 
  (e) Free Look Period.--Section 1882(b)(1) is amended to require a uniform 30- day free look period for all Medicare supplemental policies, without regard to the manner in which the purchase of the policy was solicited. 
  (f) Reporting of Information Relating to Loss Rations.--Amends section 1882(b)(1) to provide that information with respect to the actual ratio of benefits provided to premiums collected under Medigap policies will be reported to the State on forms conforming to **1015 *237 those developed by the NAIC for such purpose, or such ratios will be monitored under the program in an alternative manner approved by the Secretary. 
  Effective dates.--(a) is effective as provided in the amendment;  (b) enactment;  changes made by (e) and (f) are effective on the date on which the amended NAIC Model Standards (or Federal Model Standards) become effective under section 1882.

Conference agreement 

  (a) Establishment of New Medigap Standards.--The conference agreement includes the Senate amendment with amendments.  The agreement provides for a procedure whereby the current National Association of Insurance Commissioner's (NAIC) model regulation would be amended or replaced as a standard for certification of Medicare Supplemental Insurance Policies.  If the NAIC amends the model regulations within 90 days of enactment of this bill, in accordance with requirements in this section then the amended standards would apply as a standard for certification. 
  The NAIC has made available to the conferees both a model transition regulation, adopted in September 1987 in anticipation of the passage of this bill, and a draft of a new model minimum standards regulation.  The conferees believe the transition regulation deals appropriately with the matter of adapting existing, certified policies to the amendments in Medicare made under this Act.  The conferees also believe the draft model minimum standards regulation includes many appropriate provisions.  The conferees intend and understand that the revised standards will continue to incorporate such provisions, including rules governing matters covered in the existing and draft model standards, such as minimum benefit standards, loss ratios, disclosure requirements and replacement requirements. 
  The conferees note that the NAIC model transition regulation contains an explicit prohibition on the inclusion of provisions in Medicare supplemental policies which duplicate the benefits covered under Medicare.  The conferees believe such an explicit prohibition clarifies the meaning of the current requirements of Section 1882 that supplemental policies may not duplicate Medicare coverage.  This amendment requires that the model standards include provisions otherwise necessary to reflect changes in law made by this Act.  In enacting this provision, the conferees intend and understand that NAIC will include a similar provision precluding insurers from selling or maintaining Medicare supplemental policies which provide benefits covered by this Act in its final version of the model minimum standards regulation. 
  The conferees note in particular that Section 5B of the NAIC Transition Regulations provides for (1) a notice to the beneficiary, (2) the filing by the insurer of riders to the policy to eliminate duplication, and (3) the making of an appropriate refund or appropriate premium adjustment for duplicative coverage.  The conferees intend and understand that such provisions will be included in the final model regulations.  The conferees intend and understand that such appropriate refund or premium adjustments are to be made retroactive to the effective date of the new Medicare benefits enacted in this bill. 
  **1016 *238 The conferees are particularly concerned about beneficiaries not paying for benefits under Medicare supplemental insurance policies that duplicate benefits covered under this Act.  The conferees intend not merely to prevent such duplicative coverage from occurring, but also that beneficiaries receive appropriate premium adjustments where this has occurred. 
  If NAIC does not amend the regulations within 90 days, then the Secretary is directed to promulgate Federal model standards for certification of Medicare supplemental policies to reflect the changes in law made by this Act.  Such Federal standards would then be the standards for certification.  The conferees intend that such standards would incorporate all matters provided for in the bill and discussed above in this report with respect to the NAIC model standards. 
  The NAIC model standards (or the Federal model standards, as the case may be) would apply in a State effective on the earlier of (1) the date the State adopts standards equal to or more stringent than the amended NAIC standards (or the Federal standards), or (2) one year after the NAIC (or the Secretary, in the case of Federal standards) first adopts the standards. 
  The conference agreement also provides that the Secretary, rather than the President, will appoint the four State Commissioners or superintendents of insurance who, together with the Secretary, form the Supplemental Health Insurance Panel. 
  The conferees note that under this legislation, Medicare coverage of outpatient prescription drugs will begin in January 1991.  The conferees do not intend for the enactment of this drug benefit to be construed as requiring current Medicare supplemental policies, which do not otherwise provide coverage for drugs to begin doing so upon enactment.  Under the conference agreement, the NAIC (or the Secretary, as the case may be) will determine whether coverage of the drug deductible should be required for certification as a Medicare- certified policy. 
  (b) Required Mailing of Notice.--The conference agreement includes both the House provision and the Senate amendment, with modifications.  In States which have enacted the NAIC Transition Regulations, beneficiaries will receive notices from insurers pursuant to the requirements of those regulations.  In States which have enacted the final model standards, but not the transition regulations, insurers must send notices to beneficiaries in accordance with the requirements of this provision in order to remain certified.  In States which have enacted neither the final model nor the transition regulations, insurers must follow the requirements described in (d) below.  The House provision is modified to change each 1988 date to 1989.  The Senate amendment is modified to require the Secretary (1) to inform Medicare beneficiaries of how they may report any marketing or sales abuses to HHS or to an appropriate State official, and (2) to publish the toll-free HHS telephone number for individuals to report suspected violations. 
  (c) Required Submission of Advertising.--The conference agreement includes the House provision, with a modification clarifying that the submission of advertisements to the State Commissioner of Insurance (or comparable officer identified by the Secretary) should **1017 *239 be in accordance with review or approval as required under State law. 
  (d) Transition for Current Policies.--The conference agreement includes the House provision with amendments.  The agreement does not include the provision which waives Federal penalties for knowingly selling policies with duplicative coverage.  The agreement provides for the opportunity to sell or maintain certified Medicare supplemental health insurance policies during the period after enactment of the bill in those States which have not adopted standards by January 1, 1989 to reflect the changes in law made by this Act.  The agreement provides that for policies sold prior to enactment (but in effect after enactment), a policy is deemed non-duplicative and may be deemed certified in the insurer selling the policy complies with the NAIC Model Transition Regulation by January 1, 1989, as discussed below.  For policies sold after the date of enactment, such compliance would be required before the date of sale of the policy. 
  The conferees specifically intend that as a matter of Federal law, effective January 1, 1989 (for existing policies) or prior to sale (for policies later sold), Medicare supplemental insurance policies no longer include benefits that are provided for under this Act.  Further, the conferees intend, that as a matter of Federal law, effective January 1, 1989, insurers whose policies would contain duplicate coverage but for such provision, notify the insured of such change in coverage, of any resulting premium refunds or adjustments, and when such refunds or adjustments will be made.  The notice shall include the matters contained in Section 5(B)(1)(a), (b), and (c) of the NAIC model transition regulations and shall be mailed on the later of January 1, 1989 or the date the policy is sold.  For this purpose, the insurer would not have to comply with the requirement of Section 5(B) that the notices be in a form approved by the State Insurance Commissioner. 
  Further, the conferees intend that insurers are required to take all necessary steps to effectuate such refunds or premium adjustments in the most expeditious possible manner, including immediately filing any appropriate riders to insurance policies.  The conferees specifically intend and understand that all such appropriate refunds or premium adjustments will be made retroactive to January 1, 1989 or the date on which the policy is sold, whichever is earlier. 
  The conferees understand that insurers offering policies which are guaranteed renewable will conform their policies to prevent duplication of coverage in accordance with the provisions in this Act. 
  The conference agreement also requires the Secretary to report to Congress in March 1989 and in July 1990 on actions States have taken in adopting standards equal to or more stringent than the NAIC Model Transition Regulation or the amended NAIC model regulation (or Federal model standards). 
  (e) Free Look Period.--The conference agreement includes the Senate amendment. 
  (f) Reporting of Information Relating to Loss Ratios.--The conference agreement includes the Senate amendment. 
  (g) Prohibiting Misuse of Social Security or Medicare References.--The Conference agreement prohibits the use of the word "Social Security", "Social Security Account", "Social Security **1018 *240 System", "Social Security Administration", "Medicare", "Health Care Financing Administration", or any acronym, combination, or variation of such words, and any symbols or emblems of such agencies, in a manner which a person or an organization knew or should have known would convey the false impression that any advertisement or other item is authorized by the Social Security Administration, the Health Care Financing Administration or the Department of Health and Human Services. 
  The conference agreement authorizes the Secretary to impose civil money penalties of not more than $5,000, or $25,000 in the case of a broadcast or telecast, for violations of this prohibition.  The total amount of penalties imposed for multiple violations consisting of substantially identical communications or productions could not exceed $100,000 a year.  Those who are assessed penalties would be permitted to request a hearing before an Administrative Law Judge and to appeal thereafter to the U.S. District Court of Appeals.  In assessing fines and pursuing violators, the Secretary would be required to coordinate his actions with the Justice Department. 
  The conferees intent that, to the extent feasible, the Secretary would use informal methods to deal with potential violations prior to initiating action under this provision.  Such methods might include a letter which identifies a violation or which points out that the addition of a conspicuously-placed disclaimer of affiliation with the Social Security Administration could avoid the need for action under this provision. 
  The conferees also intend that the authorities established by this provision should supplement, not substitute for, existing authority of the U.S. Postal Service to take action against misleading and fraudulent references to the Social Security Administration in materials which re mailed. 
  (h) Civil Money Penalties for Medigap Violations.--The conference agreement authorizes civil monetary penalties, in every case where only criminal penalties currently apply, for deceptive selling practices relating to Medicare supplemental health insurance (medigap) policies.  Violations would be subject to a civil monetary penalty of up to $5,000 per violation. 
  Effective date.--The conference agreement provides that (a) applies as provided in the section and the Secretary is required to provide for the reappointment of members of the Supplemental Health Insurance Panel by not later than 90 days after the date of enactment.  The provisions of (b) requiring the Secretary to provide consumer information apply on enactment; and the provision of (b) requiring health insurers to send informational letters to their policy holders apply to Medicare supplemental policies as of January 31, 1989.  (c) applies to Medicare supplemental insurance policies as of January 1, 1989, with respect to advertising used on or after such date. (d) applies as provided in the section.  (e) and (f) apply on the date the amended NAIC Model Standards (or Federal model standards) become effective under Section 1882 of the Social Security Act.  (g) and (h) are effective on enactment and apply only with respect to violations occurring after enactment.

**1019 *241 24. Research on Long-Term Care Services for Medicare
Beneficiaries (Section 211 of House bill;  Section 15 of Senate amendment)

Present law 

  (a)-(b) Long-Term Care Services.--Medicare does not cover services required for individuals whose chronic conditions require long-term nursing home or home and community-based services.  There is no current requirement that the Secretary provide for research relating to long-term care services nor is there any specific authorization for appropriations for such research. 
  (c) Institute of Medicine Study.--There is no current requirement that the IOM conduct a study on the financing of long-term care. 
  (d) Treasury Department Study of Tax Incentives for Long-Term Care.--There is no current requirement that the Secretary of Treasury conduct a study on the financing of long-term care.  The President has asked the Department of Treasury to review tax policy as it affects the provision of catastrophic and long-term care health insurance.

House bill 

  (a) Health and Human Services Study.--Requires the Secretary to provide for research relating to the delivery and financing of long-term care services for Medicare beneficiaries.  It shall include at least the following:  (1) the financial characteristics of Medicare beneficiaries who receive or need long- term care services, including whether beneficiaries are eligible for Medicaid benefits for such services;  (2) how financial and other characteristics of Medicare beneficiaries affect their utilization of institutional and noninstitutional services;  (3) how relatives and Medicare beneficiaries are affected financially and in other ways because the beneficiaries require or receive long-term care services;  (4) the quality of long-term care services (in community-based and custodial settings) and how the provision of such services may reduce expenditures for acute health care services;  (5) the effectiveness of, and need for, State and Federal consumer protections which assure adequate access to and protect the rights of beneficiaries provided long-term care (other than in a nursing facility). 
  Defines long-term care services to include nursing home care, home care, community-based services, and custodial care. 
  (b) Authorization of Appropriations.--Authorizes to be appropriated, in equal parts from the HI and SMI trust funds, $5 million for each of fiscal years 1988, 1989, 1990, 1991, and 1992, to carry out the research described in (a). 
  (c) Institute of Medicine Study.--No provision. 
  (d) Treasury Department Study of Tax Incentives for Long-Term Care.--No provision. 
  Effective date.--Enactment.

Senate amendment 

  (a) Health and Human Services Study.--No provision. 
  (b) Authorization of Appropriations.--No provision. 
  (c) Institute of Medicine Study.-- 
    **1020 *242 (1) Requires the Secretary to request the National Academy of Sciences, through the Institute of Medicine (IOM), to contract for an IOM study to (a) explore options for private funding of a portion of long-term care (including methods by which changes in Federal laws, including tax laws, could facilitate such funding) and determine whether such options would be effective as compared to public financing alternatives and would be beneficial to the broad spectrum of populations (including children and adults who have attained and have not attained retirement age) requiring protection;  (b) analyze the effect that provision of types of private funding of long-term care would have on public funding of such care;  (c) review options for public sector coverage, both means-tested and universal, with respect to their effects on current and future Federal spending for health care;  (d) review the effectiveness, quality of life provided, effect on family caregivers, and cost-implications of community-based long-term care, including types of limits necessary to assist beneficiaries and providers in preventing overutilization;  (e) analyze, for each approach to provision of care, relative payments derived from users, non-utilizing elderly and employed persons (including both pre-funding and pay-as-you-go); and (f) review sources of financing and coverage of long-term care services in other developed nations and the implications of these findings on the development of similar policies in the United States. 
    (2) Requires the IOM study to take into account (a) the effect that impending demographic changes (near and long-term) will have on various approaches to service utilization and funding;  (b) the impact of the various approaches to funding, both public and private, on access to long-term care services by individuals of all age groups (including children and adults who have attained and not attained retirement age), individuals of different socioeconomic and minority groups, and women;  and (c) the effect that membership in these different groups has on the need, the ability to pay, and access to quality long-term care. 
    (3) Requires the Secretary to enter into appropriate arrangements with the Academy under which the Secretary will be responsible for expenses incurred for the study.  Requires the Secretary to transfer from the HI and SMI trust funds amounts necessary to fund the study. 
    (4) Requires IOM to submit, by October 1, 1989 to the Secretary, the Senate Finance Committee and the House Energy and Commerce and Ways and Means Committees, a report that describes the study, includes a statement of the data obtained, and specifies administrative actions and changes in law that IOM considers to be appropriate to implement the study findings. 
  (d) Treasury Department Study of Tax Incentives for Long-Term Care.--Requires the Secretary of Treasury to conduct a study of Federal tax policies to promote the financing of long-term care.  The study shall identify alternative methods of creating tax incentives to encourage individuals to purchase insurance for long-term care.  Requires the study to consider also the cost to the U.S. Treasury *243 **1021 and the potential benefits to consumers, including whether the incentives would benefit all or most of the population requiring protection.  Requires Secretary to consult with representatives of the insurance industry, providers of long-term care, and consumers.  Requires the Secretary to report the results of the study and make recommendations to the Congress prior to April 1, 1988 of any changes in Federal law that the Secretary determines to be appropriate to promote financing of long-term care. Defines long-term care to include care and services provided by nursing homes, home health agencies and other mechanisms for long-term care delivery. 
  Effective date.--Enactment.

Conference agreement 

  (a) Health and Human Services Study.--The conference agreement includes the House provision with amendments.  To the extent possible, the Secretary is to rely on research that has already been conducted or is underway by the Health Care Financing Administration or the National Center for Health Services Research and Health Care Technology (in their National Medical Expenditures Survey).  The Secretary is required to submit interim reports by December 1990 and December 1992, and a final report by June 1994 to the House Committees on Energy and Commerce and Ways and Means, and the Senate Finance Committee describing the findings of the long-term care research required by this provision. 
  (b) Authorization of Appropriations.--The conference agreement includes the House provision. 
  (c) Institute of Medicine Study.--The conference agreement does not include the Senate amendment.  The conferees note that the Secretary may contract with the Institute of Medicine to conduct the research required by Section 211(a) of the House provision. 
  (d) Treasury Department Study of Tax Incentives for Long-Term Care.--The conference agreement includes the Senate amendment, with an amendment that reporting date be changed to November 31, 1988. 
  Effective date.--The conference agreement is effective on enactment.

25. Study of Adult Day Care Services (Section 212 of House bill;  Section 24 of
Senate amendment)

Present law 

  Medicare does not provide coverage for adult day care services.

House bill 

  (a) Survey of Current Adult Day Care Services.--Requires the Secretary to survey adult day care services to collect information on (1) the scope of such services and the extent of their availability;  (2) the characteristics of entities providing such services;  (3) licensure, certification and other quality standards that are applied to those providing such services;  (4) the cost and financing of such services;  and (5) the characteristics of the people who use such services. 
  **1022 *244 Defines adult day care services as medical or special services provided in an organized nonresidential setting to chronically impaired persons who are not inpatients in a medical institution. 
  (b) Report.--Requires the Secretary to report to Congress, within one year after enactment, on the information collected in the survey.  Requires the report to include recommendations concerning appropriate standards for adult day care services under Medicare, including definitions of chronically dependent individuals and services in adult day care, establishing qualifications of providers of adult day care services, and establishing a reimbursement mechanism. 
  Effective date.--Enactment.

Senate amendment 

  (a) Survey of Current Adult Day Care Services.--Identical provision. 
  (b) Report.--Identical provision. 
  Effective date.--Enactment.

Conference agreement 

  (a) Survey of Current Adult Day Care Services.--Identical provision. 
  (b) Report.--Identical provision. 
  Effective date.--The conference agreement is effective on enactment.

26. U.S. Bipartisan Commission on Comprehensive Health Care (Sections 401-408
of House bill;  Section 30 of Senate amendment)

Present law 

  No provision.

House bill 

  (a) Establishment/Duties.--Establishes a commission to be known as the U.S. Bipartisan Commission on Comprehensive Health Care.  Requires that the Commission:  (1) examine short-comings in the current health care delivery and financing mechanisms that limit or prevent access of all individuals to comprehensive health care;  and (2) make specific recommendations to Congress on Federal programs, policies, and financing needed to assure the availability of comprehensive long-term care services for the elderly and disabled, comprehensive health care services for the elderly and disabled, and comprehensive health care services for all individuals in the United States. Requires the Commission to consider as it makes its recommendations:  (1) the amount and sources (consistent with principles of social insurance) of Federal funds to finance the needed services, including reallocations of existing Federal program funds;  and (2) the most efficient and effective manner of administering these programs. 
  Defines "comprehensive health care services" as including:  (1) inpatient hospital services (including mental health services);  (2) skilled nursing facility services, intermediate care facility services, home health services, and other long-term care services;  (3) physician services and other outpatient health care services (including **1023 *245 mental health services);  (4) periodic general physical examinations;  eye, hearing, dental, and foot examinations;  and other preventive health care services;  and (5) prescription drugs, eye-glasses, hearing aids, orthopedic equipment, and dentures (both complete and partial). 
  Defines "comprehensive long-term care services" as including custodial and noncustodial services in facilities, as well as home and community-based services. 
  (b) Membership.--Requires that the Commission be composed of 15 members appointed as follows:  (1) the President will appoint 3 members;  (2) the President Pro Tempore of the Senate will appoint, after consultation with the minority leader of the Senate, 6 Members of the Senate, of whom not more than 4 may be of the same political party;  and (3) the Speaker of the House will appoint, after consultation with the minority leader of the House, 6 Members of the House, of whom not more than 4 may be of the same political party.  The Commission will elect a chairman and vice chairman from among its members.  Any vacancy in the membership of the Commission will be filled in the manner in which the original appointment was made and will not affect the power of the remaining members to execute the duties of the Commission. 
  (c) Meetings.--Specifies that the Commission will meet at the call of its chairman or a majority of its members;  a quorum will consist of 8 members, except that 4 members may conduct a hearing.  Members of the Commission may not receive compensation but may be reimbursed for travel, subsistence, and other necessary expenses incurred in carrying out the duties of the Commission. 
  (d) Staff.--Provides that the Commission may appoint and determine the compensation of staff, and may procure the temporary and intermittent services of consultants necessary to carry out the duties of the Commission. 
  (e) Powers.--Provides that the Commission may hold hearings and undertake such other activities as the Commission determines to be necessary to carry out its duties.  The provision requires, upon request of the Commission:  (1) the Comptroller General to conduct studies or investigations;  (2) the Director of the Congressional Budget Office to provide cost estimates;  (3) the head of a Federal agency to provide technical assistance;  and (4) the Administrator of General Services to provide on a reimbursable basis administrative support services, which the Commission determines to be necessary to carry out its duties.  The head of any Federal agency may detail to the Commission, without reimbursement, any personnel to assist the Commission in carrying out its duties.  The Commission is authorized:  (1) to use the U.S. mails;  (2) to secure directly from any Federal agency information that may be disclosed to enable the commission to carry out its duties;  and (3) to accept, use and dispose of gifts or donations of services or property. 
  (f) Reports.-- 
    (1) Requires the Commission to submit not later than 6 months after enactment a report to Congress on its findings and recommendations regarding comprehensive long-term care services for the elderly and disabled.  The report is to include detailed recommendations for appropriate legislative initiatives. 
    **1024 *246 (2) Requires the Commission to submit not later than 1 year after enactment a report to Congress on its findings and recommendations regarding comprehensive health care services for the elderly and disabled and for all individuals in the United States.  The report is to include detailed recommendations for appropriate legislative initiatives. 
  (g) Termination.--Specifies that the Commission shall terminate 30 days after the date it submits its report on comprehensive health care services. 
  (h) Authorization.--Authorizes $1.5 million for the Commission. 
  Effective date.--Enactment.

Senate amendment 

  (a) Establishment/Duties.--Identical provision. 
  (b) Membership.--Identical provision. 
  (c) Meetings.--Identical provision. 
  (d) Staff.--Identical provision. 
  (e) Powers.--Identical provision. 
  (f) Reports.--Identical provision. 
  (g) Termination.--Identical provision. 
  (h) Authorization.--Identical provision. 
  Effective date.--Enactment.

Conference agreement 

  Identical provision. 
  Effective date.--The conference agreement is effective on enactment.

27. Extension of Social HMO Demonstration Project (Section 210 of House bill)

Present Law 

  Section 2355 of DEFRA of 1984 (P.L. 99-369) required the Secretary to approve Medicare and Medicaid waivers needed to implement a demonstration project for social health maintenance organizations (SHMOS).  These organizations are to provide an integrated package of health, long-term care, and social services on a prepaid capitation basis for persons who voluntarily enroll with the organization.  There are currently four demonstration projects. 
  There is a comparable provision in section 4079 of Public Law 100-203.

House bill 

  Requires the Secretary to extend, without interruption, through September 30, 1992, the approval of waivers granted under Section 2355 of DEFRA of 1984 for the SHMO demonstration projects described in that provision, subject to the same terms and conditions (other than the duration of the project) established under that provision.  It amends section 2355(b)(5) of DEFRA relating to Medicare's risk contract with the HMO to state that all payors will share risk for no more than 2 years, with the organization being at full risk in the 3rd year and in succeeding years.  It requires the Secretary to send an interim report to Congress by December 1988 **1025 *247 (rather than a final report, as in current law), and it requires the Secretary to submit a final report not later than March 31, 1993. 
  Effective date.--Enactment.

Senate amendment 

  No provision.

Conference agreement 

  The conference agreement does not include the House provision.  A comparable provision was enacted in Section 4079 of P.L. 100-203.

28. Protection of Medicare Beneficiaries Enrolled in an Eligible Organization
With a Risk-Sharing Contract Against Certain Practices (Section 10A of Senate
amendment)

Present law 

  (a) Notice to Medicare Beneficiaries.--No provision. 
  (b) Civil Monetary Penalties and Intermediate Sanctions Against HMOs/CMPs.-- HMOs/CMPs must provide assurances to the Secretary that they will not expel or refuse to reenroll any individual on the basis of health status or need for health services. 
  For each instance in which an HMO/CMP fails substantially to provide medically necessary items and services to a beneficiary, the Secretary may impose a $10,000 civil monetary penalty.  No other sanctions short of contract termination are available for most other kinds of possible HMO/CMP contract or legal violations. 
  (Similar provision included in Omnibus Budget Reconciliation Act of 1987, except does not provide for refund to enrollee of excess charge and does not include extra $15,000 penalty for each individual not enrolled as a result of improper marketing practices.)

House bill 

  No provision.

Senate amendment 

  (a) Notice to Medicare Beneficiaries.--Requires an HMO or CMP with a Medicare risk-sharing contract to notify enrolled beneficiaries and potential enrollees that the organization may legally terminate or refuse to renew the contract, and that beneficiaries' enrollments may be terminated if this should occur. The notice would be included in any promotional materials furnished to potential enrollees and in information provided to all enrollees at the time of enrollment and annually thereafter.  (Identical provision included in Omnibus Budget Reconciliation Act of 1987). 
  (b) Civil Monetary Penalties and Intermediate Sanctions Against HMOs/CMPs.-- Increases the civil monetary penalty for failure to furnish medically necessary services to $25,000 for each failure.  Provides for additional civil monetary penalties as follows: 
    (a) For each case in which an enrollee is charged a premium greater than permitted by law, $2,000 plus double the amount of the excess charge.  The excess charge would be deducted from the penalty and returned to the enrollee. 
    **1026 *248 (b) For each case in which the HMO/CMP expels or refuses to reenroll a beneficiary on the basis of health status, $15,000. 
    (c) For engaging in any practice which could reasonably be expected to result in denying or discouraging enrollment on the basis of health status, $100,000, plus $15,000 for each individual not enrolled as a result. 
    (d) For each case in which the HMO/CMP falsifies or misrepresents enrollment information furnished to the Secretary, any individual, or any other entity, or enrolls an individual without consent, or gives an individual a material inducement to enroll, $15,000.  The penalty for each instance of false enrollment information furnished to the Secretary would be $100,000. 
  Provides that, in addition to or instead of imposing civil penalties, the Secretary may after notice to the organization suspend new enrollments or suspend payments to the HMO/CMP on behalf of new enrollees.  Incorporates existing provisions on administration of civil monetary penalties. 
  Effective date.--(a) Applies to contracts entered into or renewed on or after the date of enactment. 
  (b) Becomes effective at the end of the 14 day period beginning on the date of enactment and does not apply to administrative proceedings commenced before the end of such period.

Conference agreement 

  The conference agreement includes the Senate amendment, with modifications.  Only provisions not already enacted in the Omnibus Budget Reconciliation Act of 1987 (P.L. 100-203) are included.  Excess premium charges collected from enrollees are to be refunded, and an organization may be subject to a $15,000 civil monetary penalty for each case in which it expels or refuses to reenroll a beneficiary on the basis of health status.

29. Repeal of Authority to Administer Proficiency Examinations (Section 17 of
Senate amendment)

Present law 

  Section 1123 of the Social Security Act allows the use of a testing program to determine the proficiency of individuals who desire to become skilled medical technicians.  In the conduct of such tests, no individual who otherwise meets the proficiency requirements for the health care specialty can be denied a satisfactory proficiency rating solely because of his failure to meet formal educational or professional membership requirements.  Currently, persons who are judged proficient as a result of this test may avoid going through an accredited education program designed to train such personnel.

House bill 

  No provision.

Senate amendment 

  Repeals section 1123, effective October 1, 1987.  Provides that the repeal would not affect the authority of the Secretary to conduct the program established under 1123 prior to October 1, 1987 or the **1027 *249 qualification of individuals to perform their duties and responsibilities who were certified by reason of previously administered exams. 
  Effective date.--October 1, 1987.

Conference agreement 

  The conference agreement includes the Senate amendment.  The conferees note that this authority had already expired on September 30, 1987. 
  Although the authority would have allowed the Secretary to develop proficiency examinations for a variety of health personnel, the only examinations ever administered were those for clinical laboratory personnel. The conferees have been advised that there may develop a shortage of such personnel in the future.  If this occurs, the conferees anticipate that consideration could be given to the appropriateness of authorizing a new examination for such personnel. 
  Effective date.--The conference agreement is effective October 1, 1987.

30. Study and Reports by the Office of Personnel Management on Offering
Medicare Supplemental Plans to Federal Medicare Eligible Individuals, and Other
Program Changes (Section 23 of Senate amendment)

Present law 

  (a) Study and Report.--Under the Federal Employees Health Benefits  (FEHB) Program, Federal employees and annuitants and their dependents are offered health benefits coverage from a range of participating health benefit plans.  Since the FEHB program offers no plans that only supplement Medicare's coverage, the benefits available under the plans in the FEHB program duplicate certain benefits under the Medicare program. 
  (b) Feasibility Study and Report.--Under Section 1882 of the Social Security Act, the Secretary is required to establish a procedure by which Medicare supplemental policies may be certified by the Secretary as meeting minimum standards and requirements if they meet or exceed certain model standards developed and adopted by the National Association of Insurance Commissioners and meet certain loss ratio requirements.  If a State establishes a regulatory program that provides for the application of these same minimum standards and requirements to Medicare supplemental policies, then such policies issued in that State are deemed to have met the requirements under the Secretary's certification program. 
  Section 1882 defines Medicare supplemental policies as health insurance policies or other health benefits plans offered by a private entity to individuals covered by Medicare that supplement Medicare's coverage;  policies or plans of one or more employers or labor organizations are not included in this definition.

House bill 

  No provision.

**1028 *250 Senate amendment 

  (a) Study and Report.--Requires the Director of the Office of Personnel Management (OPM), no later than April 1, 1989, to conduct a study and submit a report to the Senate Committee on Governmental Affairs and the House Committee on Post Office and Civil Service regarding changes to the Federal Employees Health Benefits Program that may be required to incorporate plans designed specifically for Medicare eligible individuals and to improve the efficiency and effectiveness of the program. 
  Prohibits any Medicare supplemental plan recommended by the Director of OPM from duplicating benefits for which payment is made under Medicare.  However, any such recommended plan (1) must cover expenses that are not payable by Medicare because of deductible and coinsurance amounts, and (2) may offer additional reimbursement where Medicare benefits are limited by fee schedule and for benefits not covered by Medicare which may be of value to Medicare eligible individuals. 
  (b) Feasibility Study and Report.--Requires the Director of the Office of Personnel Management, no later than April 1, 1989, to report to the appropriate committees of Congress whether it is feasible to adopt such standards as issued by the National Association of Insurance Commissioners as required by section 1882 of the Social Security Act for Medicare supplemental policies, when providing Medicare supplemental plans as a type of health benefits plan available under the Federal Employees Health Benefits Program. 
  Effective date.--The reports required by (a) and (b) are due no later than April 1, 1989.

Conference agreement 

  (a) Study and Report.--The conference agreement includes the Senate amendment. 
  (b) Feasibility Study and Report.--The conference agreement includes the Senate amendment. 
  Effective date.--The conference agreement is effective upon enactment.

31. Rate Reduction For Medicare Eligible Federal Employees (Section 22 of
Senate amendment)

Present law 

  Under the Federal Employees Health Benefits (FEHB) Program, Federal employees and annuitants and their dependents are offered health benefits coverage from a range of participating health benefit plans.  The premiums for such coverage are shared by the Federal Government and by the enrollees.  Premium payments are deposited in the Employees Health Benefits Fund, from which benefit and administrative costs are paid. 
  Since the FEHB Program offers no plans that only supplement Medicare's coverage, the benefits available under the plans in the FEHB Program duplicate certain benefits under the Medicare program.

**1029 *251 House bill 

  No provision.

Senate amendment 

  Requires the Office of Personnel Management, in consultation with carriers offering health benefits plans under the Federal Employees Health Benefits Program, to reduce the rates charged to Medicare eligible individuals participating in such health plans by the amount, prorated for each covered Medicare eligible individual, of the estimated cost of medical services and supplies which would have been payable by such plans if the catastrophic coverage benefits (those in sections 2(a), 3(a), 4, and 7(b) of this bill) had not been enacted. 
  Defines "Medicare eligible individual" as any annuitant, survivor of an annuitant, or former spouse of an annuitant (1) who is otherwise eligible for benefits under the Federal Employees Health Benefits Program, eligible for benefits under Part A of Medicare, and covered by Part B of Medicare, and (2) for whom benefits paid under Medicare are the primary source of health care benefits. 
  Provides that funds in the Employees Health Benefits Fund for the Federal Employees Health Benefits Program are available without fiscal year limitation for costs incurred by the Office of Personnel Management in making such rate reductions. 
  Effective date.--Provides that the reduced rates apply as of the effective date of the Medicare catastrophic coverage (items and services furnished after, and premiums for months beginning after, December 31, 1987).

Conference agreement 

  The conference agreement includes the Senate amendment, with technical amendments to insure that all catastrophic benefits would be included in determining the rate reduction. 
  Effective date.--The conference agreement is for health benefit plans beginning January 1, 1989.

32. Maintenance of Effort (Section 21 of Senate amendment)

Present law 

  Many older, disabled and retired workers participate in employer-sponsor group health insurance plans.  There are no current Federal requirements that employer-sponsored health plans provide specific benefits to plan participants.  For those employer group plans who are also covered by Medicare, employer plans are generally coordinated to supplement Medicare benefits or provide benefits that Medicare does not cover. 
  The proposed Medicare catastrophic legislation would result in duplicative coverage for many of those individuals receiving both Medicare and employer-sponsored health benefits.

House bill 

  No provision.

**1030 *252 Senate amendment 

  (a) In General.--Provides that for the 1-year period beginning on the date of enactment of this act, if an employer provides health benefits to an employee or retired former employee (including a Federal employee or retired Federal employee) that are duplicative of new or improved health care benefits provided under this act or the amendments made by this act, the employer shall:  (1) provide additional benefits to the employee or retired former employee that are at least equal in value to the duplicative benefits;  or (2) refund to the employee or retired former employee an amount equal to the actuarial present value of the duplicative benefits. 
  (b) Regulations.--Requires the Secretary of Labor to issue such regulations as are necessary to carry out this provision. 
  Effective date.--Effective (1) during the 1-year period beginning on the date of enactment of this act;  or (2) in the case of an employer who is providing duplicative health care benefits to employees or retired former employees under a collective bargaining agreement that is in effect on the date of enactment, until the expiration of the agreement.

Conference agreement 

  (a) In General.--The conference agreement includes the Senate amendment with the following amendments.  Employers who, on enactment, provide health care benefits to employees or retired former employees that duplicate Part A benefits or Part B benefits (excluding covered outpatient drugs) as amended by this Act must provide to the employees or retired former employees an amount of additional benefits (which could include payment of the part B premium) or refunds, or both, that total at least the actuarial value of the duplicative Part A benefits or Part B benefits (excluding covered outpatient drugs). Duplicative benefits are determined net of any premiums paid employees or retired former employees that are attributable to the duplicative benefits. 
  (b) Employers Covered.--Employers (including public employers other than the Federal government) affected by this provision include those who provide duplicative Part A benefits whose actuarial value is at least 50 percent of the actuarial value (discounted to the value as of the date of enactment) of the average Part A benefits provided under this bill. 
  Also, employers (including public employers other than the Federal government) affected by this provision include those who provide duplicative Part B benefits whose actuarial value is at least 50 percent of the actuarial value (discounted to the value as of the date of the enactment) of the average Part B benefits that will be provided under this bill. 
  The conferees intend that employers contributing to a multiemployer plan would be required to continue their contributions under their collective bargaining agreements. 
  Employers may elect to compute the actuarial value of duplicative Part A or Part B benefits on the basis of:  (1) national average actuarial values, or (2) the actuarial value (net of employee premiums) with respect to that employer.  The Secretary of Health and Human Services must calculate and publish for four years beginning *253 **1031 with 1989 for duplicative Part A benefits, and 1990 for duplicative Part B benefits, the national average actuarial value of the duplicative benefits for 1988 and the year involved, and the employer guidelines for computing the actuarial value of duplicative benefits for such years. 
  (c) Effective Period.--The conference agreement includes the Senate amendment, with a modification that the maintenance of effort requirements with respect to duplicative Part A benefits are effective during 1989, and the maintenance of effort requirements with respect to duplicative Part B benefits are effective during 1990.  However, where there is a collective bargaining agreement in effect of the date of enactment, the maintenance of effort requirements are in effect until the later of 1989 for Part A benefits and 1990 for Part B benefits or the expiration of the agreement, determined without regard to any extensions after enactment. 
  (d) Effective date.--The conference agreement is effective on enactment.

33. Medicaid Buy-In of Premiums and Cost-Sharing for Indigent Medicare
Beneficiaries (Section 301 of House bill;  Sections 14 and 14B of Senate
amendment)

Present law 

  Most States have entered into a "buy-in" agreement under which they pay the Medicare Part B premiums on behalf of their Medicaid beneficiaries who are also eligible for Medicare. 
  The Omnibus Budget Reconciliation Act of 1986 (OBRA 86) permits States to cover Medicare premiums, deductibles, and coinsurance for aged and disabled persons with incomes up to a State-established level, which may be up to 100 percent of the Federal property line.  A State choosing this option is required to use the resource standards of the Supplemental Security Income (SSI) program;  except that if it has a medically needy program using higher standards it may use those standards.  States electing this option are required to offer Medicaid coverage "to some or all" newly pregnant women and children below the Federal poverty line.

House bill 

  (a) In General.--Makes mandatory the current option for States to pay Medicare premiums, deductibles and coinsurance for all elderly and disabled persons with incomes at or below 100 percent of the Federal poverty level, except that resources would be set at or below twice the SSI standard.  The requirement that States cover some newly eligible pregnant women and children is retained.  A State which is providing medical assistance under a section 1115(a) waiver instead of under Medicaid is required to meet the mandatory coverage requirement.  The coverage requirement is optional with the commonwealths and territories, and they may use an income level below 100 percent of the Federal poverty line. 
  (b) Drug Provisions.--(See Item 10, "Coverage of Catastrophic Prescription Drugs Under Medicare"). 
    (1) Requires State Medicaid programs to cover incurred drug charges below the Medicare deductible for Medicare beneficiaries with incomes below poverty.  Alternatively, a State may **1032 *254 provide the same drug coverage (up to the deductible) as is offered to categorically needy Medicaid beneficiaries in the State. 
    (2) No provision. 
  Effective date.--(a) Applies to calendar quarters beginning on or after July 1, 1988 (without regard to whether or not final regulations have been promulgated) with respect to medical assistance for monthly Medicare premiums beginning July 1, 1988, and items and services furnished on or after that date.  Delay is permitted where State legislation is required. 
  (b) Applies for calendar quarters beginning on or after January 1, 1989  (without regard to whether or not final regulations have been promulgated) with respect to medical assistance for monthly Part B premiums beginning January 1, 1989, and covered outpatient drugs dispensed on or after that date;  delay is permitted where State legislation required.

Senate amendment 

  (a) In General.--Requires the Secretary, before the beginning of each fiscal year, to estimate the amount that would have been expended from State funds that fiscal year for Medicaid in the absence of the catastrophic protection offered under the bill and to notify each State of the amount.  Each State is required to use such estimated savings for one or more of the following: 
    (1) Paying for Medicare cost-sharing charges (other than those for covered outpatient drugs) for persons below the poverty line, pursuant to the provisions of OBRA 86 (except that requirements pertaining to additional coverage of pregnant women and children would not apply); 
    (2) Increasing the monthly maintenance needs allowance for community spouses of institutionalized individuals;  or 
    (3) Increasing opportunities for elderly persons to participate in adult day health and other community-based services, if the State both:  (A) has elected to provide coverage for Medicare cost-sharing charges for persons with incomes up to 100 percent of poverty, and (B) provides a minimum monthly income allowance for community spouses up to $500 per month. 
  The amounts expended by the State under this provision are in addition to any amounts that would have otherwise been expended for such purposes. 
  (b) Drug Provisions.--(See Item 10, "Coverage Catastrophic Drugs Under Medicare".) 
    (1) Similar provision. 
    (2) Permits States to cover Medicare prescription drug cost-sharing charges for persons whose income is between 100 and 200 percent of poverty.  For persons with incomes up to 150 percent of poverty, the deductible can be up to $150 and the cost sharing amount up to 10 percent of any coinsurance amounts otherwise paid by the State.  For persons with incomes above 150 percent of poverty, the deductible can be up to $300 and the coinsurance up to 15 percent. 
  Effective date.--(a) Applies for 12 successive calendar quarters beginning January 1, 1988, except delay is permitted where State **1033 *255 legislation is required.  In case of delay, the provision is also effective for 12 successive calendar quarters. 
  (b) Applies to Medicaid payments for calendar quarters beginning on or after January 1, 1990 (without regard to whether final regulations have been issued) with respect to monthly Medicare premiums and items and services furnished on and after January 1, 1990.

Conference agreement 

  (a) In General.--The conference agreement follows the House provision with modifications.  Except with respect to certain "209(b)" States, the buy-in requirement would be phased in as follows:  effective January 1, 1989, States would have to buy-in the elderly and disabled with incomes at or below 85 percent of the Federal poverty income guidelines ($5,770 per year in 1988 for an individual);  effective January 1, 1990, at or below 90 percent;  effective January 1, 1991, at or below 95 percent;  and effective January 1, 1992, at or below 100 percent.  With respect to those five "209(b)" States that, as of January, 1987, used more restrictive income eligibility standards with respect to the elderly than those applicable under SSI, the buy-in requirement would be phased in as follows:  effective January 1, 1989, these States would be required to offer buy-in coverage to individuals with income at or below 80 percent of the Federal poverty income guidelines;  effective January 1, 1990, at or below 85 percent;  effective January 1, 1991, at or below 90 percent; effective January 1, 1992, at or below 95 percent;  and effective January 1, 1993, at or below 100 percent.  The conferees understand that five "209(b)" States qualify for this extended phase-in schedule:  Hawaii, Illinois, North Carolina, Ohio, and Utah, (See CRS Report 87-986 EPW, Appendix B-2). 
  The conferees note that the current option to offer buy-in coverage would remain in effect during the phase-in period.  Thus, States which currently offer buy-in coverage to the elderly or disabled with income at or below 100 percent of the Federal poverty guidelines but above the mandatory phase-in schedule (i.e., Florida, New Jersey, Rhode Island, and the District of Columbia) could continue to receive Federal matching payments for such coverage.  Similarly, States that, over the next three years, wish to offer buy-in coverage to individuals with incomes above the mandatory phase-in schedule (but no higher than 100 percent of poverty) may do so. 
  The conference agreement clarifies the standard in the House bill that States cover "some or all" pregnant women and infants.  Under the agreement, States are required, effective July 1, 1989, to extend coverage to pregnant women and infants up to age 1 with incomes at or below 75 percent of the Federal poverty income guidelines ($9,690 in 1988 for a family of 3);  effective July 1, 1990, the requirement applies to all pregnant women and infants with incomes at or below 100 percent of poverty.  In the case of pregnant women, coverage would be limited to pregnancy-related services;  in the case of infants, coverage would extend to all Medicaid benefits offered by the State to cash assistance recipients.  Those States that, as of enactment, offered coverage to pregnant women and infants with incomes at or below 100 percent of the poverty level (or some lower income threshold higher than 75 percent) would be required **1034 *256 to continue this coverage.  This maintenance of effort requirement would also apply to States that, as of enactment, had enacted authorizing or appropriations legislation to establish such coverage but had not yet actually implemented the coverage.  As under current law, States that elected to offer Medicaid coverage to pregnant women and infants above the mandatory income thresholds up to 185 percent of the Federal poverty level would not be permitted to reduce their cash assistance payment levels to families with dependent children below the levels in effect as of July 1, 1987.  Similarly, to assure that the resources for mandatory coverage of pregnant women and infants up to 100 percent of poverty are not diverted from the Aid to Families with Dependent Children (AFDC) program, all States are prohibited from reducing their cash assistance payment levels to families with dependent children below the levels in effect on May 1, 1988. 
  The conference agreement also provides that states which impose durational limits on Medicaid payments for inpatient hospital services (e.g., 12 days per year, 14 days per admission, 30 days per spell of illness, 35 days for a particular diagnosis under a prospective payment system) must establish exceptions to any such limit for medically necessary inpatient services received by an infant (up to age 1) in a hospital designated as a disproportionate share hospital under the State's Medicaid plan.  Thus, so long as the infant remains Medicaid-eligible and is receiving medically necessary inpatient services in a disproportionate share hospital, the State would be obligated to reimburse the hospital for such services without regard to any durational limit that might otherwise apply.  The agreement further provides that, if a State pays for inpatient hospital services on a propsective basis (per diem, per case, or otherwise), the State must provide for an outlier adjustment for disproportionate share hospitals for medically necessary inpatient services delivered on or after July 1, 1989, involving exceptionally high cost or exceptionally long lengths of stay for infants up to age 1. States would have the discretion to define length of stay and cost outliers, and to determine the amount of adjustment to be paid for outlier cases; however, reimbursement to disproportionate share hospitals for these exceptionally high costs or exceptionally long length of stay infants would have to be reasonable and adequate.  States are required to submit a plan amendment setting forth their outlier policy by April 1, 1989;  the Secretary is required to review and approve or disapprove such amendment within 90 days. If the Secretary disapproves the amendment, the State is required to submit immediately a complying amendment.  This requirement applies to all States, including those with "prudent buyer" contracting waivers under section 1915(b)(4) of the Social Security Act. 
  (b) Drug Provisions.-- 
    (1) The conference agreement follows the House provision with a modification providing for a phase-in schedule corresponding to the schedule applicable to the general buy-in requirement described in (a), above.  Thus, as of January 1, 1991, when the Medicare prescription drug benefit takes effect, most States will be required to buy-in the elderly and disabled with incomes at or below 95 percent of the Federal poverty level;  in the five "209(b)" States for which a longer phase-in schedule is **1035 *257 specified, the 90 percent threshold will apply.  The managers note that, if the State elects the option of providing its Medicaid drug benefits in order to satisfy the Medicare prescription drug deductible, the "charges for covered outpatient drugs" are the billed charges for the drugs that Medicaid covers, even though the beneficiary has not actually incurred the charge or paid the difference between the State's payment (plus any coinsurance requirement) and the pharmacist's charge. 
    (2) The conference agreement does not include the Senate provision. 
  Effective date.--Applies to calendar quarters beginning on or after January 1, 1989 (without regard to whether or not final regulations have been promulgated) with respect to medical assistance for monthly Medicare premiums beginning on that date, and items and services furnished on or after that date.  Delay is permitted where specified State legislation is required.  The disproportionate share hospital payment provision is effective on enactment.

34. Determination of Medicaid Drug Savings;  State Plan Requirement (Section
14A of Senate amendment)

Present law 

  No provision.

House bill 

  No provision.

Senate amendment 

  Requires the Secretary before the beginning of each fiscal year (or portion thereof) to estimate and determine the amount that would have been spent in each State that fiscal year under Medicaid in the absence of the new outpatient drug coverage and intravenous drug coverage provisions, and to notify the State of the amount. 
  Requires each State plan to use any such savings for covering Medicare drug cost sharing charges for persons below the poverty line. 
  Effective date.--Applies with respect to any calendar quarter beginning on or after January 1, 1990.

Conference agreement 

  The conference agreement does not include the Senate provision.

35. Protection of Income and Resources of Couple for Maintenance of Community
Spouse (Section 302 of House bill;  Section 14C of Senate amendment)

Present law 

  (a) In General.--Eligibility of the aged and disabled for Medicaid is linked to actual or potential receipt of cash assistance under SSI.  The SSI program employs certain criteria for the treatment of income and resources which are also used in States which cover all SSI recipients.  ("209(b)" States which do not cover all SSI recipients, *258 **1036 may employ more restrictive criteria, provided they are no more restrictive than those in effect in January 1972). 
  An institutionalized individual with a spouse in the community is permitted to keep an amount for the maintenance needs of his spouse;  however this amount is set at welfare levels.  As a result of Medicaid rules, both for determining eligibility and in the treatment of income after eligibility has been established, the spouse in the community may be left with income below the poverty level;  this circumstance is referred to as spousal impoverishment. 
  (b) Rules for Treatment of Income.--Under SSI rules, if both spouses live together, their incomes and resources are considered available to each other whether or not they actually contributed to each other.  Spouses are no longer considered to be living together if one is institutionalized for longer than one month in a facility certified to receive Medicaid payments.  Only the income of the institutionalized spouse is considered for purposes of determining eligibility.  In most states the "name on the instrument" rule applies in attributing income;  i.e., income is considered to belong to the spouse whose name is on the check or other instrument conveying the funds.  (In the case of Social Security checks, the amount attributable to each spouse is the individual's share of the couple's benefit.)  A Federal Appeals Court has ruled that in California and Washington, community property principles, and not the "name on the instrument" rule, apply. 
  (c) Rules for Treatment of Resources.--Resources must be considered mutually available for 6 months following instituionalization if both spouses are SSI eligible and for 1 month if only one spouse is SSI eligible.  Countable resources above specified amounts (including a minimum of $1,900 in liquid resources for an individual and $2,850 for a couple) must be applied to the costs of care.  Excluded from the calculation is the couple's home and $2,000 in equity value of household goods or personal effects.  If resources are held solely by the institutionalized spouse, they are attributed to him for eligibility purposes.  If they are held jointly by the institutionalized spouse and the noninstitutionalized spouse, they are considered to belong entirely to the institutionalized spouse.  If they are held solely by the spouse remaining in the community, none is considered available to the institutionalized spouse. 
  (d) Protecting Income for Community Spouse.--After an institutionalized individual has established eligibility, his income, after deduction of specified amounts known as "disregards," is applied to the cost of care.  The disregards are applied to the resident's income in the following order: 
    (1) A monthly personal needs allowance (which must be at least $25) ($30 as of July 1, 1988); 
    (2) A monthly maintenance needs allowance for an individual with a spouse at home which may not exceed:  (A) the SSI standard for an individual residing in his own home, (B) the highest income standard for State optional supplementary payments, or (C) the medically needy standard for one person. (A State not covering all SSI recipients cannot use a level higher than the more restrictive income standard or the medically needy standard); 
    **1037 *259 (3) An additional allowance for an individual with a family at home. 
    (4) Amounts for medical expenses not covered by a third party, subject to reasonable limits.  (The Health Care Financing Administration (HCFA) has issued a regulation that, effective April 8, 1988, makes this disregard optional with the State. 
  (e) Notice and Hearing.--No provision. 
  (f) Court Ordered Support.--In certain instances State or local courts have issued orders against institutionalized spouses requiring them to make monthly payments to the community spouse.  However, notwithstanding such an order, the Health Care Financing Administration (HCFA) has determined that the income of the institutionalized spouse is available to him for purposes of determining his contribution to the cost of care. 
  (g) Transfer of Assets.--The fair market value of any resources (not including the individual's home) disposed of within the preceding 24 months must be taken into account in determining SSI eligibility (to which Medicaid eligibility is linked).  States are permitted, but not required, to impose such a restriction for Medicaid provided it is not more restrictive than that for SSI, with one exception.  In cases where the uncompensated value of disposed resources exceeds $12,000, the State may provide for a period of ineligibility exceeding 24 months, provided the period bears a reasonable relationship to the uncompensated value.  States may waive the delay in Medicaid eligibility in cases of undue hardship. 
  States are also allowed to deny Medicaid eligibility for 24 months to institutionalized individuals who, within 24 months prior to application for Medicaid, disposed of their homes for less than fair market value even though such disposal would not make them ineligible for the SSI program.  The provision does not apply if the individual intended to dispose of the home at fair market value or if title was transferred to a spouse or minor or handicapped child. 
  (h) Conforming Amendment.--Some States covering the aged and disabled medically needy use less restrictive income or resource methodologies than are applied under the SSI program.  HCFA has interpreted current law to require that States use SSI income and resource methodologies.  A moratorium on this interpretation enacted in section 2373(c) of P.L. 98-369, and clarified by section 9 of P.L. 100-93, is currently in effect. 
  (i) Study of Means of Recovering Costs of Nursing Facility Services From Estates of Beneficiaries.--Under certain circumstances, States may recover amounts paid on behalf of deceased beneficiaries who were nursing home residents or who were 65 or over when Medicaid payments were made.

House bill 

  (a) In General.-- 
    (1) Adds a new Section 1921 to the Social Security Act entitled "Treatment of Income and Resources For Certain Institutionalized Spouses".  The provisions of this section supersede other provisions of title XIX, to the extent they are inconsistent, for purposes of determining eligibility of an institutionalized spouse.  Comparable treatment is not required for other groups of eligibles. 
    **1038 *260 (2) Specifies that, except as specifically provided, the section does not apply to the determination of what constitutes income or resources or the methodology and standards for determining and evaluating them. 
    (3) Permits an institutionalized spouse to elect to be governed instead by the rules in effect in March 1987 in his State, except that the institutionalized spouse may not opt out of the new rules regarding treatment of resources at the time of initial eligibility determination. 
    (4) Specifies that the new section applies to a State operating under a section 1115 waiver but not to the commonwealths and territories. 
  (b) Rules for Treatment of Income.-- 
    (1) Specifies that in any month in which a spouse is institutionalized, no income of the community spouse is considered available to the institutionalized spouse. 
    (2) Specifies that, regardless of State laws relating to community property or division of marital property, the following income attribution rules apply for non-trust property unless otherwise specifically provided on the instrument.  Income paid solely to one spouse or another is considered to belong to that respective spouse.  If the income is paid in both names, half is considered available to each spouse.  If the income is paid in the name of either or both spouses and another person, an equal share of the income is considered available to each individual.  The same principles apply for trust property unless the trust specifically provides otherwise.  For non-trust property with no instrument, half of the income is considered available to each spouse. 
    (3) An institutionalized spouse can rebut the non-trust property attribution rules by establishing that ownership interests are otherwise. 
    (4) No provision. 
  (c) Rules for Treatment of Resources.-- 
    (1) Provides for the computation, as of the beginning of a continuous period of institutionalization, of the spousal share which is equal to one- half the value of all the resources held by the institutionalized spouse, the community spouse, or both.  The couple's house and all household goods and personal effects are to be excluded from the calculation. 
    (2) Provides that the determination of countable resources is to be made regardless of State laws relating to community property or division of marital property, at the time of application for benefits.  All resources held by either spouse are considered available to the institutionalized spouse except that the resources held in the name of the community spouse are not considered available unless they exceed a community spouse resource allowance (as of the application date) or if greater, the amount retained under court order. 
    (3) No provision. 
    (4) Provides that after an institutionalized spouse has established eligibility, no resources of the community spouse shall be considered available to the institutionalized spouse. 
    **1039 *261 (5) Specifies that if the spousal share is less than  $12,000 (indexed to the CPI beginning in 1989), the institutionalized spouse is allowed to transfer an amount sufficient to enable the community spouse to hold $12,000 in his or her own name.  If the spousal share is greater than $48,000 (indexed by the CPI beginning for 1989), the amounts in excess of $48,000 would be attributed to the institutionalized spouse. 
  (d) Protecting Income for Community Spouse.--Specifies that the following disregards are to be applied to the institutionalized individual's income in the following order: 
    (1) A monthly personal needs allowance as specified under current law; 
    (2) A minimum monthly maintenance needs allowance for the community spouse.  The allowance is the amount needed to bring the community spouse's monthly income up to a minimum level (not to exceed $1,500, indexed to the CPI beginning for 1989) which is the sum of: 
	(A) 150 percent of the Federal poverty guidelines for a family of two; 
	(B) an excess shelter allowance (the amount by which mortgage expenses or rent, plus utility costs, exceed 30 percent of Item A);  and 
	(C) one-half of the amount by which the income of the institutionalized spouse exceeds the sum of items A and B; 
    (3) A family allowance for each family member (minor or dependent child, dependent parent or dependent sibling residing with the community spouse) equal to at least one-third of the amount by which 150 percent of the Federal poverty line for a family of two exceeds the family income of that family member. 
    (4) Amounts for incurred medical expenses not subject to payments by a legally liable third party. 
  (e) Notice and Hearing.-- 
    (1) Requires States to notify the institutionalized spouse of the community spouse monthly income allowance, the family allowance, the method for computing the amount of the community spouse resource allowance, and of the spouse's right to a fair hearing with respect to the determination of the community spouse monthly income allowance. 
    (2) Specifies that if the institutionalized spouse establishes that the minimum monthly maintenance needs allowance is inadequate to support the community spouse without financial duress, the amount is to be increased. 
  (f) Court Ordered Support.-- 
    (1) Provides that if a court has entered an order against an institutionalized spouse for monthly income support for the community spouse, the community spouse monthly maintenance needs allowance must be at least as great as the court ordered amount. 
    (2) Provides that if a court has entered a support order against an institutionalized spouse requiring the spouse to transfer countable resources to the community spouse, such transfer will not be considered in violation of transfer of assets prohibitions. 
    **1040 *262 (3) Provides that if a court has entered an order against an institutionalized spouse requiring the spouse to transfer resources, the community spouse resource allowance is the amount transferred up to the ceiling ($48,000 in 1988, indexed to the CPI in future years). 
  (g) Transfer of Assets.-- 
    (1) Requires States to determine, at the time of application, whether an institutionalized individual has disposed, within the preceding 24 months, of resources for less than fair market value.  If such a transfer has occurred, a period of ineligibility is established beginning with the month in which the resources were transferred.  The number of months in such period equals the total uncompensated value at the time of transfer divided by the average cost of nursing home care to a private patient in the State or community. 
    (2) Specifies that the transfer prohibition does not apply if: 
	(A) the transfer was that of the applicant's home to his or her spouse, child under 21 or blind or disabled adult child; 
	(B) resources were transferred to the community spouse; 
	(C) a satisfactory showing is made that the individual intended to dispose of resources at fair market value or for other valuable consideration;  or 
	(D) the State determines that denial of eligibility would work an undue hardship.  States can only employ transfer of resources restrictions in accordance with these provisions. 
  (h) Conforming Amendment.--Provides that a State's methodology for determining eligibility for the medically needy may not be more restrictive than that under the appropriate cash assistance program.  The methodology is considered to be no more restrictive if, in using the methodology, additional individuals may be eligible and no otherwise eligible individuals are made ineligible. 
  (i) Study of Means of Recovering Costs of Nursing Facility Services From Estates of Beneficiaries.--No provision. 
  Effective Date.--Applies to payments made for calendar quarters beginning on or after January 1, 1988, without regard to whether final regulations have been issued.  Delay is permitted where State legislation required.  The conforming amendment item (h) applies to medical assistance furnished on or after October 1, 1982.

Senate amendment 

  (a) In General.--Identical provision, except excludes item 3. 
  (b) Rules for Treatment of Income.-- 
    (1) Identical provision. 
    (2) Similar provision except:  (A) applies only to post-eligibility treatment of income;  and (B) in the case of both trust and non-trust property where the income is paid in the name of either or both spouses and another person, the income is considered available to each spouse in proportion to the spouse's interest (or if payment is made with respect to both spouses and no such interest is specified, one-half of the joint interest shall be considered available to each spouse). 
    (3) Identical provision. 
    **1041 *263 (4) Specifies that in the case of community property States that do not provide coverage for the medically needy, the amount of income considered available to each spouse, at the time of application for benefits, is equal to half of the combined income of the institutionalized and community spouse. 
  (c) Rules for Treatment of Resources.-- 
    (1) Similar provision.  Also excludes resources that are necessary to produce income that is available to the community spouse or the family allowance up to the limits established by this section (see (d) below). 
    Requires the State to provide an assessment and documentation of total joint resources at the request of either spouse, at the beginning of a continuous period of institutionalization.  The assessment shall occur promptly on receipt of relevant documentation.  A copy is to be provided to each spouse.  A State may charge a reasonable fee for an assessment if it is not part of an application for Medicaid. 
    (2) Similar provision. 
    (3) Specifies that the institutionalized spouse is not considered ineligible by resources determined to be available where:  (A) the institutionalized spouse has assigned to the State any rights to support from the community spouse;  (B) the institutionalized spouse lacks the ability to execute an assignment due to physical or mental impairment but the State has a right to bring a support proceeding against a community spouse without such assignment;  or (C) the State determines denial of eligibility could work an undue hardship. 
    (4) Identical provision. 
    (5) Similar provision, except:  (A) a State, by law, practice, policy, or State plan (whether approved or not), may establish a higher amount than $12,000;  and (B) specifies that a higher amount may be established by fair hearing or court order.  Specifies that a transfer of resources to a community spouse must be made within 1 year after the date of the initial eligibility determination or such time as is necessary to obtain a court order (whichever is longer.) 
  (d) Protecting Income for Community Spouse.--Similar provision, except: 
    (1) The definition of personal needs allowance is tied to that specified under the bill. 
    (2) The minimum allowance for the community spouse may be increased by State law, policy, or State plan (whether approved or not): 
	(A) The minimum maintenance needs allowance is 122 percent of the poverty line; 
	(B) Similar provision. 
	(C) No provision. 
    (3) Similar provision, except family allowance linked to 122 percent of Federal poverty line. 
    (4) Similar provision. 
  (e) Notice and Hearing.-- 
    (1) Similar provision, except requires specific notice to both spouses at the time of eligibility determination or to either spouse upon request.  Also requires notification of the spouse's **1042 *264 right to a fair hearing respecting ownership or availability of income or resources, and respecting the community spouse monthly income or resource allowance. 
    (2) Specifies that if either spouse establishes that either the minimum monthly maintenance needs allowance or the community spouse resource allowance (in the relation to the amount of income generated by such allowance) is not adequate to support the community spouse without financial duress, the amount of either allowance is to be increased. 
  (f) Court Ordered Support.-- 
    (1) Similar provision. 
    (2) Similar provision. 
    (3) Similar provision, except ceiling does not apply. 
  (g) Transfer of Assets.--Similar provision except that the State review covers the disposal of assets within the 26 months prior to application. 
  (2) Similar provision, except: 
    (A) specifies transfer prohibition does not apply (i) in the case of a sibling who has an equity interest in the home and was residing in the home for at least a year prior to the individual's admission to a nursing home, or 
    (ii) in the case of a son or daughter who was residing in the home for at least two years prior to the admission and was providing care which permitted the individual to reside at home. 
    (B) also permits transfer to the individual's child who is permanently or totally disabled. 
    (C) also permits a showing that resources were transferred exclusively for a purpose other than to qualify for medical assistance. 
    (D) Identical provisions. 
  (h) Conforming Amendment.--Identical provision. 
  (i) Study of Means of Recovering Costs of Nursing Facility Services >From Estates of Beneficiaries.--Requires the Secretary to study the means for recovering the amounts from the estates of deceased beneficiaries (or the estates of spouses of deceased beneficiaries) to pay for SNF or ICF services furnished them under Medicaid.  The Secretary is required to report to Congress, not later than December 31, 1988, on such means, and to include appropriate recommendations for changes. 
  Effective date.--Applies to payments made for calendar quarters beginning on or after January 1, 1988, without regard to whether final regulations have been issued.  Delay is permitted where State legislation required.  Provisions relating to treatment of resources, apply only to institutionalized individuals who begin continuous periods of institutionalization on or after January 1, 1988.  Transfer of assets provisions, item (g) apply only to transfer of resources made on or after January 1, 1988.

Conference agreement. 

  (a) In General.--The conference agreement follows the Senate amendment. 
  (b) Rules for Treatment of Income.--The conference agreement follows the Senate amendment with a modification deleting the provision relating to community property States that do not offer **1043 *265 coverage to the medically needy (item (4) of the Senate amendment). 
  (c) Rules for Treatment of Resources.--The conference agreement follows the Senate amendment with the following modifications.  If the spousal share the couple's total resources is greater than $60,000 (indexed by CPI beginning in 1990), amounts in excess of $60,000 would be attributed to the institutionalized spouse.  A level higher than $60,000 could be established by fair hearing or court order.  The State, by amending its State plan, could raise the $12,000 minimum resource allowance for the community spouse to any level up to the $60,000 (subject to indexing) statutory maximum. 
  The agreement does not exclude from countable resources those assets necessary to produce income available to the community spouse or the family allowance.  Instead, the agreement provides that either the institutionalized or the community spouse may request a fair hearing as to whether the community spouse resource allowance is adequate to generate sufficient income to raise the community spouse's income to the minimum monthly maintenance needs allowance.  The State must grant such a hearing within 30 days of request.  If the State, after such a hearing, determines that the community spouse resource allowance is inadequate, the State must allow the community spouse to retain an adequate amount of resources to provide the minimum monthly maintenance needs allowance (taking into account any other income attributable to the community spouse), notwithstanding the amount of the State-established resource allowance.  If either spousal requests an assessment or resources at the time of institutionalization, the State must, in providing the assessment give notice to the requesting spouse of the right to a fair hearing with respect to the adequacy of the community spouse's resource allowance.  The agreement also requires that nursing facilities inform newly-admitted residents of their right to request an assessment from the State agency. 
  The conference agreement specifies that a transfer of resources to a community spouse must be made as soon as practicable after the date of initial eligibility determination, with allowance for the time necessary to obtain a court order, where necessary.  In determining what constitutes a "transfer" for this purpose, the conferees intend that State law govern.  In addition, the agreement provides that the State of Missouri must not count as a resource the home (of any value) of an aged, blind, or disabled individual who applies for Medicaid on or after October 1, 1989.  This requirement would apply only to the home;  the State could, but would not be required to, exclude the land that appertains to the house, as would be the case under SSI. 
  (d) Protecting Income for Community Spouse.--The conference agreement follows the Senate amendment with the following modifications.  As under current law, the proposal needs allowance is $30, whether the resident is eligible for Medicaid on a categorically needy, optional categorically needy, or medically needy basis.  The minimum monthly maintenance needs allowance is effective September 30, 1989, set at 122 percent of the monthly Federal poverty income guidelines for a 2-person household (which is 1988 would be $786). Effective July 1, 1991, the minimum allowance would be **1044 *266 raised to 133 percent;  effective July 1, 1992, to 150 percent.  This schedule of percentage would also apply to the calculation of the family allowance.  The community spouse monthly maintenance needs allowance may not exceed $1500, except where a higher level is determined to be necessary through a fair hearing or by a court order. 
  With respect to the deduction for incurred medical expenses, the conference agreement requires that, with respect to any Medicaid-eligible individual in an institution (regardless of whether the individual has a spouse in the community), States must take into account amounts for incurred expenses for medical or remedial care that are not subject to payment by a third party, including Medicare and other health insurance premiums, deductibles, or coinsurance, and, subject to reasonable limits a State may establish, necessary medical or remedial care recognized under State law but not covered under the State's Medicaid plan.  The conferees note that, until recently, HCFA regulations required that Medicaid-eligible nursing home residents be allowed to deduct uncovered medical costs from their income before contributing toward the cost of nursing home care.  However, a recent HCFA regulation, 53 Fed.Reg. 3586 (Feb. 8, 1988), altered this rule to allow States to limit this deduction substantially, or to eliminate it altogether.  The conference agreement is intended to reinstate the previous rule, retroactive to the effective date of the recent change (April 8, 1988).  As under the previous regulation, States will have the ability to place "reasonable limits" on a resident's expenditures for medical or remedial care.  The conferees wish to emphasize that these limits must ensure that nursing home residents are able to use their own funds to purchase necessary medical or remedial care not covered by the State Medicaid program, while minimizing opportunities for providers to take financial advantage of either the program or the residents.  For example, it would be reasonable for a State to provide that only uncovered services prescribed by a physician may be deducted.  It would also be reasonable for States to impose specific dollar limits for specific services or items, provided that these limits reflect annual increases in the cost of medical care services and supplies.  However, it would not be reasonable for States to set an overall dollar limit, such as $50 per month, for all noncovered services. Similarly, it would not be reasonable for States to impose a limit on the number of medically necessary services or items that an individual could deduct in any month.  In providing these examples of "reasonable limits" for deductions of uncovered medical expenses incurred by nursing home residents, the conferees do not intend any approval of comparable limitations in the "spenddown" process for medically needy programs. 
  (e) Notice and Hearing.--The conference agreement follows the Senate amendment with the following modification.  If either the community or institutionalized spouses establishes in a fair hearing that, due to exceptional circumstances resulting in significant financial duress, the community spouse needs income above the minimum monthly maintenance needs allowance, the State is required to increase the allowance to provide this amount, notwithstanding the $1500 statutory ceiling.  Exceptional circumstances resulting in significant financial duress would include, but not be limited to, **1045 *267 the financial burden of caring for a disabled child, sibling, or other immediate relative.  If either spouse establishes in a fair hearing that the community spouse resource allowance (in relation to the income generated by such allowance) is inadequate to raise the income of the community spouse to the level of the minimum monthly maintenance needs allowance (taking into account any other income attributed to the community spouse), the State must provide for a resource allowance adequate in amount to generate that level of income for the community spouse. 
  (f) Court-ordered Support.--The conferences agreement follows the Senate amendment. 
  (g) Transfer of Assets.--The conference agreement follows the Senate amendment, with a modification.  The transfer of assets prohibitions apply only with respect to individuals institutionalized in a medical institution or nursing facility.  The term "medical institution" has the same meaning as under current regulations, 42 C.F.R. section 435.1009;  the term "nursing facility" includes a skilled nursing facility or intermediate care facility (other than an ICF for the mentally retarded), until October 1, 1990, when these categories will be replaced by "nursing facility."  States are required to determine whether these individuals made any prohibited resource transfers within 30 months prior to application for benefits.  This requirement is effective with respect to applications for Medicaid eligibility occurring on or after July 1, 1988 and applies only with respect to resources transferred on or after July 1, 1988.  Thus, in those States which do not have transfer or assets prohibitions in place prior to July 1, 1988, the State can look back only to transfers occurring on or after July 1, 1988.  In those States that, prior to July 1, 1988, have exercised their option to penalize transfers of assets for less than fair market value, the State may continue to apply its pre-July 1 transfer policies and penalties with respect to resources transferred prior to July 1, 1988, even in cases where application for Medicaid benefits is made after on or after that date.  However, with respect to resource transfers occurring on or after July 1, 1988, the rules set forth in the conference agreement regarding computation of the period of ineligibility and exceptions to the transfer prohibition will apply in all States, including the "209(b)" States which have elected the option to use more restrictive eligibility standards with respect to their aged, blind, and disabled beneficiaries than apply under SSI. 
  The conference agreement also repeals the provision in present SSI law which requires that the uncompensated value of resources transferred at less than fair market value within the preceding 24 months be counted toward the SSI resource limit.  However, under the conference agreement, a transfer of resources at less than fair value by an SSI applicant or recipient will be considered in determining an individual's eligibility for Medicaid if and when the individual enters a medical institution or nursing facility.  Such transfers may include, for example, the SSI applicant's or recipient's home even though at the time of the transfer the home was not a countable SSI resource.  Therefore, the conference agreement will require that the Secretary inform SSI applicants in writing, at the time of application, and SSI recipients, at the time of redetermination of eligibility, of the provisions of Medicaid law with respect to **1046 *268 transfer of assets.    The Secretary will be required to request from the individual information about transfers and, at the time of such request, to inform the individual that such information may be shared with the State Medicaid agency.  The Secretary will also be required to make this information available to a State Medicaid agency, upon request;  the State may, at its option, use this information to determine whether and to what extent there will be a period of ineligibility for Medicaid because an individual transferred resources at less than fair market value. 
  (h) Conforming Amendment.--The conference agreement follows the House bill, which applies to States which cover the medically needy, with a modification extending its application to States which offer coverage to optional categorically needy individuals and to "209(b)" States as well.  Under the moratorium imposed by section 2373(c) of P.L. 98-369, as clarified by section 9 of P.L. 100-93, States have flexibility to establish income and resource methodologies under medically needy programs, optional categorically needy programs, and under the "209(b)" option that are less restrictive, i.e. more generous, than those applied in the corresponding cash assistance programs. The conference agreement codifies this flexibility, retroactive to October 1, 1982. 
  (i) Study of Means of Recovering Costs of Nursing Facility Services from Estates of Beneficiaries.--The conference agreement includes a technical amendment reflecting the Senate amendment, the text of which had been agreed to in, but was inadvertently omitted from, the Omnibus Budget Reconciliation Act of 1987, P.L. 100-203.  The conference agreement includes additional OBRA '87 technical corrections and other miscellaneous provisions. 
  With respect to section 4112 of OBRA '87, relating to payment adjustments for disproportionate share hospitals, the conference agreement makes a number of technical corrections regarding the 3-year phase-in and other matters.  It clarifies that the special rule in subsection 4112(e) applies only to New York, and adds a special rule providing that, for a 3-year period, Texas may use its own definition of disproportionate share hospital and its own payment adjustment rules so long as the aggregate amount payment adjustments to disproportionate share hospitals is not less than the amount that would be required by section 4112.  During this 3-year period, in meeting the requirement that at least two obstetricians with staff privileges agree to provide obstetric services to Medicaid patients, a hospital in an urban area in Texas seeking disproportionate share status could substitute family practitioners, internists, or any other qualified physician with staff privileges. 
  The conference agreement clarifies that Federal Medicaid matching funds are available for the cost of health services, covered under a State's Medicaid plan, that are furnished to a handicapped child or a handicapped infant or toddler, even though such services are included in the child's individualized education program or individualized family service plan.  Under the Education for All Handicapped Children Act of 1975, P.L. 94-142, children with handicaps are entitled to a free and appropriate public education in conformity with an individualized education program (IEP) which describes the educational and "related services" necessary to **1047 *269  meet the child's unique needs.  While the State education agencies are financially responsible for educational services, in the case of Medicaid-eligible handicapped child, State Medicaid agencies remain responsible for the "related services" identified in the child's IEP if they are covered under the State's Medicaid plan, such as speech pathology and audiology, psychological services, physical and occupational therapy, and medical counseling and services for diagnostic and evaluation purposes. 
  The conference agreement defines an institution for mental diseases (IMD) as a hospital, nursing facility, or other institution of more than 16 beds that is primarily engaged in providing diagnosis, treatment, or care of persons with mental diseases.  This would clarify that Federal Medicaid matching funds would be available for services such as personal care and case management that are furnished through or by group homes or other small facilities serving the mentally ill, if those services are covered by the State under its Medicaid plan.  The 16-bed limitation parallels current rules under the SSI program. 
  The conferees wish to clarify the requirements in sections 4201 and 4211 of P.L. 100-203 that nursing facilities with more than 120 beds must have at least one social worker (with at least a bachelor's degree in social work or similar professional qualification) employed full-time to provide or assure the provision of social services.  Facilities could meet this requirement by employing either a person with a degree in social work or with similar professional qualifications, such as a degree in a related field and previous supervised experience in meeting individual psycho-social needs.  It is the intent of the conferees that the Secretary ensure that requirements regarding consultation and supervision of social work services be at least as stringent as those in effect prior to enactment of these changes. 
  The conferees also wish to clarify that it was the intent of sections 4201 and 4211 of P.L. 100-203 that the Secretary ensure that the requirements for dietary services be at least as stringent as those in effect prior to enactment of P.L. 100-203.

36. Technical Amendment Relating to Home and Community-Based Services (Section
19 of Senate amendment)

Present law 

  Comparable provision included in section 4418(a) of Public Law 100-203.

37. Technical Amendments Relating to New Jersey Respite Care Pilot Project 
(Section 20 of Senate amendment)

Present law 

  Comparable provision included in section 4418(o) of Public Law 100- 203.

**1048 38. Treatment of Garden State Health Plan (Section 25 of Senate
amendment)

Present law 

  Comparable provision included in section 4113 of Public Law 100-203.

*270 39. Technical Amendments Relating to the Omnibus Budget Reconciliation
Act of 1987

Conference agreement

PART A AND AMENDMENTS AFFECTING BOTH PARTS A AND B

  The conference agreement includes a number of technical and conforming amendments to the Medicare Part A and Parts A and B provisions of OBRA-87. These include: 
    (1) The prohibition on the issuance by the Secretary of any regulation, instruction, or other policy which is estimated by the Secretary to result in a net reduction in expenditures of more than $50 million is extended to October 15, 1989; 
    (2) Clarification that the regional floor on hospital payment applies on a census region basis, not a wage area basis; 
    (3) Clarification that outlying counties of metropolitan areas can only be designated as urban if they meet the commuting rules and all other applicable standards for designation as part of an urban area; 
    (4) in the case of hospitals with more than 49 beds using swing beds, authorization is provided to continue payment for patients in the hospital receiving skilled nursing care when the hospital reaches its limit for swing bed care; 
    (5) Clarification that the hospital cost report is to be permanent; 
    (6) Revisions to the uniform hospital reporting demonstration program to  (i) delete date elements on which it is not feasible to collect information at this time;  (ii) allow additional time for the collection of data and the preparation of a report;  and, (iii) extend the period of time during which funds may be expended for the demonstration; 
    (7) Amendments to conform anti-fraud and abuse provisions of OBRA '87 to existing statutory provisions; 
    (8) Extension of the date for submission of a report on hospital quality assurance required by OBRA '86 to January 1, 1990. 
    (9) Clarification that the rule regarding payment for hospital services by pre-paid plans under section 1876 applies to contracts established under pre- TEFRA demonstration authorities; 
    (10) Clarification that the hospital payment rule applies only in the case of a pre-paid which does not have a contract with the hospital or the skilled nursing facility seeking payment for its services.  Most often, the rule would apply in the case of out-of-plan services or when contract negotiations have not been successful.  The hospital or the skilled nursing facility are free to establish any level or type of payment they wish through negotiations pursuant to a contract; 
    (11) Clarification of the application of the 50/50 rule to H.I.P./Network.

**1049 PART B AND PROS

  The conference agreement includes a number of technical and conforming amendments to the Medicare Part B and PRO provisions of OBRA-87.  These include: 
    *271 (1) Consolidation of definitions relating to physician payment in new Section 1842(i); 
    (2) Amendments clarifying that there is only one prevailing charge for payment of physicians' services calculated on the basis of customary charges of participating and non-participating physicians.  The differential between participating and non-participating physicians continues without change; 
    (3) Clarifying that reductions in payment for cataract surgery and requirements relating to the use of an assistant at-surgery for cataract surgery also apply to insertion of an interocular lens subsequent to cataract removal; 
    (4) Conforming amendments regarding maximum allowable actual charge limits for reductions in payment for concurrent anesthesia services; 
    (5) Clarifying amendment to the purchase service provision, including an amendment to allow for billing for such services on an unassigned basis; 
    (6) Amendments clarifying that the scholarship loan default offset provision applies to non-physician defaulters and to physician and non- physician defaulters under the Health Education Assistance Loan program and the Physician Shortage Area Scholarship program; 
    (7) An amendment clarifying that the 1975 prevailing charge floor continues but is phased-out as it is no longer needed; 
    (8) Corrections and clarifying amendments to the durable medical equipment fee schedule; 
    (9) Clarifying penalties for improper billing of interocular lenses included in payment to ASCs; 
    (10) Consolidating amendments incorporating OBRA-87 policies regarding clinical labs into the Social Security Act and clarifying amendments related to the effective date for the elimination of the 2% differential for hospital laboratories; 
    (11) Clarifying amendments for new Section 1846; 
    (12) Clarification of provisions relating to payment of hospital outpatient departments for radiology services; 
    (13) Clarifying amendments that the standard coinsurance applies to services of nurse midwives and clinical psychologists and conforming amendments applying the same penalties for improper unassigned billings to these services as apply to the services of certified registered nurse anesthetists and physician assistants; 
    (14) Clarifying amendments to the provision requiring coordination of claims with Medigap insurers and an amendment delaying the effectiveness of this provision for Medigap policies sold in states which did not enact necessary changes prior to July 1, 1988.

**1050 NURSING HOME REFORM

  The conference agreement includes a number of technical and correcting amendments to the Medicare and Medicaid Nursing Home Reform provisions of OBRA 87.  These include amendments revising effective date and other requirements. The effective dates for certain Medicare requirements are changed from the first date noted to the second date noted as follows: 
    *272 (1) requirement that skilled nursing facilities conduct resident assessments:  from October 1, 1990 to January 1, 1991; 
    (2) required training of nurse aides used by facilities:  from October 1, 1989 (or January 1, 1990, in the case of an individual used as a nurse aid before July 1, 1989) to January 1, 1990; 
    (3) requirement for States to specify approved nurse aide training and competency evaluation programs:  from March 1, 1989 to January 1, 1989; 
    (4) requirement for States to review and reapprove nurse aide training and competency evaluation:  from March 1, 1990 to January 1, 1990; 
    (5) requirement for States to establish nurse aid registries:  from March 1, 1989 to January 1, 1989; 
    (6) requirement for States to provide for an appeals process for transfers:  from October 1, 1990 to October 1, 1989; 
    (7) requirement for States to specify the resident assessment instrument:  from July 1, 1989 to July 1, 1990; 
    (8) requirement for the Secretary to establish guidelines for States appeals process for transfers:  from October 1, 1989 to October 1, 1988; 
    (9) requirement for the Secretary to specify a minimum data set of core elements and common definitions for resident assessments:  from July 1, 1989 to January 1, 1989; 
    (10) requirement for the Secretary to designate one or more resident assessment instruments:  from October 1, 1990 to April 1, 1990; 
    (11) requirement that a facility permit immediate access to any resident by any representative of the Secretary or State, by an ombudsman, or by the resident's individual physician:  effective on the date of enactment; 
    (12) requirement for the Secretary to develop, test, and validate standard and extended survey protocols:  from October 1, 1990 to January 1, 1990. 
  Certain Medicaid effective dates have also been revised: 
    (1) requirement for States to specify approved nurse aide training and competency evaluation programs:  from September 1, 1988 to January 1, 1989; 
    (2) requirement for States to review and reapprove nurse aide training programs:  from September 1, 1990 to January 1, 1990; 
    (3) agreement between State and Secretary for disposition of residents who require active treatment:  from October 1, 1988 to April 1, 1989; 
    **1051 (4) requirement for the Secretary to establish requirements for the approval of nurse aide training and competency evaluation programs:  from July 1, 1988 to September 1, 1988; 
    (5) requirement that a facility permit immediate access to any resident by any representative of the Secretary or State, by an ombudsman, or by the resident's individual physician:  effective on the date of enactment. 
  These amendments also clarify that nursing facilities are required to manage the personal funds of residents if requested to do so by the resident.  The amendments also require States to make available to the public information in nurse aide registries. 
  *273 With regard to requirements for social workers included in the OBRA 87 amendments, the conferees intend that the Secretary ensure that requirements regarding consultation and supervision of social work services be at least as stringent as those in effect prior to enactment of the OBRA changes.

RURAL HEALTH

  Clarifies that the set aside for demonstrations applies to both research and demonstrations but only to funds appropriated to and expended by the Health Care Financing Administration.  Conforms statutory language to intent of conferees that there be equal ten percent set-asides for rural and for inner city research and demonstrations. 
	From the Committee on Ways and Means, for consideration of titles I, II, and IV of the House bill, and the entire Senate amendment (except for secs. 14, 14A, 14B, 14C, 19, 20, and 25), and modifications committed to conference:

	DAN ROSTENKOWSKI,

	PETE STARK,

	BRIAN J. DONNELLY,

	WILLIS D. GRADISON, Jr. 
	>From the Committee on Energy and Commerce, for consideration of titles II, III, and IV of the House bill, and the Senate amendment (except for secs. 2, 3, 12, and 18(a)) and for sec. 6 of the Senate amendment insofar as consideration of such section entails changes in eligibility requirements to participate in part B of the Medicare program, and modifications committed to conference:

	JOHN D. DINGELL,

	HENRY A. WAXMAN,

	RON WYDEN,

	EDWARD R. MADIGAN (except for sec. 204 of the House bill and sec. 7 of the Senate amendment), 
	For consideration of sec. 204 of the House bill and sec. 7 of the Senate amendment:

	MICHAEL BILIRAKIS, 
	**1052 From the Committee on Education and Labor, for consideration of sec. 21 of the Senate amendment, and modifications committed to conference:

	GUS HAWKINS,

	WILLIAM CLAY,

	JAMES JEFFORDS,

	Managers on the part of the House.

	LLOYD BENTSEN,

	MAX BAUCUS,

	BILL BRADLEY,

	GEORGE MITCHELL,

	DAVID PRYOR,

	JOHN H. CHAFEE,

	JOHN HEINZ,

	DAVID DURENBERGER,

	Managers on the part of the Senate. 

(Note:  1.  PORTIONS OF THE SENATE, HOUSE AND CONFERENCE REPORTS, WHICH ARE    
DUPLICATIVE OR ARE DEEMED TO BE UNNECESSARY TO THE INTERPRETATION OF THE LAWS, 
ARE OMITTED.  OMITTED MATERIAL IS INDICATED BY FIVE ASTERISKS:  *****.         
        2.  TO RETRIEVE REPORTS ON A PUBLIC LAW, RUN A TOPIC FIELD SEARCH      
USING THE PUBLIC LAW NUMBER, e.g., TO(99-495))                                 

H.R. CONF. REP. 100-661, H.R. Conf. Rep. No. 661, 100TH Cong., 2ND Sess. 1988, 1988 U.S.C.C.A.N. 923, 1988 WL 170254 (Leg.Hist.)

END OF DOCUMENT

**857 P.L. 100-360, MEDICARE CATASTROPHIC COVERAGE ACT OF 1988
Dates of Consideration and Passage
House July 22, 1987;  June 2, 1988
Senate October 27, 1987;  June 8, 1988
House Report (Ways and Means Committee) No. 100-105(I),
May 22, 1987 [To accompany H.R. 2470]
House Report (Energy and Commerce Committee) No. 100-105(II),
July 1, 1987 [To accompany H.R. 2470]
Senate Report (Finance Committee) No. 100-126, July 27, 1987
[To accompany S. 1127]
House Conference Report No. 100-661, May 31, 1988
[To accompany H.R. 2470]
Cong. Record Vol. 133 (1987)
Cong. Record Vol. 134 (1988)
The House bill was passed in lieu of the Senate bill. The House Report (parts I
and II) is set out below and the House Conference Report follows.

(CONSULT NOTE FOLLOWING TEXT FOR INFORMATION ABOUT OMITTED MATERIAL.  EACH     
COMMITTEE REPORT IS A SEPARATE DOCUMENT ON WESTLAW.)                           

HOUSE REPORT NO. 100-105(II)
July 1, 1987

  *1 The Committee on Energy and Commerce, to whom was referred the bill  (H.R. 2470) to amend title XVIII of the Social Security Act to provide protection against catastrophic medical expenses under the Medicare Program, and for other purposes, having considered the same, reports favorably thereon with amendments and recommends that the bill as amended do pass.

                                    CONTENTS                                    
                                                                            Page
 The Amendment ............................................................... 2
 Purpose and Summary ........................................................ 35
 Background and Need for Legislation ........................................ 37
 Explanation of Legislation ................................................. 38
     Provisions Relating to Part A of Medicare .............................. 38
         Inpatient hospital services ........................................ 38
         Extended care services ............................................. 40
         Hospice care ....................................................... 40
         Blood deductible ................................................... 41
         Home health benefits ............................................... 41
         Imposition of supplemental Medicare premium ........................ 42
     Provisions Relating to Part B of Medicare and Medicaid ................. 44
         Limitation on Medicare out-of-pocket expenses under Part B ......... 44
         Coverage of catastrophic expenses for prescription drugs               
          and insulin ....................................................... 46
         In-home care for certain chronically dependent individuals ......... 51
         Extending home health services ..................................... 53
         Increase in maximum payment allowed for outpatient mental              
          health services ................................................... 54
         Coverage of influenza vaccine and its administration ............... 55
         Mailing of notice of Medicare benefits and participating               
          physician directories ............................................. 56
         Requiring Medicaid buy-in of premiums and cost-sharing for poor        
   Medicare beneficiaries ................................................... 57
         Adjustment in Medicare Part B premium .............................. 62
         Changes in certification of Medicare supplemental health               
          insurance policies ................................................ 63
         Extension of social HMO demonstration project ...................... 64
         Study on comprehensive medical coverage under the Medicare             
          program ........................................................... 64
         Research on long-term care services for Medicare beneficiaries ..... 64
         Protection of income and resources of couple for maintenance           
          of community spouse ............................................... 65
         Study of adult day care services ................................... 78
     Bipartisan Commission on Comprehensive Health Care ..................... 79
 Hearings ................................................................... 80
 Committee Consideration .................................................... 80
 Committee Oversight Findings ............................................... 80
 Committee on Government Operations ......................................... 80
 Committee Cost Estimate .................................................... 80
 Congressional Budget Office Estimate ....................................... 81
 Inflationary Impact Statement .............................................. 96
 Agency Views ............................................................... 96
 Changes in Existing Law Made by the Bill, as Reported ...................... 98
 Dissenting Views .......................................................... 152

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**858 *35 Purpose and Summary

  The purpose of H.R. 2470 is to protect the elderly and disabled population from the financial disaster caused by catastrophic health care expenditures not currently reimbursed under the Medicare and Medicaid programs.  The bill would substantially reduce the required cost sharing under Medicare, would require the States to extend eligibility under Medicaid, and would enhance the benefits covered under both programs. 
  The bill has three titles.  Title one restructures and simplifies the coverage rules for Part A of Medicare and establishes an income-related supplemental premium which will raise revenues equal to or greater than the cost of the bill's Medicare improvements.  Medicare enrollees needing inpatient hospital care would pay only one hospital deductible per year.  The bill would eliminate the "spell of illness" concept, as well as the current-day limitations and coinsurance requirements on inpatient hospital stays.  The skilled nursing home benefit would also be revamped.  The requirement of a three day prior hospital stay would be eliminated, the days covered would be extended from 100 to 150 days, and the coinsurance would be changed to require enrollees to pay 20% of the national average per diem cost for each of the first seven days.  Coverage of hospice care would be extended and the blood deductible requirements reduced.  In addition, the current rule that home health benefits should be paid under Part A for patients enrolled in both Part A *36 and Part B would be reversed, so that payment in those circumstances would be made under Part B. 
  The income-related supplemental premium would be collected by the Internal Revenue Service as part of the income tax system.  Individuals entitled to Part A of Medicare would pay an amount based on adjusted gross income and determined according to a table included in their tax forms. 
  Title II contains improvements in Part B of Medicare.  It would establish an upper limit on the amount of cost sharing a Part B enrollee would be required to pay each year.  After an enrollee had met the limit, Medicare would pay 100% of the reasonable charge (or reasonable cost) for any subsequent Part B services.  The limit would be $1043 in 1989, and would increase by the Social Security COLA in the following years. 
  Title II would also provide Medicare coverage for outpatient prescription drugs, subject to a $500 annual deductible, and would provide up to 120 hours per year of home health aide and personal care services for chronically dependent individuals, living with a primary caregiver, who cannot be left alone in their homes.  Both of these new benefits would be financed with enrollee premiums.  The existing home health benefit would be made available on a daily basis for up to 35 days, and the existing limitation on payments for outpatient mental health treatments would be increased from $250 per year to $1000 per year.  Medicare coverage would be extended to influenza vaccines, without any deductible or coinsurance.  All **859 Part B enrollees would pay an additional premium of $1 per month in 1990 and $1.50 per month in 1991 and 1992 (plus the additional monthly premiums needed to finance the prescription drug, in-home care, and flu vaccine benefits added by the bill.)  All enrollees would be sent an annual notice explaining the benefits and limitations of the Medicare program and would receive a directory of participating physicians for their area. 
  States would be required to pay the Medicare premiums, deductibles and coinsurance for all Medicare enrollees with incomes at or below the Federal poverty guideline and assets at or below twice the Supplemental Security Income guidelines.  States would also have to allow the spouse, living at home, of a medicaid-eligible nursing home resident to retain at least $925 per month in income and at least $12,000 in assets.  Finally, States would be required to delay Medicaid eligibility to individuals who transfer countable resources for less than fair market value within two years of application for Medicaid benefits. 
  Title II would also require conforming changes in the requirements for Medicare supplemental policies, would extend the existing Medicare demonstration projects for social health maintenance organizations, would require a study of comprehensive health care coverage by the General Accounting Office, and would require the Secretary of Health and Human Services to conduct research on long-term care and a study of adult day care. 
  Title III would establish 15 member Bipartisan Congressional Commission to report within 6 months on expanding long-term care services under Medicare and within 12 months on providing comprehensive health care for all Americans.

*37 Background and Need for Legislation

  When Medicare was enacted in 1965, it was patterned after private health insurance policies generally available at that time.  Although there have been marginal changes and improvements in the program over the last 22 years, the basic structure and benefits of the program have remained intact.  During those 22 years, however, there have been extraordinary changes in health care technology and the delivery of health care services.  In addition, the costs of health care have been rising at an accelerating pace.  As a result, the Medicare program has been covering a decreasing proportion of the health care needs and costs of its enrollees. 
  The Medicare program provides reasonable protection for short term acute hospital stays and for other acute care.  However, its protections are less adequate for those enrollees with chronic conditions or extended hospital stays, or in need of long-term care. 
  Today, Medicare pays only 45% of the health care expenditures incurred by the elderly.  Yet, the elderly incur, on average, three times the health care costs incurred by the nonelderly.  The elderly are paying as much of their income, on average, for health care now as they spent the year before Medicare was enacted.  Many of the elderly cannot afford these expenses.  According to Congressional Budget Office testimony at a hearing of the Subcommittee on Health and the Environment, held on March 26, 1986, over 12 percent **860 of the elderly have incomes below poverty and over 20 percent have incomes below 125% of poverty. 
  Many Medicare enrollees seek additional protection against the costs of health care.  About 9% are eligible for Medicaid, and have their Medicare premiums and cost-sharing paid by Medicaid.  However, nearly a third of those enrollees with incomes below the Federal poverty guidelines are not eligible for Medicaid, because of restrictive eligibility criteria.  Over two-thirds of Medicare enrollees purchase Medicare supplemental policies--or Medigap--at an average cost of over $500 per year.  These policies cover most of the cost- sharing for Medicare covered services, but they do not typically cover additional benefits, and their administrative costs frequently exceed 40% of premiums, in contrast to the 2.5% of Medicare outlays that go for administration of the program.  Roughly 20% of Medicare enrollees have no additional coverage, principally because they cannot afford Medigap and do not qualify for Medicaid. 
  The elderly population is projected to grow substantially over the next several years, particularly those over age 75 and age 85.  Many of these elderly will suffer chronic conditions and will be vulnerable to the catastrophic costs of health care.  They will be at risk not only for the cost- sharing on Medicare covered services, but also for the costs of services not covered by Medicare.  Two notable gaps in the Medicare program, identified by elderly constituency groups as being priority concerns, are outpatient prescription drugs and long-term care. 
  All of these factors and concerns have led to a growing awareness among members of the Committee and the general public that the benefit limitations, gaps in coverage, cost-sharing requirements, and obscure coverage rules of the Medicare program are in need of re-examination and revision.  Medicare enrollees are in dire *38 need of better protection against the financial devastation of catastrophic health care expenditures.

Explanation of Legislation

TITLE I--PROVISIONS RELATING TO PART A OF MEDICARE

  Title I of H.R. 2470 is not within the jurisdiction of the Committee and was not amended.  The following explanation of Title I, as reported by the Committee on Ways and Means on May 19, 1987, is included to provide a complete report.

Inpatient hospital services (section 101) 

  Under current law, beneficiaries are required to pay a first day deductible for inpatient hospital services furnished in each "spell of illness".  (A "spell of illness" is a period of consecutive days that begins with the first day on which a patient is furnished inpatient hospital or extended care services and ends with a period of 60 consecutive days during which the beneficiary was not an inpatient of either a hospital or a skilled nursing facility.  A beneficiary may be discharged from and readmitted to a hospital or skilled nursing facility several times during a "spell of illness" and still be in the **861 same spell, if 60 days have not elapsed between discharge and readmission.)  The inpatient hospital deductible is $520 in 1987. 
  A beneficiary is entitled to inpatient hospital services for up to 90 days in any one spell of illness.  In addition to the 90 days of hospital care, each beneficiary has a lifetime reserve of 60 days of added coverage after the 90 days have been exhausted.  After a beneficiary has received 90 days of care in a spell of illness and exhausted the 60 lifetime reserve days, Medicare does not provide for further hospital reimbursement and the beneficiary is responsible for all hospital charges. 
  Beneficiaries are also required to pay coinsurance when inpatient hospital services are received for more than 60 days during a spell of illness.  The beneficiary is responsible for a coinsurance amount for each day after the 60th and through the 90th day, equal to one-fourth of the inpatient hospital deductible ($130 a day in 1987).  There is also a coinsurance amount for each day that is chargeable against the individual's 60 lifetime reserve days.  The co-insurance for these days by law is equal to one-half of the inpatient hospital deductible ($260 a day in 1987). 
  Under current law, the amount of the hospital deductible is revised each January and is equal to the inpatient hospital deductible for the preceeding calendar year, updated by the same percentage that applies to prospective payment (PPS) rates and adjusted to reflect changes in real case mix. 
  Individuals age 65 or over who are not entitled to Hospital Insurance (Part A) benefits may voluntarily enroll in the Hospital Insurance program if they pay a monthly premium.  The premium currently does not reflect the actuarial value of the Hospital Insurance benefit.  Instead, the Secretary is required to calculate the premium each year under a formula that is equal to $33 multiplied by the ratio of the inpatient hospital deductible for the subsequent calendar year to the deductible promulgated for 1973. 
  *39 This bill would make several changes in these provisions.  A beneficiary would be required to pay only one hospital deductible in a calendar year no matter how many times the beneficiary was admitted to a hospital during the calendar year.  The "spell of illness' methodology would be eliminated for determining the number of hospital deductibles, ther number of days Medicare would cover, and the hospital coinsurance amounts.  A new deductible would not be required if the hospitalization began in one calendar year and continued into the following year, but a deductible would be required if the beneficiary reentered the hospital later in the second year. 
  The Medicare limits on payment for 150 days of inpatient hospital care would be eliminated, so that Medicare would pay for an unlimited number of hospital days for covered services in a calendar year.  (However, the current 190 day lifetime limit and 150 day rule on inpatient psychiatric hospital services would be retained.)  The current requirement for the payment of hospital coinsurance amounts for inpatient days 61 through 90 and the 60 lifetime reserve days would also be eliminated. 
  **862 The method of determining the inpatient hospital deductible beginning in 1988 would be changed so that it would equal the preceding year's deductible, increased by the cost-of-living adjustment of Social Security benefits.  Not later than November 15 of each year, beginning in 1987, the Secretary would be required to promulgate the inpatient hospital deductible for the succeeding year. 
  The Secretary would be required to establish a monthly Part A premium equal to the actuarial value of the Part A benefit for those who voluntarily enroll in Part A.  The actuarial value would equal one-twelfth of the estimated average annual per capita amount payable from the Hospital Insurance Trust Fund for services and related administrative costs incurred in the succeeding calendar year for individuals age 65 and over entitled to hospital benefits during that entire year.  The Secretary would be required to determine and promulgate during September of each year and issue a public statement setting forth the actuarial assumptions and basis employed in determining the actuarial rate. 
  When adjustment payments under the Medicare hospital prospective payment system, the Secretary would be required to take into account the reductions in beneficiary payments to hospitals because of the elimination of the day limitation.  The Secretary, when appropriate, would adjust the payment rates under the prospective payment system (PPS), the outlier cutoff points, the weighting factors, and the target amounts for paying non-PPS hospitals. 
  The changes relating to the deductible would be effective for inpatient hospital services furnished on or after January 1, 1988, and succeeding years. However, in the case of an individual for whom a "spell of illness" began before January 1, 1988, and had not yet ended as of such date, the deductible would not apply to services furnished during that spell of illness during 1988 or 1989. 
  The changes relating to the extension of benefits and coinsurance would be effective for inpatient hospital services furnished on or after January 1, 1988. 
  The changes relating to the Part A premium would apply to premiums for months beginning with January 1, 1988. 
  *40 The Secretary, when appropriate, would adjust inpatient hospital payments to hospitals for services furnished on or after January 1, 1988.

Extended care services (section 102) 

  Under current law, a beneficiary is responsible for a coinsurance amount equal to one-eighth of the inpatient hospital deductible for each day after the 20th and before the 101st day of extended care services furnished during a "spell of illness".  This coinsurance amount is $65 a day in 1987.  A beneficiary is entitled to post-hospital extended care services in a qualified skilled nursing facility for up to 100 days in any one spell of illness, but the services in a skilled nursing facility are covered under Medicare only after an individual has been transferred to the facility from a hospital in which the individual was a patient for not less than three consecutive calendar days. 
  **863 Under the bill, a Medicare beneficiary would be required to pay coinsurance amounts for the first 7 days of covered services in a calendar year.  The coinsurance amount for each day would equal 20 percent of the national average per diem Medicare reasonable cost for SNF services in the succeeding calendar year, as estimated by the Secretary each year.  The Secretary would, in September of each year (beginning in 1987), promulgate the coinsurance amount which shall apply to post-hospital extended care services furnished in the succeeding year. 
  The Medicare program would cover up to 150 days of post-hospital extended care services furnished during a calendar year.  The three day prior hospitalization requirement to receive extended care services in a skilled nursing facility would be eliminated. 
  The coinsurance and extension of days would be effective for services furnished on or after January 1, 1988.  The elimination of the three day hospital requirement would become effective for skilled nursing facility stays beginning on or after January 1, 1989.

Hospice care (section 103) 

  Under current law, a beneficiary who is terminally ill is entitled to elect to receive hospice care for two periods of 90 days and one subsequent period of 30 days, for a total of 210 days of hospice care.  In order to receive the hospice benefit, the beneficiary's attending physician and the medical director (or staff physician) of the hospice program must certify, not later than two days after hospice care in initiated, that the beneficiary is terminally ill (i.e. that the beneficiary has a medical prognosis that his life expectancy is six months or less).  If the beneficiary elects to receive hospice care for a second or third period, the medical director must recertify at the beginning of that period that the beneficiary is terminally ill. 
  Under the bill, a Medicare beneficiary would be entitled to a subsequent extension of the hospice benefit after the 210 day limit, if he or she was recertified as terminally ill by the attending physician or medical director. 
  These changes would be effective for hospice care furnished on or after January 1, 1988. 
  PHABlood *41 deductible (section 104) 
  Under current law, a beneficiary is required to pay a separate deductible equal to the cost of the first three pints of whole blood (or equivalent quantities of red blood cells) received by a beneficiary as part of the services furnished under the hospital insurance (Part A) program during each "spell of illness."  There is also a separate deductible under Part B of Medicare equal to the expenses incurred for the first three pints of whole blood (or equivalent quantities of red blood cells) furnished to a beneficiary during a calendar year. 
  In keeping with the elimination of the "spell of illness" concept for hospital services, it is necessary to conform the blood deductible rules and eliminate the spell of illness concept for the blood deductible. 
  **864 A Medicare beneficiary would be responsible for payment of a deductible equal to the expenses incurred for the first three pints of whole blood (or equivalent quantities of packed red blood cells) furnished each calendar year, except that the deductible for such blood would be reduced appropriately, in accordance with regulations developed by the Secretary of Health and Human Services, to the extent that there had been a replacement of such blood.  The Secretary is directed to utilize the same replacement requirements that are currently used for the Part B blood deductible replacement requirements. 
  A Medicare beneficiary would be required to pay only one blood deductible in a calendar year under Parts A or B. 
  These changes would be effective for blood or packed red blood cells furnished on or after January 1, 1988.

Home health benefits (section 105) 

  Under current law, home health care is a covered benefit under both Medicare Part A and Part B.  Eligibility and reimbursement policies are identical under both parts.  There is no coinsurance or deductible payment requirement for home health under either Part A or Part B, and there is no limit on the number of home health visits covered by Medicare. 
  Payment for home health care, however, is currently made from the Part A trust fund for all home health services except for those provided to individuals enrolled under Part B, but not entitled to receive benefits under Part A.  Only about 1 percent of home health is reimbursed under Part B. 
  Under current law, the Part B premium is set at 25 percent of total Part B program costs.  Beginning in 1989, the Part B premium will be set at the lower of (1) an amount sufficient to cover one-half of the costs of the program, or (2) the current premium amount increased by the percentage by which cash benefits were increased under the Social Security cost of living adjustment (COLA). 
  Under the bill, beginning with fiscal year 1989, home health care would no longer be a covered benefit under Medicare Part A, except for individuals eligible for benefits under Part A who have not enrolled under Part B.  Those individuals would continue to be eligible for home health benefits under part A.  Individuals enrolled *42 under Part B would only be entitled to receive home health benefits under Part B. 
  There would be no change in coverage or reimbursement policies for home health services.  There also would be no change in the Part B premium as a result of this provision:  the 1989 premium would be based on the 1988 premium increased by the Social Security COLA. 
  This provision would be effective for home health services furnished on and after January 1, 1989.

**865 Supplemental premium (section 106) 

  Under current law, individuals who have attained age 65 and who are eligible for monthly social security or railroad retirement cash benefits are eligible, without additional application, for coverage under the Hospital Insurance (Part A) program of Medicare without any payment for the coverage.  Eligibility for Part A coverage begins with the first day of the month in which an individual attains age 65.  Entitlement ends with the earlier of the last day of the month of death or the last day of the month before the month in which the beneficiary no longer meets the requirements for entitlement to social security, railroad retirement, or survivor benefits. 
  Part A coverage also is available, without payment of the Part A premium, to individuals under age 65 who have been entitled for not less than 24 months to social security or railroad retirement benefits on the basis of disability. This entitlement for Part A coverage applies to qualified railroad retirement disability beneficiaries and the following categories of social security beneficiaries:  disabled workers, disabled widows and widowers between the ages of 50 and 65, certain women age 50 or older entitled to mother's benefits, and individuals age 18 and over who receive social security benefits because they became disabled before reaching age 22.  Entitlement to Part A begins with the first day of the 25th month of entitlement to social security or railroad retirement benefits on the basis of disability.  Such entitlement to Part A continues until the end of the month following the month in which notice of the termination of disability status is mailed to the beneficiaries, or, if earlier, with the end of the month before the month in which the beneficiary attains age 65. 
  Further, Part A coverage is available, without payment of the Part A premium, to individuals, even though they have not reached age 65, who have end-stage renal disease (i.e., kidney impairment that appears irreversible and permanent and requires either a regular course of dialysis or kidney transplantation to maintain life).  End-stage renal disease Medicare benefits are available only after an application for Medicare benefits is filed. 
  Under the bill, an individual (other than certain individuals described below) who is eligible in any year for Medicare Part A coverage by reason of eligibility for social security, railroad retirement, disability, or end-stage renal disease benefits, and who is not required to pay the Part A premium, would be required to pay a supplemental premium based on the individual's adjusted gross income (AGI) for that year.  The premium would be paid and collected in the same manner as an income tax.

*43 The amount of the premium would be determined according to a table
setting forth specified annual premiums for adjusted gross income brackets
over $6,000.  The table for taxable year 1988 is set forth in the bill.  The
minimum premium in 1988 is $10 and the maximum is $580.

  The annual premium determined under this table would be prorated based on the number of months an individual is a medicare-eligible individual during the taxable year.  The same rule is to **866 apply in the case of a short taxable year, except that in such case, the individual's gross income would be annualized (assuming that the individual would have received adjusted gross income at the same rate for a full 12 months.) 
  In the case of a joint return, the premium table would be applied separately to each spouse who is a Medicare-eligible individual.  For this purpose, the AGI of each spouse would be deemed to be one-half of the couple's combined AGI under the joint return. 
  By December 15 of each year, beginning in 1988, the Secretary would prescribe an adjusted table applicable to taxable years beginning in the immediately succeeding calendar year.  The Secretary would adjust the premium amounts by the Medicare inflation factor.  The other dollar amounts would be adjusted by the cost-of-living adjustment applicable to such year for purposes of the income tax brackets.  Adjustments of amounts in the table would be rounded to the nearest dollar. 
  The Medicare inflation factor for any calendar year would be the percentage  (if any) by which the Medicare value for such year exceeds the Medicare value for 1988.  The Medicare value for any year is essentially the sum of (1) 50 percent of the value of Part A coverage, and (2) 75 percent of the value of Part B coverage. 
  Generally, an individual would be a "Medicare-eligible individual," and therefore would be responsible for the supplemental premium, if such individual is entitled to (or, on application, with no payment, would be entitled to) Part A coverage.  An individual, other than a nonresident alien, would be treated as a Medicare-eligible individual for the month in which he attained age 65 and any subsequent month, unless such individual established to the satisfaction of the Secretary that he was not a Medicare-eligible individual for such month. 
  An individual would not be a "Medicare-eligible individual" for any month for which he was (1) entitled to benefits solely because he paid a Part A premium;  (2) a resident of a U.S. possession who paid the extra Part B premium applicable only to such residents (see section 209, below);  or (3) a qualified nonresident, as defined in the bill.  The exemption for Part A enrollees who pay the Part A premium is based on the fact that such enrollees would have already paid for the full cost of Part A coverage.  The residents of United States possessions would be exempted because they would have paid an additional part B premium for the new would be catastrophic benefits.  Qualified nonresidents are viewed as, in effect, not receiving coverage under Part A and thus should be exempt from the supplemental premium. 
  For purposes of the rules regarding payment (including estimated payment) and collection of taxes, the supplemental premium would be considered an income tax. 
  *44 It would not, however, be considered an income tax for purposes of determining either the amount of any credits allowable against income tax or the alternative minimum tax.  Section 15 of the Internal Revenue Code, relating to changes in tax rates, would not apply to the supplemental premiums.  The supplemental premium would not be treated as a medical expense for purposes of section **867 213, which allows a deduction for medical expenses in excess of 7.5 percent of AGI. 
  The supplemental premium provision of the bill would be effective for taxable years beginning after December 31, 1987.

TITLE II--PROVISIONS RELATING TO PART B OF THE MEDICARE PROGRAM AND TO THE
MEDICAID PROGRAM

  The following provisions were reported by the Committee as an amendment in the nature of a substitute for Title II, as reported by the Committee on Ways and Means.

Limitation on Medicare out-of-pocket expenses under part B (section 201) 

  The Supplementary Medical Insurance Program (Part B) covers physician services, hospital outpatient services, and a variety of other outpatient services, including clinical diagnostic laboratory tests, durable medical equipment, prosthetic devices, X-rays, renal dialysis, and home health services.  Most of these are reimbursed on the basis of Medicare determined "reasonable charges", although some services are reimbursed on the basis of reasonable costs or according to fee schedules. 
  Before Medicare will start making payments, persons enrolled in Part B must pay a deductible of $75 per year, as well as an additional blood deductible for the first three pints of whole blood used in an outpatient setting during a year.  In addition, for most Part B covered services, enrollees must pay coinsurance of 20% of the reasonable charge.  Enrollees may also be responsible for additional out-of-pocket expenditures, if the physician or supplier of these services does not agree to take assignment of the enrollee's claim and charges the enrollee more than the Medicare program determines to be reasonable. 
  These expenses for cost-sharing and excess charges have grown rapidly, as the costs of health care have increased.  Nearly nine percent of Part B enrollees, constituting approximately 2.8 million persons, will exceed $1000 in cost-sharing for Medicare-covered services.  In addition, enrollees will be liable, on average, for nearly 30 percent more than the Medicare reasonable charge on those physician bills for which the physician does not take assignment.  Medigap policies and the Medicaid program will assist many enrollees in meeting their Medicare cost-sharing obligations.  However, approximately 20 percent of enrollees do not have such protection and those that do receive little or no assistance with the excess charges on non-assigned bills. 
  The bill would provide Part B enrollees with protection against catastrophic expenditures for cost-sharing on Medicare-covered services, by establishing a limit on such expenditures and having the program pay 100% of the reasonable charge (or reasonable *45 cost) for any covered services furnished during the calendar year after the limit had been met. 
  **868 Expenses that would count towards the catastrophic limit would be the $75 annual Part B deductible, the Part B blood deductible, the 20% coinsurance, a maximum of $250 in cost-sharing for outpatient mental health treatments, and the reasonable expenses incurred by an enrollee for an annual colorectal examination for cancer or a triennial mammogram for detection of breast cancer.  Medicare would not reimburse enrollees for the expenses of these two cancer screenings, but the expenses incurred by an enrollee would count towards the limit.  The Secretary would be responsible for determining what costs were reasonable, and these would be the maximum amounts that could be counted towards the limit. 
  The catastrophic limit would be set at $1043 in 1989.  In each succeeding year, the limit would be increased by the Social Security COLA.  (The figure of $1043 for 1989 is equal to $1000 plus the projected increase in the Social Security COLA for 1989.)  The Secretary would be required to publish the limit for each year by November 15 of the preceding year. 
  The Secretary would also be required to adjust the payments made to prepaid health care organizations, to take account of the catastrophic protections and other benefits established under this bill, which such organizations would be required to assume.  The Committee expects the Secretary to make similar adjustments in the benefits covered by, and payments made to, organizations that are providing services under a prepaid capitation arrangement pursuant to a demonstration project or Medicare waiver, as appropriate to the terms and conditions of the project or waiver. 
  The bill would not provide an enrollee any direct financial protection against the excess charges, above those determined by Medicare to be reasonable, imposed by a physician or supplier who did not take assignment. Medicare would not pay such charges, nor would the physician of supplier be required to accept assignment.  However, the bill would provide enrollees who had met the catastrophic limit with some assistance.  Once an enrollee had met the catastrophic limit, if a claim were submitted on a non-assigned basis for subsequent physician services during the calendar year, the Medicare carrier would be required to notify the physician that the enrollee had already incurred sufficient out-of-pocket expenses to meet the limit.  The notice to the physician would encourage the physician not to seek collection from the enrollee for amounts in excess of the Medicare reasonable charge and to accept assignment on any subsequent services during the year. 
  This is not expected to be an onerous task for the Medicare carriers.  The carrier would already be generating a notice to the enrollee explaining its resolution of the claim, so this requirement essentially entails generating a duplicate notice to the physician, based on information that the carrier already has on hand. 
  The physician community has indicated on numerous occasions that physicians customarily take the patient's financial circumstances into account in deciding how much to charge and whether to take assignment.  The notice called for under this provision would give the physician information about the patient that he or she might not otherwise have, bearing on the physician's decision. 
  **869 *46 It is the Committee's expectation that the physician organizations will support the implementation of this provision and will encourage their members to comply.

Coverage of catastrophic expenses for prescription drugs and insulin (section 202) 

  Outpatient prescription drugs that can be self-administered by the patient are not currently covered by Medicare, with the exception of immunosuppressive drugs needed by an organ transplant recipient.  This gap in Medicare coverage imposes a substantial burden on enrollees.  The elderly use 30 percent of all prescription drugs in this country, and use them at roughly three times the rate of the non-elderly.  Many have chronic conditions that require them to take expensive medications on a regular, sustained basis in order to remain alive or to maintain their level of functioning.  Nearly 5.5 million Medicare enrollees--almost 17%--incur more than $500 per year in prescription drug costs.  Moreover, those who incur more than $500 in a year will average nearly $1,000 per year in drug costs.  Less than half of the elderly have some form of insurance or receive some form of financial assistance with respect to the costs of these drugs, and such protection usually provides less than full coverage.  National organizations representing the elderly have identified protection for these costs, along with better access to long-term care, as the highest priorities for improvements in the current Federal health care financing programs. 
  The Committee bill would provide catastrophic coverage for self-administered outpatient prescription drugs as a Medicare Part B benefit.  The drugs that would be covered would include all those that require a prescription in order to be dispensed and are approved by the Food and Drug Administration as safe and effective.  The bill would also include coverage for insulin and approved biologicals.  (An existing provision of the Medicare statute would preclude payment for drugs for which the FDA has issued a notice of opportunity of hearing to withdraw the drug because it is less than effective.  See section 1862(c) of the Social Security Act.)  The bill would not change any current provisions under which Medicare already covers drugs, including payment for patients of skilled nursing homes, drugs provided "incident-to" a physician service, and immunosuppressive drugs. 
  Medicare payments would be subject to a deductible of $500 per year in 1989.  In subsequent years, the deductible would be increased each year by the same percentage as the increase in the medical services component of the Consumer Price Index.  This deductible would be separate and independent of the $75 Part B annual deductible and expenses incurred by the enrollee for drugs would not count toward the catastrophic limit of $1043 established in section 201 of the bill. 
  The enrollee would not have to show that he or she had paid these expenses out-of-pocket.  If, for example, the enrollee had other insurance or was eligible for Medicaid, the expenses might be paid in whole or in part by those payers, but would still be counted toward the Medicare deductible.  Once the deductible was met, there would be no further cost-sharing by the enrollee. Medicare would pay 100% of the allowed charge. 
  **870 *47 The Medicare allowed charge would be the lower of:  (1) the actual charge of the dispensing pharmacist or agency, of (2) an amount established under a schedule of upper limits established by the Secretary.  The limits would be established twice a year, for each drug product, and would consist of two components--one to cover the costs to the pharmacist of the drug being dispensed and the other to cover the overhead and administrative costs of the pharmacist, particularly the administrative responsibilities assumed by "participating pharmacists", as discussed below.  Medicare would not pay a "dispensing fee" in addition to the allowed charge. 
  In calculating the limit, the Secretary would use the average wholesale price of the drug in question.  Such average wholesale prices are readily available, on a national basis, from several services which compile and publish them on a monthly or quarterly basis.  In the case of a brand name drug--sometimes referred to as the innovative drug or the drug which received the initial new drug application--the limit would be the average wholesale price of that drug product as of a date three months prior to the promulgation of the limit, plus an administrative allowance of $4.50.  The Secretary would be instructed to calculate prices on the basis of units typically dispensed (per capsule, per tablet, or other dispensing unit) using reasonable quantities or package sizes customarily offered for sale by manufacturers and wholesalers. 
  These limits would normally be calculated on a nation-wide basis, but the Secretary would have authority to do so on a regional basis if he found significant variation by region in the average wholesale price or in the availability of drugs. 
  Limits would be set in a different manner for generic drugs.  In those instances in which the FDA has approved one or more generic drugs as therapeutically equivalent to the brand name drug which received the initial new drug application, and listed the drug in its "Orange Book" (formally entitled "Approved Drug Products with Therapeutic Equivalence Evaluations"), the Secretary would establish the limit based on the average wholesale price for the initial brand name of that drug.  The Secretary would calculate 50% of the average wholesale price for the brand name, as of January 1, 1987, and would increase that amount for each six-month payment period by the percentage increase in the Consumer Price Index.  The administrative allowance of $4.50 would be added to arrive at the upper payment limit. 
  The limit thus established for generic drugs would be the Medicare allowed charge, whenever an FDA approved generic was available, unless the prescribing physician or practitioner had specifically required that the brand name drug be dispensed.  In order for Medicare to pay the higher amount for the brand name drug, the physician would have to indicate in his or her own handwriting that the brand name drug was medically necessary.  The Secretary would be required to establish a particular phrase that would be used nationally, such as "Brand Medically Necessary."  However, if a State currently had the same requirement for a physician's statement under its Medicaid program or under a generic substitution statute, but used a different phrase to achieve the same result, the Secretary could permit that phrase to be used in that state for purposes *48 **871 of Medicare.    However, it would have to be a written phrase, of three or more words, that reflected the physician's medical judgement that the patient's care required the brand name drug. Initials, abbreviations, preprinted signatures, or checking of preprinted forms would not satisfy the requirement.  This restriction on the maximum Medicare allowable charge would be followed whenever the FDA had approved a generic drug, even if the State had not recognized that generic drug under its generic substitution policies. 
  The Secretary would be required to review this payment methodology and the limits described, and to report to the Congress by April 1, 1989, with any recommendations for changes or improvements.  In order to prevent abusive practices in the prescribing or dispensing of drugs, the Secretary would also be authorized to establish guidelines or limitations on the frequency with which prescriptions are filled or on the maximum quantities that may be dispensed, particularly with respect to quantities dispensed at the end of a calendar year. 
  In order to facilitate the implementation of this new benefits, and keep program complications and administrative costs to a minimum, the bill would establish an arrangement under which pharmacists would assume significant responsibilities for assisting Medicare enrollees and Medicare carriers. Pharmacists could voluntarily sign an agreement to become a "participating pharmacy."  Under the terms of the agreement, a participating pharmacy would accept assignment on all bills for drugs for Medicare enrollees who have met the $500 deductible.  A participating pharmacy would also agree not to refuse to serve any Medicare enrollee and not to charge Medicare enrollees more than the charge to the general public.  For this purpose, the general public would not include Medicaid patients, or subscribers of an HMO or of a insurance plan that has established discounts or special payment rules. 
  Additional elements of the participation agreement would include keeping patient records for all drugs dispensed to an enrollee, assisting the enrollee in determining, based on the pharmacist's records and any other records or information presented by the enrollee, whether he or she has met the $500 deductible, and filing with the Medicare carrier, on the enrollee's behalf, whatever documentation is required to establish that the deductible was met. In this regard, it is the Committee's intent that the Secretary establish a simple format and require only that information which is essential to making proper determinations and payments under the program. 
  A participating pharmacy would also agree to offer counsel to Medicare patients on the appropriate usage of drugs being dispensed, including possible interactions among drugs, and to advise enrollees on the availability of generics.  In addition, a participating pharmacy would agree to share its records for an enrollee, at the enrollee's request, with another participating pharmacy that might be assisting the enrollee. 
  To facilitate this arrangement, the Secretary would be required to provide participating pharmacies with a distinctive emblem that they can display to the public and to make electronic billing available to participating pharmacies. The Secretary would also have to **872 *49 notify the enrollee, and the participating pharmacy that submitted documentation on his or her behalf, whether the deductible had been met.  In addition, the Secretary would be required to provide participating pharmacies with information on the payment limits prior to the start of each six-month payment period and to audit the charges of participating pharmacists to make sure that they did not exceed charges to the general public. 
  Medicare enrollees would not be required to choose a participating pharmacy or to obtain prescription drugs exclusively from one pharmacy.  An enrollee could submit claims on his or her own behalf and could obtain prescription drugs from any pharmacist, participating or not.  However, in order not to undermine the participating pharmacy program, non-participating pharmacies would not be allowed to submit claims on assignment.  The Committee expects the Secretary to establish a system that would allow pharmacies to query, electronically, whether an enrollee has met the deductible. 
  This new benefit would be financed entirely with monthly premiums paid by all enrollees in Part B of Medicare.  During September of each year, the Secretary would be required to determine the estimated aggregate costs, for both covered drugs and administration of the benefits, and the monthly premiums necessary to meet those costs.  This monthly premium would be added to the monthly premium for Part B otherwise determined under the statute.  Although this new provision would not be effective until January 1, 1989, the Health Care Financing Administration, and the Medicare carriers, would incur administrative costs in 1988 in preparing for implementation the following year.  These administrative costs would also be financed by monthly premiums. 
  The committee bill would set an upper limit on the monthly premiums that could be set by the Secretary for each of the first three years.  The Committee is concerned about differences in the cost estimates prepared by the Congressional Budget Office and by the Department of Health and Human Services.  The limits on monthly premiums set forth in the bill are based on the most recent cost estimates available to the committee at the time it reported the bill.  It is the committee's intent, however, that the provision be fully financed by premiums.  The bill, therefore, includes special provisions to make sure that this occurs, while also protecting enrollees from large increases in their monthly premiums due to increases in the cost of the benefit beyond those currently projected. 
  As indicated above, the Secretary would be required to estimate the total costs of the benefit and calculate the monthly premium necessary to meet those costs.  Beginning with the calculation of the monthly premiums for 1991, the Secretary would have to include in the estimated costs of the benefit any surplus or shortfall in the premium revenues for the preceding years, and calculate a monthly premium sufficient to account for such surplus or shortfall. 
  The premium, however, would not be allowed to increase in any year by more than 20 percent over the amount of the premium in the prior year, beginning again with respect to premiums for 1991.  If the Secretary's estimate of the premium needed to finance the benefit indicated an increase of more than 20 percent over the prior year, the Secretary would be required to increase the deductible *50 **873 by an amount sufficient to reduce the total costs of the program to a level that would be fully financed by a 20 percent increase in the premium.  This calculation would be done each year, beginning in 1991.  If the deductible were increased under this provision in one year, it would not necessarily remain at the higher level in subsequent years.  The Secretary would initiate the estimate of the total costs of the program in subsequent years, using the deductible that would otherwise be in effect in the absence of the increase needed in the prior year.  If the estimate again indicated that a premium increase of 20 percent was not adequate to meet the costs of the benefit, the deductible would then again be increased as necessary to contain costs within the available financing. 
  For poor Medicare beneficiaries--those with incomes of less than $458 per month--a $500 annual deductible on prescription drug coverage represents a major financial burden.  Under current law, most States pay Medicare Part B premiums and other cost-sharing for their elderly and disabled Medicaid beneficiaries.  Due to restrictive income and resource standards used by State Medicaid programs, however, there are significant numbers of elderly and disabled with incomes below the poverty line who are not eligible for Medicaid and have to pay all of the Medicare cost-sharing requirements out-of-pocket. 
  The Committee notes that enactment of the Medicare drug benefit in this bill would result in significant savings to State Medicaid programs, almost all of which now offer prescription drug benefits to low-income elderly and disabled beneficiaries.  If an individual who is eligible for both Medicare and Medicaid satisfies the $500 deductible, the Medicare program would cover all drug costs that the State now covers through its Medicaid program.  In the view of the Committee, it is appropriate to require the States, in effect, to reinvest these savings in supplementing Medicare drug coverage for all their low-income elderly and disabled, not just those who are currently eligible for Medicaid. 
  The Committee bill would require States, through their Medicaid programs, to cover both the Medicare Part B premium (including any increment attributable to the prescription drug benefit), as well as the $500 prescription drug deductible, for all elderly and disabled Medicare beneficiaries with incomes below 100 percent of the Federal poverty guidelines and countable resources of up to twice the level permitted by the Supplemental Security Income (SSI) program ($3600 in 1987).  The purpose of this provision, which parallels the general Medicaid "buy-in" requirement found at section 208 of the Committee bill, is to assure effective protection against catastrophic drug costs for poor Medicare beneficiaries. 
  With respect to coverage of the deductible, the bill would give the States two options.  A State could either offer the Medicare beneficiary the same prescription drug benefit that it offers to its categorically needy Medicaid eligibles until the deductible is satisfied and Medicare coverage begins.  Or, it could simply reimburse the beneficiary directly for the charges incurred for prescription drugs up to $500.  Whatever method the State selects must apply to all qualified Medicare beneficiaries.  If the State elected to offer its Medicaid prescription drug benefit, the calculation of whether the Medicare deductible had been satisfied would have to be based on **874 *51 the actual charges for the drugs used, not on the amounts that the State actually reimbursed for the drugs through its Medicaid program. 
  State expenditures for Medicare prescription drug premiums and deductibles would be subject to Federal Medicaid matching payments at the State's regular matching rate for services.  This buy-in requirement would, on July 1, 1988, take effect whether or not implementing regulations have been issued.  Thus, States would begin paying the monthly Part B premium increments beginning July 1988, and would begin assisting qualified beneficiaries to meet the deductible with respect to drugs dispensed on or after January 1, 1989. 
  The provision would be effective, with regard to Medicare payments for prescription drugs, on January 1, 1989.

In-home care for certain chronically dependent individuals (section 203) 

  Among the Nation's elderly population, 3.6 million people (13 percent) live in the community and are disabled in some essential activities of daily living, such as eating, toileting, and moving from place to place.  Over two-thirds of these individuals require considerable help to remain at home and in the community.  According to the Congressional Budget Office, approximately 500,000 of them are so chronically impaired that they are unable to perform at least three activities of daily living without assistance.  The nature of their impairments means that they need help everyday and they cannot be left alone. 
  Today, 80 percent of the most chronically dependent elderly live in a community setting.  They neither reside nor receive care in a nursing home. Seventy-five percent of these individuals are able to stay at home and in the community because they have a primary caregiver--usually a spouse or child--who provides virtually all of their care.  Without this assistance, these severely impaired individuals would have to be placed in a nursing home--at a greater cost--where they could receive the constant care and supervision they require. 
  In order to maintain this level of assistance and, in turn, to allow those who are chronically dependent to remain at home, the Committee bill would supplement the current Medicare home health benefit with certain limited and less skilled services for this population.  Such medically-related services would be provided through Medicare certified home health agencies and would be offered in addition to, and not as an alternative to, current home health benefits under Medicare.  Moreover, the Committee would establish separate conditions for eligibility for these services and not mandate that individual meet the requirements now in place for Medicare home health benefits. 
  The Committee intends the in-home benefit to provide limited assistance to those with chronic impairments who cannot live alone in the community.  To qualify for such in-home care, a Medicare beneficiary would have to be unable to carry out two or more of the activities of daily living specified in the legislation (eating, bathing, dressing, toileting, and transferring in and out of a bed or in and out of a chair) without the assistance of a primary caregiver **875 *52 who is living with the beneficiary.  Individuals requiring such assistance would include those with cognitive impairments, such as those affecting people with Alzheimer's disease. 
  To be eligible for this new benefit, Medicare enrollees would have to be receiving assistance with respect to these designated activities, although help (either skilled or non-skilled) may also be provided (by the caregiver or other individuals under private insurance or publicly-financed programs) to meet different, additional health care needs.  Moreover, assistance with these designated activities would have to be given on a daily basis for at least a three month period prior to the time coverage could begin.  In addition, assistance would have to be provided by a caregiver who (1) is actually living with the beneficiary in a place of residence which both individuals use as a home;  and (2) does not receive monetary compensation for the services he or she furnishes.  This requirement is intended to exclude coverage for individuals whose care is provided by a paid employee of the beneficiary or his or her family.  A physician's certification that these conditions were met would be required before eligibility for in-home care could be established. 
  Once eligibility is established, a beneficiary could receive up to 120 hours of in-home services during the remainder of the calendar year following physician certification.  Services to be offered include homemaker or home health aide, personal services, and nursing care provided by a licensed practical nurse.  These services could be furnished only in the beneficiary's home and must be delivered under the supervision of a registered professional nurse by (or through contract agreements or other appropriate arrangements with) a Medicare certified home health agency.  The Committee bill would place no restrictions on the number of hours that may be consumed for each type of service that would be offered as part of the in-home care benefit.  Thus, beneficiaries would be able to receive any or all of the three types of in-home care services specified in the legislation, so long as the total number of hours of services paid by Medicare does not exceed 120 in a calendar year. 
  In determining whether the 120 hour per year limitation has been met, in-home care that is provided for less than 3 hours on any individual day would be counted as 3 hours of such services.  Payment for such services, however, would be made only on the basis of the actual amount of time spent in the provision of care.  Medicare would pay 80 percent of the reasonable cost for the services provided and beneficiaries would pay 20 percent coinsurance, in the same manner as other Part B services.  Thus, a beneficiary who receives 2 hours of homemaker services during a day would be considered to have received 3 hours of such care that would be applied against the total limitation of 120 hours, but the home health agency that provided the services would be paid only for the 2 hours of care that was actually given.  Medicare would cover 80 percent of the reasonable cost for the 2 hours of services;  the beneficiary would make a 20 percent coinsurance contribution.  The Committee believes these procedures will help maximize its cost-effectiveness. 
  The costs of the in-home care benefit would be financed entirely through an increase in the premium that is paid by all individuals enrolled in Part B of the Medicare program.  The additional **876 *53 amount of the premium to pay for in-home care could not, however, exceed 40 cents in 1989, the first year of the program, and 70 cents in 1990.  In subsequent years, the additional amount of the premium could not exceed 20 percent of the additional premium for the previous year.  If revenues greater than those resulting from a 20 percent increase in premiums are needed in these years to finance the benefit completely, the Secretary would be required to reduce the maximum number of hours (120) to which a chronically dependent beneficiary would be entitled to in-home care.  Further increases beyond the 20 percent of the additional premium for the previous year would be prohibited. 
  In order to evaluate this in-home care benefit, the Committee bill would require that the Secretary study and report on the extent of use, the cost, and the effectiveness of such care provided to chronically dependent individuals. The report would be made to the Congress no later than January 1, 1991.  The Committee notes that, among other issues, the report should address the level of assistance required by the individuals who elect to use this benefit, as well as provide documentation of the types of services that are received.  In addition, the report should include an analysis of the extent to which beneficiaries who receive in-home care are able to avoid or postpone permanent residence in a nursing home or other institutional setting. 
  The Committee bill would also require that the Secretary undertake a second, additional study relating to in-home care for the elderly who are chronically dependent.  This report, to be made to the Congress not later than 18 months after the date of the legislation's enactment, is to contain information and recommendations regarding the provision of out-of-home services to chronically dependent individuals as an alternative to the in-home care to which these individuals are otherwise entitled.  Such services include adult day care services (and other community-based arrangements) or nursing facility services.  The purpose of this study is to learn more about the availability, accessibility, and appropriateness of providing these types of services as part of the in-home benefit package designed for chronically dependent individuals under this legislation.  Thus, the Committee would expect this study to include information obtained from interviews with those Medicare beneficiaries who are receiving services under the in-home care benefit that this legislation would create.  These interviews should establish the extent to which the limitation of services to the in-home setting has restricted the utilization and effectiveness of this benefit. 
  The new in-home care benefit would become effective on January 1, 1989.

Extending home health services (section 204) 

  Under current law, one of the requirements that must be satisfied in order for Medicare to cover home health care is that the care be required on an "intermittent" basis.  This means, as a general rule, that persons who need care on a daily basis are not eligible for these services.  The current guidelines for coverage, however, do permit daily skilled nursing visits for up to two or three weeks, if determined by the Medicare fiscal intermediary to be **877 *54 medically reasonable.  For this purpose, daily is defined as five days per week. 
  Concerns and criticisms have been raised about the implementation of this rule.  The rule has not been uniformly and consistently applied.  Moreover, it results in inadequate assistance for Medicare patients, particularly those who are discharged from hospitals in such a condition that they are unable to care for themselves or are in need of rehabilitative care. 
  The bill would expand and clarify the rule on intermittent care.  Nursing care and home health aid services would be considered "intermittent", and reimbursable under Medicare, if they were furnished less than 7 days per week. In addition, these services could be provided 7 days per week for up to 35 days.  They could be provided 7 days a week beyond 35 days if a physician certified that exceptional circumstances so required. 
  This provision would be effective on January 1, 1989.

Increase in maximum payment allowed for outpatient mental health services  (section 205) 

  Under current law, the maximum amount that Medicare will reimburse for outpatient mental health treatments is $250 per year.  Medicare will recognize only 62.5 percent of the reasonable charges for such services, and will pay only 80% of the recognized amount, with a total limit of $250 per year.  As a consequence, the effective rate of coinsurance for an enrollee is 50% for the first $500 per year of treatments. 
  These limitations have not changed since the inception of the program in 1965 and are clearly inadequate to meet the needs of Medicare enrollees.  These limitations encourage institutionalization of patients who need care but cannot afford to pay out-of-pocket for it and encourage undesirable billing and coding practices in order to maximize the availability of care. 
  The bill would increase the maximum amount of Medicare payments for such services to $1,000 in 1989.  In order to avoid the erosion of the benefit over time, this limit would be increased in subsequent years by the Medicare Economic Index.  (The MEI is the increase factor computed each year as the maximum increase in Medicare prevailing charges for physician services.)  The current requirement of 50% cost-sharing would remain in effect, and only $250 in out-of-pocket expenses would be counted towards the catastrophic limit established under section 201 of the bill. 
  In addition, the bill would clarify that medical management physician visits are not considered to be treatments for purposes of this limitation.  Medical management visits are visits of shorter duration than therapy or treatment sessions, and their main purpose is to permit the attending physician or psychiatrist to assess the patient's status, assess the treatment plan and the patient's progress, and perform necessary laboratory tests.  Such visits are essential to the proper care of patients, but are discouraged under the current interpretation being followed by Medicare carriers, since any charges for such visits will decrease the availability of treatment.  The Secretary has authority, under current law, to develop guidelines for the appropriate use and frequency of such visits, should he be concerned about potential abuses. Should the **878 *55 Secretary seek to do so, the Committee would expect him to consult first with the physician and patient community on the need for and appropriateness of such guidelines. 
  The bill would not make any further changes, and the Committee intends none, with respect to other elements of current law regarding who can furnish such care or how the limit is applied.

Coverage of influenza vaccine and its administration (section 206) 

  Elderly Americans are far more susceptible than others to costly complications that may arise from influenza.  As reported by the Office of Technology Assessment (OTA) to the Health Subcommittee at its 1982 hearings on the cost-effectiveness of the flu vaccine (Serial No. 97-128), during the period 1971-1978, 127,000 deaths and an estimated 16 percent increase in excess hospitalizations resulted from influenza, 80 to 90 percent of which occurred among those over age 65.  More recent data from the Centers for Disease Control indicate that serious illnesses and deaths associated with influenza still remain a major health problem for the elderly. 
  OTA data also demonstrate that the cost to Medicare of such serious illnesses and hospitalizations could be avoided with adequate preventive measures, including widespread use of influenza vaccine.  Again, during the years 1971- 1978, these data show that flu shots not only increased the days of healthy life for persons age 65 and older, but also decreased the national level of their medical costs by $6.6 million.  Such improvements and savings are particularly noteworthy, given the fact that they occurred with only a 22 percent flu vaccination rate among the elderly.  Wider use of the vaccine by older Americans would undoubtedly result in even greater savings.  In fact, the Congressional Budget Office (CBO) estimates that increasing the percentage of elderly who take influenza vaccine from 22 percent to 27 percent would yield Medicare savings of $15 million in 1988 alone. 
  For the last several years, the Department of Health and Human Services has acknowledged the cost-effectiveness of the flu vaccine through its recommendations to the general public that those at risk--including people 65 and older--be vaccinated against the disease each year.  Yet, despite these recommendations, most of America's older population goes through the annual flu season without any vaccine protection. 
  Among the reasons cited at the Subcommittee's hearing for the elderly's low vaccination rate is the lack of coverage for flu shots under the Medicare program.  In general, Medicare does not pay for preventive care services such as influenza vaccines.  Thus, under current law, Medicare is authorized to pay for the treatment of influenza, but not for the vaccination that helps prevent this disease.  Without such payment, seniors continue to be unwilling to take this simple preventive measure that could protect them against a catastrophic illness or even death. 
  The Committee bill would, therefore, amend the Medicare statute to provide coverage for the administration of vaccine against influenza.  Under this provision of the bill, Medicare would pay 100 percent of the reasonable charge of the vaccination, without regard to the standard Medicare Part B deductible and coinsurance requirements.  Beneficiaries would, therefore, have no out-of- pocket **879 *56 expenditures if the physician takes assignment and accepts the Medicare reasonable charge as payment in full.  If the physician does not accept assignment, the beneficiary would be responsible for the physician's charge in excess of Medicare's allowable level. 
  The costs of the vaccination would be financed entirely through an increase in the premium that is paid by all individuals enrolled in Part B of the Medicare program.  It is anticipated that the amount of this increase would not exceed 20 cents per month.  If, however, additional premium increases are needed in order for Medicare to pay for the vaccinations, the Committee bill would give the Secretary the authority to put such increases into effect. 
  The provision would be effective with respect to services furnished, and premiums paid, on or after January 1, 1989.

Mailing of notice of Medicare benefits and participating physician directories  (section 207) 

  Surveys show that many Medicare enrollees do not fully understand what benefits are covered by Medicare or the limitations and constraints on those benefits.  The Department of Health and Human Services currently publishes and distributes pamphlets describing the program, but misunderstandings remain.  Of particular concern is the widespread misunderstanding that Medicare will cover nursing home and long-term care.  Such misunderstandings may lead to enrollees making ill-informed decisions about purchasing supplemental policies or failing to take appropriate measures to secure needed health care.  Passage of this bill would increase the need for enrollees to understand clearly the provisions of the Medicare program. 
  The Department recognizes the problem caused by enrollees' misunderstanding about Medicare's coverage of long-term care, as well as the need for an effective program of public education.  The Secretary's report on catastrophic health care included a recommendation that such a program be undertaken. Members of the Committee have raised this issue with the Department on several occasions and have urged the Department to begin a public education program promptly. 
  The bill would require the Secretary to distribute a notice annually to all persons enrolled in either Part A or Part B, providing a clear and simple explanation of the benefits covered and those not covered under Medicare.  In addition, the notice would explain the limitations on long-term care benefits under Medicare and Medicaid.  It is the Committee's expectation that this would include, at minimum, an explanation inserted with the Social Security checks mailed to enrollees.  It is also the Committee's intent that this be done within 90 days of enactment of the bill. 
  As part of the participating physician program created in 1984, the Department prepares directories of participating physicians, by area and specialty.  These directories are currently made available in local Social Security offices, through hospitals, and through aging or consumer groups.  In addition, enrollees are informed by a notice in their Social Security check envelopes that they can obtain a copy free from their Medicare carrier. 
  In order to provide greater access to these directories, the bill would require the Secretary to mail a copy to each enrollee. 
  **880 *57 Both provisions would be effective in 1988.

Requiring Medicaid buy-in of premiums and cost-sharing for poor Medicare beneficiaries (section 208) 

  Under current law, Medicare beneficiaries are obligated to meet certain deductible and coinsurance requirements under both Part A and Part B, as well as premium requirements under Part B.  The Committee bill would restructure many of these cost-sharing requirements to establish catastrophic protection against hospital and physician expenses.  However, all Medicare beneficiaries, regardless of income, would still be required to meet significant cost-sharing requirements before catastrophic protections are triggered. 
  In the case of those Medicare beneficiaries who are also eligible for Medicaid, most States, through their Medicaid programs, currently pay the Part B premiums under a "buy-in" agreement with the Medicare program.  This assures that, for these individuals, Medicare pays the initial amounts of any claims for physician and other services covered under Part B, leaving the State Medicaid program with a supplementary role of paying for services that it covers, but which Medicare does not.  States also pay Medicare deductibles and coinsurance on behalf of their dual eligibles.  Federal Medicaid matching funds are available for such outlays, at the regular rate for services, with respect to Medicaid beneficiaries who are receiving cash assistance. 
  States also have the option, under their Medicaid programs, of paying Medicare cost-sharing requirements on behalf of low-income elderly and disabled Medicare beneficiaries who are not eligible for full Medicaid benefits.  Under this option, added by section 9403 of P.L. 99-509, States may pay the Medicare cost-sharing for elderly and disabled individuals with incomes at or below a threshold established by the State that is no higher than 100 percent of the Federal poverty level.  These individuals must also meet the resource standards of the Supplemental Security Income (SSI) program, although States that cover the "medically needy" may, at their option, apply their less restrictive "medically needy" resource in determining eligibility for this Medicaid "buy- in" coverage.  If a State elects this option, it must, under current law, extend Medicare coverage to "some or all" of the optional categorically needy pregnant women and infants who are not eligible for Medicaid but whose incomes are below 100 percent of the Federal poverty level.  Federal Medicaid matching funds are available, at the regular rate for services, with respect to the State expense of paying the Medicare cost-sharing for this optional categorically needy group, as well as for the costs of providing Medicaid benefits to pregnant women and infants. 
  According to the Congressional Budget Office, in 1986, about 3.3 million of the noninstitutionalized elderly 65 and over had incomes below the Federal poverty level.  While virtually all of these have Medicare coverage, only about 1.1 million are covered under Medicaid.  These dual eligibles may have their Medicare premiums, deductibles, and coinsurance obligations satisfied by the Medicaid program.  The remaining two-thirds of the poor elderly must meet the Medicare cost-sharing requirements without help from Medicaid.    *58 **881 Either they purchase "Medi-gap" insurance policies to pay the deductibles and coinsurance, or they pay the cost-sharing requirements directly out of pocket. 
  State Medicaid coverage of the elderly varies considerably.  The following table, based on information supplied by the Congressional Research Service, sets forth, by State, the current Medicaid income eligibility levels for elderly persons living independently as a percentage of the Federal poverty level as of January, 1987.  In most cases, these levels represent the maximum SSI benefit payment (the $340 Federal benefit plus any State supplement).  In the 33 States which also cover the "medically needy," elderly individuals with higher monthly incomes may qualify for Medicaid by incurring high medical expenses which, when applied against their income, reduces their income to below the State's medically needy income level.  (In all but 3 of these 33 States, the medically needy income level is lower than the maximum SSI benefit payment).  The Committee observes that in only four States--Alaska, California, Connecticut, and Massachusetts--do Medicaid income eligibility levels for the elderly equal or exceed 100 percent of the Federal poverty level.

  MEDICAID ELIGIBILITY LEVELS FOR ELDERLY INDIVIDUALS, BY STATE (JANUARY 1987)  
 -------------------------------------------------------------------------------
                                        Monthly income level   Percent poverty  
                                                                    ($458)      
 -------------------------------------------------------------------------------
 Alabama .............................................. $340                  74
 Alaska ................................................ 632            [FN1]110
 Arizona ............................................... 340                  74
 Arkansas .............................................. 340                  74
 California ............................................ 560                 122
 Colorado .............................................. 398                  87
 Connecticut [FN2] ..................................... 486                 106
 Delaware .............................................. 340                  74
 District of Columbia .................................. 355                  77
 Florida ............................................... 340                  74
 Georgia ............................................... 340                  74
 Hawaii [FN2] .......................................... 345             [FN1]66
 Idaho ................................................. 413                  90
 Iowa .................................................. 340                  74
 Illinois [FN2] ........................................ 375                  82
 Indiana [FN2] ......................................... 340                  74
 Kansas ................................................ 340                  74
 Kentucky .............................................. 340                  74
 Louisiana ............................................. 340                  74
 Maine ................................................. 340                  74
 Maryland .............................................. 340                  74
 Massachusetts ......................................... 469                 102
 Michigan .............................................. 369                  81
 Minnesota [FN2] ....................................... 375                  82
 Mississippi ........................................... 340                  74
 Missouri [FN2] ........................................ 340                  74
 Montana ............................................... 340                  74
 Nebraska [FN2] ........................................ 398                  87
 Nevada ................................................ 376                  82
 New Hampshire [FN2] ................................... 367                  80
 New Jersey ............................................ 371                  81
 New Mexico ............................................ 340                  74
 New York .............................................. 412                  90
 North Carolina [FN2] .................................. 340                  74
 North Dakota [FN2] .................................... 340                  74
 Ohio [FN2] ............................................ 288                  63
 Oklahoma [FN2] ........................................ 404                  88
 Oregon ................................................ 342                  75
 Pennsylvania .......................................... 372                  81
 Rhode Island .......................................... 396                  86
 South Carolina ........................................ 340                  74
 South Dakota .......................................... 340                  74
 Tennessee ............................................. 340                  74
 Texas ................................................. 340                  74
 Utah [FN2] ............................................ 350                  76
 Vermont ............................................... 397                  87
 Virginia [FN2] ........................................ 340                  74
 Washington ............................................ 368                  80
 West Virginia ......................................... 340                  74
 Wisconsin ............................................. 442                  96
 Wyoming ............................................... 340                  74
 -------------------------------------------------------------------------------
 FN1 Federal poverty guideline for Alaska is $572 month, for Hawaii, $526 per    
  month.                                                                        
FN2 States that do not automatically extend Medicaid coverage to aged or        
  disabled persons receiving SSI benefits. Generally, individuals receiving SSI 
  benefits are eligible for Medicaid in these States if they meet the State     
  asset levels, which are lower than those under SSI. However, individuals with 
  incomes higher than the levels indicated may qualify by "spending down,"      
  i.e., incurring medical expenses which, when applied against their incomes,   
  reduce their incomes below the eligibility levels.                            
 
   **882 The Committee bill proposes a number ofMedicare benefit improvements designed to protect elderly and disabled Medicare beneficiaries against catastrophic financial expense.  For Medicare beneficiaries with monthly incomes below $458 per month, however, these limited cost-sharing obligations will not be sufficient.  Many of them will meet financial catastrophe long before they meet the $541 hospital deductible, the $1043 Part B cost-sharing "cap," and the $500 prescription drug deductible needed to trigger catastrophic protection under the bill.  While States could protect this population through the Medicaid "buy-in" option under current law, it is the Committee's understanding that, to date, only one State has chosen to implement this coverage. 
  As a result of the proposed expansion of Medicare benefits to provide catastrophic coverage against hospital and physician costs, States, under their Medicaid programs, would realize significant savings.  Dually eligible individuals who require extensive hospitalization and physician care would impose considerably less expense on State Medicaid programs than they do under current law, because payments that States now make for Medicare coinsurance and for services not currently covered by Medicare would no longer be necessary. In addition, some individuals who qualify for Medicaid by "spending down" to pay hospital and physician-related expenses not currently covered by Medicare would be protected from impoverishment by the bill's catastrophic benefits, and therefore remain ineligible for Medicaid.  According to CBO, the aggregate Federal Medicaid savings resulting from the Medicare hospital and physician catastrophic limits in this bill would total an estimated $2.1 billion over the next five years.  The state savings, in the aggregate, would total about $1.7 billion. 
  In the view of the Committee, this Medicaid "windfall" should be redirected toward catastrophic protection for the elderly and disabled*60 **883 poor.  Accordingly, the Committee bill would essentially make mandatory the Medicaid "buy in" option in current law.  Effective July 1, 1988, the States would be required to pay the Medicare premiums, deductibles, and coinsurance for all elderly and disabled individuals with incomes at or below 100 percent of the Federal poverty level and resources at or below twice the SSI standard, or $3600.  States would not be required to provide these individuals the full range of Medicaid benefits that they offer to categorically or medically needy beneficiaries;  instead, they would be required only to pay Medicare cost- sharing on their behalf. 
  Under the bill, the income standard for this mandatory coverage group would be 100 percent of the Federal poverty income guidelines issued annually by the Department of Health and Human Services.  These guidelines are based on poverty thresholds used by the Bureau of the Census to prepare its statistical estimates of the number of persons and families in poverty.  For 1987, the income standard for an individual is $5,500 per year ($458 per month) for all States except Alaska and Hawaii.  52 Fed.Reg. 5340 (Feb. 20, 1987). Individuals with incomes above 100 percent of the poverty guidelines would not be eligible for this "buy-in", regardless of the amount of their incurred medical expenses;  unlike "medically needy" coverage, "buy-in" coverage cannot be established by "spending down." 
  With respect to determining income eligibility for this "buy-in" coverage, the Committee intends that the States not use SSI standards or methodologies. In the case of married individuals, the Committee intends that the States, in determining income eligibility, not apply the poverty income guidelines for a family of two.  Instead, the Committee expects that the states will attribute to each spouse one-half of all of the income, earned and unearned, received by either spouse, to each spouse, and apply that amount against the income guideline for a single individual.  Thus, each member of a couple with a total annual income of $10,000 would be eligible for this coverage (assuming resource eligibility), since half of $10,000 meets the current poverty guideline for a single individual, even though their total income as a couple exceeds the poverty guideline of $7,400 per year for a family of two.  In calculating income, the Committee expects that the States will either (a) multiply by four the individual's income for the three months preceding the determination of eligibility or (b) use the individual's actual income for the 12 months preceding the determination of eligibility.  The States may require an applicant to furnish information that is reasonably necessary to substantiate his or her income. 
  With respect to determining resource eligibility for this "buy-in" coverage, the Committee expects that the State will use SSI methodologies for determining which assests are countable and which are not, and for valuing those resources.  However, the State must use twice the SSI standards for countable resources;  in 1987, this will result in a countable resource limit of $3,600 for an individual and $5,400 for a couple.  As the SSI resource standard increases over time, the Medicaid "buy-in" resource standard will increase.  The Committee notes that in 1974, when the SSI program was initiated, the resource standard was $1,500 for an individual.  Had the 1974 standard been adjusted to account fully for inflation, the **884 *61 standard in 1987 would be $3,400, not $1,800 as under current law.  The Committee has set the resource standard at twice the SSI level for Medicaid buy-in purposes to assure those elderly with modest amounts of what the SSI program would consider "excess" resources are not denied protection against catastrophic health care costs. 
  The bill would require States to pay Medicare cost-sharing, including coinsurance, on behalf of eligible individuals.  It is the understanding of the Committee that, with respect to dual Medicaid-Medicare eligibles, some States pay the coinsurance even if the amount that Medicare pays for the service is higher than the State Medicaid payment rate, while others do not.  Under the Committee bill, States would not be required to pay the Medicare coinsurance in the case of a bill where the amount reimbursed by Medicare--i.e., 80 percent of the reasonable charge--exceeds the amount Medicaid would pay for the same item or service.  However, if a State chooses to pay some or all of the coinsurance in this circumstance, Federal matching funds would, as under current law, be available for this cost.  For example, assume that a physician actually charges a "buy-in" patient $60 for performing a particular procedure;  that Medicare recognizes $50 as the reasonable charge;  and that the State Medicaid program only pays $35 for this procedure.  Whether or not the physician takes assignment, Medicare will pay only 80 percent of $50, leaving a $10 coinsurance obligation for the beneficiary.  However, since the State only recognizes $35 as the fee for the procedure in question, and since the Medicare program has already paid the physician $40, the State is not required to pay any of the $10 coinsurance.  If the State chooses to pay some or all of the $10, however, its cost would qualify for Federal matching payments at the regular rate for services. 
  The Committee bill would clarify that State expenditures for all Medicare cost-sharing expenses--premiums, deductibles, and coinsurance, under Part A or Part B--are eligible for Federal matching payments at the State's regular rate for service costs.  This would apply whether the individual whose cost-sharing is being paid is eligible for Medicaid due to receipt of cash assistance, is eligible for Medicaid as a "medically needy" individual, or is eligible under the "buy-in" mandate of this bill as a "qualified Medicare beneficiary." 
  By making mandatory the current law "buy-in" option, the Committee bill would effectively require all States to provide Medicaid coverage to some or all pregnant women and infants who are not receiving cash assistance under the Aid to Families with Dependent Children (AFDC) program but who have incomes at or below 100 percent of the Federal poverty guidelines.  It is the understanding of the Committee that at least 15 States have already elected to cover this optionally categorically needy group, and that most of these States have selected the 100 percent income threshold.  The Committee bill would not require that all of the States cover all pregnant women and infants up to 100 percent of the poverty level;  however, it would require that States cover these individuals below an income threshold set by the State that is higher than the State's current AFDC payment standard.  As under current law, States covering these optional categorically needy pregnant women and infants must keep their AFDC payment levels at or above the **885 *62 levels in effect on April 17, 1986.  The effective date for coverage of some or all of these pregnant women and infants would be the same as for the "buy-in" mandate itself, July 1, 1988.

Adjustment in Medicare part b premium (section 209) 

  Persons enrolled in Part B of Medicare pay an monthly premium for such coverage.  These premiums are established in advance for each calendar year. At present, the premium is calculated by the Secretary to be an amount sufficient, in the aggregate, to finance 25% of the estimated expenditures under Part B.  Beginning with premiums for January 1989, however, the monthly premium cannot increase, under current law, by more than the percentage increase in Social Security cash benefits under the cost-of-living adjustment (COLA).  The monthly premium is $17.90 in 1987, and is estimated by CBO to be $22.00 in 1988, $22.90 in 1989, $23.90 in 1990, $24.90 in 1991, and $26.00 in 1992. 
  Most of the revenue needed to finance the bill would be derived from the supplemental premium established under section 106.  Additional premiums established under sections 202, 203 and 206.  These revenues would not be adequate, however, to fully finance the program in each of the years.  The bill, therefore, would increase the monthly premium by $1 in 1990 and by 40 cents in 1991.  Because these increases would be incorporated into the premium and would be subject to the COLA increase, the net effect is that the monthly premium would be increased by $1.50 in 1991 and 1992. 
  The bill would also contain a provision making it clear that the transfer of payments for home health services from Part A to Part B, effectuated by section 105, will not have nay subsequent effect of increasing the monthly premium. The bill would require the Secretary, in calculating future premiums, not to take into account any increases in Part B expenditure due to this transfer. 
  Certain Medicare enrollees would not be paying the supplemental premiums established under section 106 of the bill.  These would include residents of the U.S. Commonwealths of Puerto Rico and the Northern Mariana Islands and the Territories of Guam, the Virgin Islands, and American Samoa.  It would also include persons who are enrolled in Part B of Medicare but who are not entitled to, and are not enrolled in, Part A.  The latter group would not be paying the supplemental premium because they are not entitled to Part A.  The residents of the commonwealths and territories would not be paying the supplemental premium because they are not subject to the Federal Internal Revenue Code and would not necessarily be filing a Federal income tax return. 
  The bill would provide that these persons will contribute to the financing of the additional catastrophic benefits of the bill by paying an additional monthly premium.  In each case, the additional premium would be one- twelfth of the estimated annual per capita value of these additional benefits. For residents of the commonwealths and territories, the value would incude both Part A and Part B benefits, and would be adjusted by the ratio of the per capita value of Medicare benefits for such residents to the per capita value of Medicare benefits for residents of the U.S.  For persons enrolled in Part B, but not Part A, the additional premium **886 *63 would be based on the additional value of Part B benefits under the bill. 
  These additional premiums would become effective for residents of the commonwealths and territories in January 1988.  For persons enrolled in Part B, but not Part A, they would become effective in January 1989.

Changes in certification of Medicare supplemental health insurance policies  (section 210) 

  Section 1882 of the Social Security Act establishes requirements that insurance companies must meet in order to have their supplemental health insurance policies certified as "Medigap" policies.  Section 1882 also includes criminal penalties for violating the provisions of that section, including penalties for knowingly selling a supplemental policy that substantially duplicates the benefits covered under Medicare.  Insurance companies are also subject to State rules and regulations. 
  Medigap policies cover most of the current Part A and Part B cost-sharing, and sometimes include additional benefits.  Over two-thirds of Medicare enrollees currently purchase such policies, at average annual premiums in excess of $500.  The changes that would be made under this bill would clearly warrant significant changes in Medigap policies and in the requirements of section 1882.  It is also clear that policy-holders need to be informed of these changes and their effect on current policies, and that companies issuing Medigap policies will need a reasonable period of time to adjust their policies to these changes and any corresponding changes made by the States. 
  The bill contains several provisions designed to bring Medigap policies into conformity with the changes made in Medicare.  The Secretary of Health and Human Services would have to report to the Congress within 150 days of enactment of the bill, with recommendations for changes in the section 1882 requirements for certification.  Before making such recommendations, the Secretary would have to take into consideration the changes in Medicare made by the bill and any recommendations made to him by the National Association of Insurance Commissioners. 
  The bill would also require insurers with Medigap policies in effect on January 1, 1988, to send a notice to all policyholders, by January 31, 1988, explaining the improved Medicare benefits enacted by the bill, and the effect of these improvements on the benefits and premium costs of the Medigap policy. Failure to do so would mean that the policy was no longer deemed to meet the requirements of section 1882.  In addition, insurers would be required to submit their advertising to the State insurance commissioner (or comparable state officer) for review as to whether it complies with state law. 
  The criminal sanction for knowingly selling a policy that substantially duplicates Medicare benefits would be suspended from January 1, 1988 through December 31, 1988, with respect to policies issued prior to the enactment of the bill, if such policies would not have substantially duplicated Medicare benefits but for the enactment of the bill.

**887 *64 Extension of social HMO demonstration project (section 211) 

  Section 2355 of the Deficit Reduction Act of 1984 required the Secretary of Health and Human Services to approve Medicare and Medicaid waivers needed to implement a demonstration project for social health maintenance organizations. These organizations are to provide an integrated package of health, long-term care, and social services on a prepaid, capitation basis for persons who voluntarily enroll with the organization. 
  There are currently four such demonstration projects, located in:  Brooklyn, New York;  Minneapolis, Minnesota;  Portland, Oregon;  and Long Beach, California.  The project is currently scheduled to conclude in the Fall of 1988.  However, the Committee believes that, if the project were to conclude at that time, it would not have been in effect for a sufficient period of time for valid conclusions to be drawn regarding the effectiveness of the program and the desirability of incorporating such a provision into the Medicare program. 
  The bill would direct the Secretary to extend the demonstration project, under the same terms and conditions as the current waiver, through September 30, 1992.  An interim report on the project would be due to the Congress by December 1988, and a final report would be due by March 31, 1993.

Study of comprehensive medical coverage under the Medicare program (section 212). 

  The gaps and limitations in Medicare covered benefits have resulted in enrollees paying a higher and higher proportion of their incomes for health care services not covered by the program.  Beneficiaries and consumer groups have indicated their desire that Medicare benefits be expanded.  In order to assist the Congress in making better informed decisions on these issues, the General Accounting Office would be directed to assess the need for, and cost of, expanding Medicare benefits to include a range of additional benefits, including preventive care and screenings, vision care, dental services, hearing exams and services, comprehensive long-term care, and prescription drugs.  The GAO would be directed to make separate determinations with respect to the costs of these services if they were to be furnished on a fee-for-service basis and under a capitation arrangement.  The report to Congress would be due within six months after enactment.

Research on long-term care services for Medicare beneficiaries (section 213) 

  In order to assist the Congress in making policy decisions with respect to Federal support for long-term care services, the Secretary of Health and Human Services would be directed to conduct additional research on the delivery and financing of comprehensive long-term care for Medicare enrollees.  The bill would authorize $5 million per year for each of five years, to be appropriated in equal parts from the Part A and Part B trust funds.  Such funds and research are to be in addition to the level of research currently being conducted on such issues by all of the agencies and offices of the Department of Health and Human Services.  The research would **888 *65 encompass a range of issues with respect to access, quality, financing, and other aspects of long-term care.

Protection of income and resources of couple for maintenance of community spouse (section 214) 

  The leading cause of financial catastrophe among the elderly is the need for long-term care, especially the need for nursing home placement.  The expense of nursing home care--which can range from $2,000 to $3,000 per month or more--has the potential for rapidly depleting the lifetime savings of all but the wealthiest.  Even under the Committee's bill, Medicare's expanded skilled nursing facility benefits will not protect the elderly against the costs of long-term institutionalization.  Private insurance coverage for nursing home costs is not generally available.  For most of the elderly, the Medicaid program is the only third party source of payment for nursing home care. 
  Medicaid, a means-tested entitlement program, requires that the elderly or disabled nursing home resident be poor in order to qualify for coverage.  It also limits the income that an institutionalized spouse may make available for the spouse remaining in the community.  If the institutionalized spouse receives the pension and other income in his name, this limit may have the effect of impoverishing the spouse in the community.  The purpose of the Committee bill is to end this pauperization by assuring that the community spouse has a sufficient--but not excessive--amount of income and resources available to her while her spouse is in a nursing home at Medicaid expense. This will be of particular benefit to older women, who, in the current generation at risk of nursing home care, have often worked at home all their lives raising families and have limited income other than their husbands' pension checks. 
  Current law.--To determine how much is available for the community spouse to live on when her elderly spouse in the nursing home applies for Medicaid, it is necessary first to determine whether the institutionalized spouse is eligible for Medicaid based on income and resources.  If eligibility is established, it is then necessary to determine how much of the institutionalized spouse's monthly income is to be applied to the cost of nursing home care, and how much is to be available to the community spouse. 
  Eligibility standards.--In general, in order to qualify for Medicaid, an individual must be categorically related--that is, be aged, blind, disabled, or a member of a family with dependent children--and must meet certain income and resources standards. 
  In most States, elderly or disabled people receiving cash assistance under the Supplemental Security Income (SSI) program are automatically eligible for Medicaid.  Aged or disabled individuals may receive SSI benefits if their countable income and countable resources do not exceed specified standards. The basic SSI income standard for an individual in 1987 is $340 per month, but many States have elected to supplement this benefit with their own funds.  The basic SSI resource standard for an individual in 1987 is $1,800.  In determining countable resources, a number of items are excluded, including the individual's home (of any value), household goods and personal effects worth less than $2,000, an automobile **889 *66 with a market value of $4,500 or less, and up to $1,500 in life insurance or burial funds. 
  Not all States automatically extend Medicaid coverage to SSI beneficiaries.  In about 14 States, known as "209(b)" States, eligibility standards, particularly resource rules, more restrictive than those under SSI are applied to the elderly or disabled.  In about 35 States, elderly individuals who are not poor enough to qualify for SSI, but who have large, recurring medical expenses, such as nursing home bills, qualify for Medicaid as "medically needy."  Finally, about 30 States offer coverage, on an "optional categorically needy" basis, to nursing home residents whose incomes fall below a State-established special income level no higher than 300 percent of the basic SSI benefit level ($1,020 per month in 1987). 
  There are roughly 1.5 million Medicaid beneficiaries in nursing homes, whether skilled nursing facilities (SNFs) or intermediate care facilities (ICFs).  Less than one-fourth of those are poor enough to qualify for SSI cash assistance.  The remaining three-fourths are eligible either as "medically needy" or "optional categorically needy."  Individuals who qualify for Medicaid in nursing homes on either of these bases must apply a certain portion of their income toward the cost of their nursing home care.  It is these post- eligibility rules, in combination with the rules for attributing income and resources, that give rise to the problem of "spousal impoverishment." 
  Attribution of income.--When one spouse enters a nursing home (or other institution) and applies for Medicaid, the following rule determines the amount of that spouse's income for eligibility purposes.  Shortly after institutionalization, each spouse is treated as a separate household.  Income-- generally Social Security checks, pensions, and interest or dividends from investments--is considered to belong to the spouse whose name is on the instrument conveying the funds (in the case of Social Security checks, the amount attributed to each spouse is the individual's share of the couple's benefit).  Thus, in a case where a couple's pension check is made out to the husband, if the husband enters a nursing home, all of the income is considered his for purposes of determining eligibility.  If the wife in this case enters the nursing home, however, none of the income is considered hers, and the husband is under no obligation under Federal law to contribute any of his income toward the cost of her care.  (However, some States do impose spousal contribution requirements in these circumstances). 
  Attribution of resources.--The rule for attributing resources is basically the same as that for attributing income.  Of course, the only resources that are attributed are countable resources, commonly liquid assets like savings accounts, mutual fund investments, certificates of deposit, etc.  Generally, in the month following institutionalization, resources to which a spouse has unrestricted access, including joint savings accounts, are considered available to that spouse for eligibility purposes.  Thus, if resources are held solely by the institutionalized spouse, they are attributed to him for eligibility purposes.  If the resources are jointly held, they are also considered to belong entirely to the institutionalized spouse, on the theory that he or she has an unrestricted right to use them.  If the assets are held solely by the community spouse, however, they **890 *67 are considered, after the first month, to belong to her.  There is no obligation under Federal law on the part of the community spouse to contribute any amounts of resources toward the costs of care of the institutionalized spouse.  In the view of the Department, these attribution rules apply in all States, including those with community property laws:  this Departmental interpretation is currently the subject of litigation. 
  Transfer of resources.--States have the option of denying Medicaid eligibility to individuals who have transferred countable resources for less than fair market value within two years of applying for Medicaid.  In the SSI program, the uncompensated value of the resource is counted for 24 months from the month the resource was disposed of, regardless of the amount at issue. States can be less restrictive than SSI, but they can also be more restrictive as well.  Where the value of the resources for which no compensation was received exceeds $12,000, the State may deny eligibility for more than 24 months, beginning with the date of the transfer.  States may waive this penalty in cases where undue hardship would result.  In the case of transfers of an individual's home to someone other than a spouse or minor or disabled child, the period for which eligibility is denied, if any, must be based on the relationship between the value of the home for which no compensation was received and the average Medicaid expenditure for nursing home care.  States cannot deny eligibility if the individual intended to dispose of the home at fair market value or if denial would cause undue hardship. 
  Post-eligibility application of income.--Once an institutionalized spouse has established eligibility for Medicaid by meeting the applicable income and resource standards, some of his monthly income is reserved for his use and that of his spouse, and the rest is applied to the cost of nursing home care.  These post-eligibility income rules apply whether the spouse qualifies for Medicaid as a "medically needy" or "optional categorically needy" individual.  From the gross monthly income of the institutionalized spouse are deducted the following amounts, in the following order.  First, there is reserved for the institutionalized spouse a personal needs allowance for clothing and other expenses of at least $25.  Second, there is set aside an allowance for the maintenance needs of the community spouse.  This amount, combined with the community spouse's income, if any, allows the community spouse a certain amount of income, or maintenance needs level.  Third, if the institutionalized spouse has a family at home, an amount is set aside for the maintenance of the family.  Finally, an amount is allowed for expenses incurred for medical care that is not covered by the State's Medicaid plan or by Medicare or other third party.  Any income remaining after these deductions is used to reduce the amount that the Medicaid program pays to the nursing home for the care of the institutionalized spouse. 
  Under current regulations, the maintenance needs level for the community spouse may not exceed the highest of the SSI, State supplementation, or "medically needy" income standard in the State.  As the following table, based on a March 1987, survey conducted by the American Association of Retired Persons, indicates, these community spouse maintenance needs levels vary greatly **891 *68 from State to State.  The maintenance needs level is the total of the amount of the community spouse's income and the amount set aside from the income of the institutionalized spouse.  Thus, in a State with a maintenance needs level of $340, if the community spouse receives a monthly Social Security check of $150, the contribution from the institutionalized spouse is $190, not $340.

                    Community spouse maintenance needs levels                   
 State:                                                        Maintenance needs
                                                                           level
     Alabama                                                                $340
     Alaska                                                                  632
     Arizona                                                           ( [FN1] ) 
    Arkansas                                                                188 
    California                                                              534 
    Colorado                                                                229 
    Connecticut                                                         375-450 
    Delaware                                                                164
     District of Columbia                                                    362
     Florida                                                                 340
     Georgia                                                                 340
     Hawaii                                                                  300
     Idaho                                                             Up to 393
     Illinois                                                                267
     Indiana                                                                 340
     Iowa                                                                    340
     Kansas                                                                  341
     Kentucky                                                                192
     Louisiana                                                               187
     Maine                                                                   350
     Maryland                                                                325
     Massachusetts                                                           354
     Michigan                                                            358-370
     Minnesota                                                               397
     Mississippi                                                             340
     Missouri                                                                340
     Montana                                                                 340
     Nebraska                                                                375
     Nevada                                                                  173
     New Hampshire                                                           354
     New Jersey                                                              372
     New Mexico                                                              340
     New York                                                                417
     North Carolina                                                          233
     North Dakota                                                            345
     Ohio                                                                    258
     Oklahoma                                                                  0
     Oregon                                                                  342
     Pennsylvania                                                            373
     Rhode Island                                                            475
     South Carolina                                                          340
     South Dakota                                                            257
     Tennessee                                                               150
     Texas                                                                   340
     Utah                                                                    289
     Vermont                                                                 398
     Virginia                                                            217-325
     Washington                                                              368
     West Virginia                                                           200
     Wisconsin                                                               442
     Wyoming                                                                 195
 FN1 Arizona operates, under demonstration authority, a Medicaid program that    
  does not cover nursing home or other long-term care benefits.                 
 
   **892 *69 Court-ordered support.--In some cases, courts have issued orders against institutionalized spouses requiring them to make monthly support payments in certain amounts to their spouses in the community.  The policy of the Health Care Financing Administration (HCFA) is that, notwithstanding such an order, the income of the institutionalized spouse is to be considered available to him for purposes of determining the amount of his contribution toward the cost of nursing home care.  The only part of his income which HCFA policy acknowledges as available to the community spouse is the specified maintenance needs allowance.  This interpretation is the subject of litigation. 
  Committee bill.--The improvement of individuals whose spouses reside in nursing homes and receive Medicaid benefits is not justifiable.  The current maintenance needs levels for community spouses, which are limited by current Federal regulation, are inadequate.  In some cases, they have forced community spouses, in desperation, to sue their husbands for support.  The financial duress that these low maintenance needs levels impose on the community spouse may, in certain cases, even force the premature institutionalization of that spouse. 
  The Committee bill would end spousal impoverishment.  It revises the current Federal requirements relating to attribution of income, attribution of resources, transfer of resources, and post-eligibility application of income. These revisions are limited to the context of a couple with one spouse in an institution who applies for or receives Medicaid.  The purpose of these revisions is to assure that the community spouse in these circumstances has income and resources sufficient to live with independence and dignity. 
  This bill establishes a uniform national spousal protection policy that applies in all States, whether they are "SSI," "209(b)," "medically needy," or "special income level" States, and whether or not they are community property jurisdictions.  Should Arizona at some point offer nursing home coverage through its Medicaid demonstration, these rules would apply to it as well. 
  The bill allows an institutionalized spouse to elect to be governed by the rules that were in effect in his State as of March 1, 1987, regarding the treatment of income, the protection of income for the community spouse, the transfer of resources to the community spouse.  The purpose of this election is to assure that the bill does not inadvertently make a community spouse worse off than under current law with respect to protected income of with respect to the minimum protected resource level of $12,000.  This election could be used by the institutionalized spouse either to increase the amount of income or resources available to the community spouse or to reduce it, thereby allowing the community spouse to qualify for Medicaid or other public assistance benefits herself.  However, the bill does not permit either the institutionalized spouse or the community spouse to opt out of the rules regarding the treatment of countable resources at the time of initial eligibility determination, which impose, in effect, a maximum protected countable resource limit of $48,000 on the community spouse. 
  Eligibility standards.--The bill does not alter income or resource standards for Medicaid eligibility of the institutionalized spouse.  Thus, if the current resource standard is $1,800, it would remain **893 *70 $1,800 under this bill.  Similarly, the bill generally does not alter current law as to what income or resources are countable, and which are not, or how income or resources are valued.  The principal exception to this relates to the exemption for household goods and personal effects for the limited purpose of attributing resources at the time of institutionalization.  The spousal protection rules in this bill apply regardless of whether the institutionalized spouse has qualified for Medicaid by meeting the eligibility standards as a categorically needy, optional categorically needy, or medically needy individual. 
  Attribution of income.--During any month that a spouse enters a nursing home, hospital, or other institution, the following attribution rules apply for purposes of determining eligibility.  Income paid solely in the name of one spouse or the other is considered to belong to that respective spouse.  Thus, no income paid solely to the community spouse is considered available to the institutionalized spouse for eligibility purposes.  If the income is paid in the names of both spouses, half is considered available to the community spouse, and half to the institutionalized spouse.  If income is paid in the name of either spouse and another person or persons, the income is considered available to each individual names in equal proportional shares, unless the instrument controlling the income specifically otherwise provides.  The same principles apply in the case of income from trust property.  In the case of income from a trust where there is no instrument establishing ownership, half of the income is attributed to the institutionalized spouse and half to the community spouse.  These attribution rules are subject to rebuttal by the institutionalized spouse upon a showing, by preponderance of the evidence, that ownership interests are otherwise. 
  Attribution of resources.--The following rules would apply in determining the amount of countable resources at the time of application for Medicaid benefits by the institutionalized spouse.  First, a determination would be made of the total value of all the countable resources held by either the institutionalized spouse, the community spouse, or both, on the day the institutionalized spouse began the continuous period of institutionalization during which he applies for Medicaid benefits.  Any countable resources belonging to either or both spouses would be included in this determination, including resources from inheritance or previous marriages.  For this purpose only, the current limit of $2,000 on the equity value of the exemption for household goods and personal effects would be inapplicable.  Thus, all household goods and personal effects, regardless of value, would not be counted among the resources attributed to the couple or either spouse at the time of institutionalization for purposes of determining eligibility. 
  One half of the value of all these resources, known as the spousal share, would be attributed to each spouse.  If the spousal share of the community spouse were less than $12,000, the institutionalized spouse would be allowed to transfer a sufficient amount to the community spouse to enable her to hold countable resources in her own name of a total of $12,000.  The institutionalized spouse would not be required to make this transfer;  however, any resources not solely in the ownership of the community spouse would be attributed to the institutionalized spouse and, to the extent they exceeded *71 **894 the applicable resource standard (generally $1,800), would render the institutionalized spouse ineligible for Medicaid. 
  If the spousal share of the community spouse were greater than $48,000, the institutionalized spouse would have attributed to him, for purposes of determining eligibility, both his own spousal share and the resources attributed to the community spouse in excess of $48,000.  This $48,000 limit represents four times the $12,000 protected resource level.  In 1989 and each year thereafter, these dollar amounts would be increased by the percentage increase in the consumer price index for all urban consumers for each year since September 1987. 
  The attribution of resources into spousal shares, and the subsequent imposition of limits on the community spouse's shares, would occur only once, at the time of initial application.  After the month in which an institutionalized spouse has met the resource eligibility standard and is determined to be eligible for benefits, no resources of the community spouse, regardless of value, would be considered available to the institutionalized spouse.  Thus, if while the care of the institutionalized spouse is being paid for by Medicaid, the community spouse's countable resources grow to exceed the $48,000 initial limit, the State would not be authorized to require the community spouse to apply any excess toward the cost of care of the institutionalized spouse. 
  The Committee observes that, in many cases, the institutionalized spouse may not apply for Medicaid benefits until months after his admission to a nursing home.  Often these individuals and their spouses have "spent down" a significant amount of their life savings to pay the nursing home charges. Repeated division of the couple's total resources into equal spousal shares at each application or reapplication for benefits would result in the pauperization of the community spouse, as the couple's total resources would effectively be reduced to twice the resource eligibility standard, generally $3600, before the institutionalized spouse qualified for Medicaid.  Precisely the opposite result is intended by the Committee.  For this reason, the bill requires, in effect, that a "snapshot" of the couple's total resources be taken at the time of initial institutionalization, and that attribution of resources into spousal shares proceed on the basis of that "snapshot," regardless of the point at which the institutionalized spouse actually files application for benefits.  The Committee expects that the States, in reconstructing the couple's resources at the time of institutionalization, will not apply unreasonable documentation requirements. 
  Post-eligibility application of income.--After an institutionalized spouse has met the resource and income criteria for eligibility, the income attributed to that spouse would be applied as follows each month.  (The rules relating to attribution of income for purposes of determination of eligibility, described above, would also apply for purposes of post-eligibility treatment of income).  From the institutionalized spouse's income, the following amounts would be deducted, in the following order.  First, at least $25 would be reserved for that spouse's personal needs.  Second, a community spouse monthly income allowance would be set aside.  Third, a family allowance would be deducted for each minor or dependent child, dependent parent, or dependent sibling of either spouse living with the community *72 **895 spouse. Finally, there would be deducted amounts for incurred expenses for medical care for the institutionalized spouse not paid for by Medicaid, Medicare, or another liable third party. 
  The community spouse monthly income allowance is the amount needed to bring the community spouse's monthly income, including any income otherwise available to her, up to a minimum level.  This minimum level is defined as the sum of (1) an amount equal to 150 percent of the Federal poverty guidelines for a family of two, or $925 per month in 1987;  (2) an excess shelter allowance (the amount by which mortgage expenses or rent, plus utility costs, exceed 30 percent of the amount in (1);  and (3) one-half of the amount by which the income of the institutionalized spouse exceeds the sum of amounts (1) and (2).  The community spouse's minimum monthly maintenance needs allowance may not exceed $1500 per month.  In 1989 and each year thereafter, this amount would be increased by the percentage increase in the consumer price index for all urban consumers for each year since September 1987.  This $1500 limit applies only to the amount that may be deducted from the institutionalized spouse's income for the maintenance of the community spouse;  it does not in any way constrain the amount of income that the community spouse may receive in her own name from sources other than the institutionalized spouse. 
  The $1500 limit on the minimum monthly maintenance needs allowance is not absolute.  Under the bill, the institutionalized spouse is entitled to an opportunity to demonstrate, at a fair hearing, that the minimum monthly maintenance needs allowance is inadequate to support the community spouse without financial duress.  If the spouse makes this showing, by a preponderance of the evidence, the State would be required to establish an adequate monthly maintenance needs allowance in that case. 
  Under the bill, States would be required, upon request by either spouse or upon a determination of eligibility, to notify the institutionalized spouse of the amount of the community spouse monthly income allowance, the family allowance, the way in which the community spouse resource allowance was computed, and the spouse's right to a fair hearing.  The bill makes clear that an institutionalized spouse who believes that the minimum monthly maintenance needs allowance for the community spouse is inadequate, or who believes that the State has not accurately determined the amount of monthly income actually available to the community spouse from other sources, is entitled to a fair hearing on either of these issues, as well as any other State determinations that adversely affect the income or resources available to the community spouse. 
  Court ordered support.--The Committee recognizes that there will be some instances in which the rules set forth in the bill do not take adequate account of the special circumstances affecting a particular community spouse. The bill therefore provides that, if a court has entered an order against an institutionalized spouse for monthly income for the support of the community spouse, the community spouse monthly income allowance must be at least as great as the amount of the income ordered to be paid.  Similarly, if a court has entered a support order against an institutionalized spouse requiring that spouse to transfer countable resources to the community spouse, the spouse may comply with the court's order *73 **896 without running afoul of the transfer of assets prohibitions, even where the effect is to leave the community spouse with countable resources in excess of $48,000. 
  Transfer of resources.--The Committee is informed that a number of States have not made effective use of the authorities under current law to prevent affluent individuals from disposing of resources in order to qualify for Medicaid nursing home coverage.  In the view of the Committee, Medicaid--an entitlement program for the poor--should not facilitate the transfer of accumulated wealth from nursing home patients to their non-dependent children. The Committee is also concerned by the arbitrary nature of current SSI policy relating to disposal of assets, under which the 2-year penalty for transfers is unrelated to the amount of the assets disposed of.  Accordingly, the Committee bill replaces the current law option with a uniform national policy, mandatory on all the States, that is specific to Medicaid eligibility and that reasonably relates the value of the resources improperly transferred to the period of denial of eligibility. 
  Under the bill, States must determine whether each nursing home or hospital patient who applies for Medicaid has, within 2 years of application, disposed of any countable resources for less than fair market value.  If such a transfer has occurred, the State must determine the value (as of the time of transfer) of the countable resources transferred for which the applicant received less than fair market value.  The total uncompensated value of these countable resources must then be divided by the average cost, to a private patient at the time of application, of nursing home care in the State.  This yields the number of months for which the individual is ineligible for Medicaid, beginning with the month in which the transfer took place.  The Committee expects that, where practicable, the State should use the cost of nursing home care to private patients in the community in which the applicant is institutionalized. 
  To avoid inequitable results, the bill provides for a number of exceptions from the denial of eligibility for transfers of countable resources for less than fair market value. 
  First, the prohibition on transfer does not apply at all in the case of the transfer of an applicant's home to his or her spouse, child under 21, or blind or disabled adult child.  The Committee recognizes that, so long as an individual lives in a home or intends to return to it, the home is not a countable resource.  The purpose of this exception is to underscore that the transfer of an applicant's or beneficiary's home to the community spouse or to any minor or disabled children would be protected. 
  Second, the prohibition on transfers does not apply at all in the case of a transfer of countable resources to the community spouse of an institutionalized individual, or to another for the sole benefit of the community spouse.  Since the Committee bill establishes rules for the attribution of resources of married couples at the time of institutionalization which reach both spouses, no purpose would be served by prohibiting transfers of countable resources from the institutionalized spouse to the community spouse. 
  Third, if an individual can demonstrate, to the satisfaction of the State, that he or she intended to dispose of the resources at fair **897 *74 market value, or for other valuable consideration, denial of eligibility for Medicaid should not occur.  The purpose of the Committee bill is to deter those who, through "gifting" or other disposal, knowingly seek to shelter assets from dissipation due to nursing home costs.  The bill is not intended to penalize those who inadvertently, or through lack of sophistication, did not receive adequate compensation.  Nor is the bill intended to deny eligibility to those who transfer resources to relatives or others by way of compensation for the informal care which these individuals have given to the applicant or beneficiary;  the imposition of a penalty in such circumstances would have the unfortunate effect of discouraging family members and friends from caring for the frail elderly or disabled and helping them remain independent for as long as possible. 
  Finally, the Committee recognizes that there will be circumstances where, although an individual may have transferred assets in order to qualify for Medicaid benefits, the effect of denying Medicaid coverage for the specified period of time would be to seriously threaten the continuing care or well-being of the applicant or otherwise work an undue hardship.  The Committee also recognizes that there will be circumstances where, with no expectation of needing nursing home care and no intent of qualifying for Medicaid, an individual may give away money or property, perhaps for a grandchild's education, and then later learn that, as a result of a rapid change in medical condition, such as a stroke, nursing home placement is suddenly required.  The bill provides that where the State determines such circumstances exist, eligibility for Medicaid benefits must not be denied. 
  These prohibitions on transferring countable resources, and the exceptions to them, are mandatory on all the States.  The Committee bill expressly provides that States are not authorized to impose more--or less--restrictive eligibility delays than those specified in the Committee bill.  Thus, the States could not impose any penalties for transfers of resources on applicants or beneficiaries other than those in nursing homes or hospitals.  Similarly, the current SSI policies relating to transfer of assets would no longer apply for purposes of determining Medicaid eligibility of applicants or beneficiaries in institutions or those outside. 
  Conforming changes.--Currently, a number of States that offer Medicaid coverage to the aged and disabled under the "medically needy" option use less restrictive income or resource methodologies in determining eligibility than apply to the aged and disabled under the SSI program.  HCFA interprets current law to require that States use SSI income and resource methodologies under their medically needy programs for the elderly and disabled. 
  The current treatment of income and resources of institutionalized spouses-- substantially revised by the Committee bill--is essentially the result of applying SSI principles in a Medicaid context.  This is only one of many examples where principles that may be valid in the context of a cash assistance program are not appropriate in the context of a medical assistance program. The State Medicaid Directors Association has submitted a report to the Congress concluding that directly linking Medicaid and SSI income and resource methodologies results in impoverishment of the elderly and disabled, increased State and Federal costs, and burdensome administrative*75 **898 practices.  The Medicaid Directors offer a number of examples of SSI policies which are inappropriate when applied to Medicaid, such as the rule that resource eligibility is determined on the first day of the month.  Following this SSI rule, if a nursing home patient has resources in excess of the allowable threshold ($1,800) on that day, he or she is ineligible for Medicaid throughout the rest of the month, even if the amount of excess resources is too small to enable the individual to pay for the entire month's nursing home costs. 
  In the view of the Committee, there is no justification for the rigid application of SSI eligibility rules to Medicaid medically needy programs. Prior to this HCFA interpretation, States had flexibility to establish income or resource methodologies less restrictive--i.e., more generous from the applicant's standpoint--than those under SSI.  States should continue to have this flexibility.  On the other hand, the Committee does not believe that the States should have the discretion to apply methodologies under their medically needy programs that are more restrictive--i.e., less generous from the applicant's standpoint--than those under SSI.  The bill therefore provides that the State's methodology for determining eligibility for the medically needy aged and disabled shall be no more restrictive than that under the SSI program (or, in the case of families with children, under the corresponding Aid to Families with Dependent Children cash assistance program).  To avoid any possible ambiguity, the bill provides that a methodology is considered to be "no more restrictive" if, using the methodology, individuals qualify for Medicaid even though they would not be eligible were the SSI methodology used, and individuals who would be eligible for Medicaid under the SSI methodology would not be ineligible under the State's medically needy methodology. 
  Effective dates.--The provisions relating to the treatment of income and resources for institutionalized spouses are effective for individuals residing in institutions on or after January 1, 1988.  This includes spouses who were residing in nursing homes before that date, as well as spouses who are admitted on or after that date.  The provisions relating to transfers of resources apply to all institutionalized individuals first applying for Medicaid on or after January 1, 1988, with respect to any transfers for less than fair market value occurring up to two years prior to the date of application.  Both provisions are effective whether or not the Secretary of HHS has promulgated final implementing regulations.  If the Secretary determines that a State requires State legislation, other than an appropriations bill, to implement these requirements, the provisions do not take effect until the first day of the first calendar quarter beginning after the close of the first regular State legislative session beginning after enactment.  Finally, the provision allowing States to use less restrictive income and resource methodologies in their medically needy programs is October 1, 1982, the effective date of the current statutory language on which HCFA erroneously bases its current interpretation.  No disallowances or other adverse actions may be taken against States based on the current statutory language relating to "same" methodologies. 
  Examples.--The following examples illustrate the operation of the Committee bill.  Assume an elderly couple who together own a **899 *76 home assessed at $110,000 and have a joint savings account, to which either spouse has unrestricted access, with a balance of $20,000.  The husband's monthly income, from his Social Security benefit and his private pension, is $750.  The wife, who worked at home all her life raising a family, has income of $150 from Social Security.  The husband develops Alzheimer's disease and his wife, no longer able to care for him at home, must place him in a nursing home.  The husband applies for Medicaid.  The State covers "optional categorically needy" nursing home residents under a special income standard of $875 per month and a resource standard of $1,800.  The State's maintenance needs allowance for community spouses is $340 per month. 
  Under current law, the husband is categorically related due to his age, and, as of the beginning of the first full calendar month after institutionalization, is eligible under the special income standard of $875. (Until the beginning of the first full calendar month, the wife's income is attributed to him, and he does not meet the special income standard).  However, he must still meet the $1,800 resource standard.  The entire amount in the couple's joint savings account is attributed to the husband, since he has unrestricted access to it, giving him excess resources of $18,200.  Until he spends these excess resources, he will remain ineligible for Medicaid.  If he gives the $18,200 to his wife, the State has the option of denying him Medicaid eligibility for more than 2 years from the date of transfer. 
  Assuming all the excess resources in the couple's joint account are applied to the cost of nursing home care, and assuming a private patient rate of $2,000 per month, it will take about 9 months for the husband to become resource-eligible for Medicaid.  After eligibility has been established, the husband's income is applied as follows.  First, an allowance of $25 is reserved for his personal needs.  Then an allowance of $190 for the maintenance needs of his wife (the State standard of $340 minus the wife's own income of $150) is set aside.  If the husband had no uncovered medical costs in the previous month, the remaining $535 of his income is applied to the cost of nursing home care.  The remainder is paid by the State and Federal governments through Medicaid. 
  The wife in the community is left with the house, a monthly income of $340, and access to the $1,800 remaining in the couple's joint savings account. Before her husband entered the nursing home, the couple's total income ($900 per month) was about 146 percent of the Federal poverty level for a couple; after her husband's institutionalization, she has only $1,800 in liquid assets and her income places her at 75 percent of the Federal poverty level for a single individual. 
  In sharp contrast to current law, the Committee bill would not impoverish the wife in this case.  At the time the husband enters the nursing home, only $750 in income would be attributed to him, and he would immediately be eligible under the State's special income standard.  With respect to resources, half of the couple's total assets would be attributed to the wife and half to the husband.  However, the bill allows the husband to transfer without penalty $12,000--the minimum community spouse resource allowance--to an account in his wife's name at any time.  When the husband *77 **900 has spent all but $1,800 of the remaining $8,000, he becomes resource-eligible for Medicaid. Assuming he applies all of these excess resources to the cost of his nursing home care at $2,000 per month, this will take about 4 months. 
  Once eligibility for Medicaid has been established, the husband's monthly income is applied as follows.  First, $25 is set aside each month for a personal needs allowance.  Second, $725 is reserved for the maintenance needs of the community spouse.  The community spouse is allowed a minimum of $925, including her income;  since the wife's income is only $150, she can receive at least $775 from the husband.  However, since the husband's total income is less than $775, she receives only the total income less the $25 personal needs allowance, or $725.  Nothing remains to reduce the cost of the husband's nursing home care to the Medicaid program. 
  Under the Committee bill, the wife is left with a monthly income of $875 (her Social Security check of $150 plus the maintenance needs allowance of $725), or about 190 percent of the Federal poverty level for a single individual.  She also has $12,000 in savings in her name.  The husband would qualify for Medicaid about 5 months earlier than under current law.  The total Federal and State Medicaid payment to the nursing home would go up by $535 per month (the difference between the husband's $190 community spouse monthly income allowance under current law and the $725 allowance under the bill). 
  Another example will illustrate the effect of the bill's provision for an equal division of the couple's resources.  Assume that the couple's joint savings account at the time of institutionalization contains not $20,000, but $50,000.  Under the bill, the husband would be allowed, without penalty, to transfer $25,000 of this amount to an account in the wife's name.  Of the remaining half, $23,000 would have to be spent before the husband would become resource-eligible for Medicaid.  Under current law, all but $48,200 in the joint account has to be spent before the husband becomes eligible for Medicaid.  (Although a couple with $50,000 in savings is likely to have household goods and personal effects valued at more than $2,000, the bill provides that all these items are not to be considered resources for purposes of determining the community spouse resource allowance). 
  The effect of the bill's ceiling of $48,000 on the community spouse resource allowance may be demonstrated by assuming that the couple has not $20,000, but $100,000 in joint savings accounts and jointly held stocks and mutual funds at the time of the husband's institutionalization.  The bill allows the husband to transfer half of the jointly held resources, or $50,000, to the wife in her own name, subject to the limit of $48,000.  Thus, the couple would have to spend $50,200 (the husband's $50,000 share, plus $2,000 excess resources from the wife's share, less the resource eligibility standard of $1,800) before the husband could qualify for Medicaid.  Again, any household goods or personal effects would not be taken into account in determining the amount of the community spouse's resource allowance. 
  The effect of the bill on financial planning (or the lack thereof) can be illustrated with the following example.  Assume that this couple has a total of $50,000 in savings, and because it has done no **901 *78 financial planning, all of these resources are held by the husband in his own name when he is admitted to the nursing home.  Under current law, the husband cannot qualify for Medicaid until all but $1,800 of this amount is spent.  Under the bill, however, the husband may transfer $25,000 to the wife in her own name without penalty. 
  If one assumes that this couple, learning of the husband's disease, anticipated the need for institutionalization and transferred all of the $50,000 joint savings to the wife more than two years prior to application for Medicaid, the result under the bill is the same as in the previous example. Regardless of ownership, the resources are attributed in equal shares to each spouse.  Until the wife's resources are reduced to $25,000, the husband is not resource-eligible for Medicaid.  Under current law, the husband, with no resources attributable to him, would immediately qualify for Medicaid, and the wife would be under no Federal law obligation to contribute toward the cost of his care. 
  Finally, the concept of the resource "snapshot" at institutionalization is illustrated by the following example.  Assume, as above, that couple has countable resources of $50,000, jointly held, at the time of the husband's admission to the nursing home.  The husband does not apply for Medicaid upon admission;  instead, the couple begins to spend it resources to pay for the cost of his care.  After a year, the couple has spent $24,000 from its joint resources, and the husband applies for Medicaid.  The State would then look back to the date of the husband's institutionalization for purposes of attributing resources.  Since the wife's spousal share was $25,000 then, if the husband transfers his interest in $25,000 of the remaining resources to his wife, he will immediately be resource-eligible for Medicaid, since the remaining $1,000 would meet the $1,800 resource standard.

Study of adult day care services (section 215) 

  The Committee bill would require the Secretary of Health and Human Services to conduct a survey and report to the Congress on adult day care services that are currently being provided throughout the United States.  Such a report is to include information on (1) the scope of adult day care services and the extent of their availability around the country;  (2) the characteristics of the various entities (such as community-based programs, hospitals, and nursing facilities) that provide these services;  (3) licensure, certification, and other quality standards that are applicable to those entities providing such services;  (4) the cost and financing of adult day care services;  and (5) the characteristics of individuals who use the services (including on the individuals' level of disability and on the availability of similar in-home care services). 
  The purpose of this review is to evaluate programs and projects that have already been established, so that Congress can properly consider the advisability of Medicare coverage for adult day care services.  Thus, it is not the intention of the Committee that the Secretary undertake a demonstration project or in any other matter initiate or fund new adult day care programs. The Secretary is to report only on the current availability of services and on **902 *79 the state of the art of the provision and monitoring of quality of adult day health services. 
  In addition to the material collected from the national survey, the Secretary's report to the Congress is to include various recommendations concerning the establishment of an adult day care benefit under the Medicare program.  Among the issue to be addressed are the appropriate population to be served, the type of services to be provided, the qualifications for Medicare provider certification, and the method for reimbursement.  More specifically, the Secretary is to make recommendations on who needs and uses adult day care services and what kind of organizational arrangements and staffing patterns would best meet these service requirements. 
  The Committee bill would require that the Secretary make his report to the Congress not later than 1 year after the enactment of this legislation.

TITLE III--UNITED STATES BIPARTISAN COMMISSION ON COMPREHENSIVE HEALTH CARE

  The bill would establish a 15-member Congressional Commission to make recommendations regarding Federal programs for comprehensive health care, and would authorize appropriations of $1.5 million for this purpose. 
  The Commission would be comprised of six members of the House appointed by the Speaker, six members of the Senate appointed by the President Pro Tempore, and three members appointed by the President.  No more than eight members could be from the same political party.  The Commission would select a chairman and vice chairman from among its members. 
  The Commission would examine shortcomings in the current delivery and financing of health care that limit or prevent access to comprehensive health care by the elderly and disabled and by all other Americans. 
  Within six months of enactment, the Commission would submit a report to the Congress, with findings and recommendations for appropriate legislative initiatives regarding comprehensive long-term care for the elderly and disabled.  Within one year of enactment, the Commission would issue a comparable report on comprehensive health care services for the elderly and disabled and for all Americans. 
  For this purpose, comprehensive health care services would include hospital and physician services, screening examinations and other preventive care services, long-term care services, mental health services, prescription drugs, eyeglasses, hearing aids, and dentures.  Comprehensive long-term care would include custodial and noncustodial services, furnished in facilities, the home, or community-based settings. 
  In making it recommendations, the Commission would consider the amount of funds necessary to finance needed services and possible sources of such funds, raised in a manner consistent with principles of social insurance.  It would also consider the most effective and efficient manner of administering such services. 
  The Committee expects the Commission to examine carefully the effects of the current 29-month waiting period which the disabled **903 *80 must satisfy before they become eligible for Medicare.  For many of the disabled, this waiting period prevents their receiving health care during the period of time when they are most in need of it.  Many of them do not have private health insurance during this crucial period and are unable to obtain rehabilitative or restorative care, while their condition worsens and many of them die.  The Commission should examine, and make recommendations on, reducing or eliminating the waiting period, including an assessment of the costs and effects of the waiting period on the disabled. 
  The Commission would be empowered to appoint and compensate staff, procure consultants, hold hearings, request studies from the GAO and cost estimates from CBO, request technical assistance or the detail of employees from other Federal agencies, request support from the General Services Administration, obtain information from any Federal agency, and accept gifts or donations of services or property.  The Commission would expire 30 days after the submission of its last report.

Hearings

  The Committee's Subcommittee on Health and the Environment held four days of hearings on H.R. 1711, H.R. 1760, H.R. 1761, H.R. 1762, H.R. 2470, and H.R. 2485, on May 21, 27 and 28, and June 2, 1987.  Testimony was received from 39 witnesses, representing beneficiary and consumer groups, health care providers, and a variety of other organizations.

Committee Consideration

  On June 9, 1987, the Subcommittee on Health and the Environment met in open session and ordered reported the bill H.R. 2470, as amended, by a vote of 9 to 1, a quorum being present.  On June 16 and 17, 1987, the Committee met in open session and ordered reported the bill H.R. 2470, with amendments, by a recorded vote of 30 to 12, a quorum being present.

Committee Oversight Findings

  Pursuant to clause 2(l)(3)(D) of rule XI of the Rules of the House of Representatives, no oversight findings or recommendations have been made by the Committee.

COMMITTEE ON GOVERNMENT OPERATIONS

  Pursuant to clause 2(l)(3)(D) of rule XI of the Rules of the House of Representatives, no oversight findings have been submitted to the Committee by the Committee on Government Operations.

Committee Cost Estimate

  In compliance with clause 7(a) of rule XIII of the Rules of the House of Representatives, the Committee believes that the bill will reduce the deficit by a total of $907 million over the fiscal years 1988, 1989, and 1990.

**904 *81 CONGRESSIONAL BUDGET OFFICE ESTIMATE

	U.S. CONGRESS,

	CONGRESSIONAL BUDGET OFFICE,

	Washington, DC, June 29, 1987.

Hon. JOHN D. DINGELL, 
Chairman, Committee on Energy and Commerce, House of Representatives, 
Washington, DC. 
  DEAR MR. CHAIRMAN:  The Congressional Budget Office has prepared the attached cost estimate for H.R. 2470 Amended, the Medicare Catastrophic Protection Act of 1987, as ordered reported on June 17, 1987, by the Committee on Energy and Commerce. 
  If you wish further details on this estimate, we will be pleased to provide them. 
  With best wishes, 
  Sincerely,

	ROBERT F. HALE

	(For Edward M. Gramlich, Acting Director).

CONGRESSIONAL BUDGET OFFICE--COST ESTIMATE

  1. Bill number:  H.R. 2470 as amended by the Committee. 
  2. Bill title:  The Medicare Catastrophic Protection Act of 1987. 
  3. Bill status:  As amended and ordered reported by the Committee on Energy and Commerce on June 17, 1987. 
  4. Bill purpose:  To amend title XVIII of the Social Security Act to provide protection against catastrophic medical expenses under the Medicare program, and for other purposes. 
  5. Estimated cost to the Federal Government:

                    [By fiscal years, in millions of dollars]                   
 -------------------------------------------------------------------------------
                                            1988     1989   1990   1991   1992  
 -------------------------------------------------------------------------------
    DIRECT SPENDING/OFFSETTING RECEIPTS                                         
            Sec. 101 Provisions                                                 
 Eliminating the limit on covered hospital                                      
   days:                                                                        
       Budget authority ..................... -10.0    -30    -60    -90    -130
       Outlays .............................. 180.0    300    345    380     420
 Eliminating enrollees' copayments for                                          
   hospital coinsurance and reserve days:                                       
       Budget authority ..................... -15.0    -50    -95   -150    -210
       Outlays .............................. 295.0    485    560    615     680
 Limiting payment of the hospital                                               
   deductible to the first stay each year:                                      
       Budget authority ..................... -20.0    -60   -110   -160    -220
       Outlays .............................. 395.0    530    550    595     655
 Indexing the first-stay hospital                                               
   deductible amount to the COLA:                                               
       Budget authority ..................... [FN1]     -5    -15    -35     -65 
      Outlays ............................... 10.0     75    175    290     410 
Changing the calculation of the pt. A                                          
   premium:                                                                     
       Budget authority ...................... 15.0     25     25     25      25
       Outlays ............................... 15.0     25     25     25      25
 Effect on trust fund from change in pt. A                                      
   premium:                                                                     
       Budget authority ..................... -16.0    -27    -30    -30     -35
       Outlays .................................. 0      0      0      0       0
            Sec. 102 Provisions                                                 
 Changing the requirements for coinsurance                                      
   on SNF stays, and covering up to 150                                         
   days a year:                                                                 
       Budget authority ..................... -10.0    -30    -55    -85    -120
       Outlays .............................. 170.0    275    315    350     385
 Eliminating the prior hospitalization                                          
   requirement for coverage of SNF stays:                                       
       Budget authority ..................... [FN1]     -2     -5    -10     -15 
      Outlays .................................. 0     40     55     65      75 
           Sec. 103 Provisions                                                 
 Eliminating the 210 day limit on hospice                                       
   benefits:                                                                    
       Budget authority ..................... [FN1]  [FN1]  [FN1]  [FN1]   [FN1] 
      Outlays .............................. [FN1]      1      1      1       1 
           Sec. 104 Provisions                                                 
 Changing blood deductible requirements                                         
   from 3 per spell to 3 a year:                                                
       Budget authority ..................... [FN1]     -1     -2     -5      -5 
      Outlays ................................ 5.0      8     10     10      11 
           Sec. 105 Provisions                                                 
 Transferring home health benefits to pt.                                       
   B: Effect on pt. A:                                                          
             Budget authority ................... 0    130    445    865   1,360
             Outlays ............................ 0  -2,8-  -4,4-  -5,1-  -5,867
                                                        96     40     06        
       Effect on pt. B:                                                         
             Budget authority ................... 0  3,435  4,690  5,270   6,075
             Outlays ............................ 0  2,896  4,440  5,106   5,867
            Sec. 201 Provisions                                                 
 Capping pt. B copayments:                                                      
       Budget authority ......................... 0  2,445  3,760  4,480   5,330
       Outlays .................................. 0  2,065  3,515  4,310   5,125
 Counting costs of certain screening tests                                      
   toward cap:                                                                  
       Budget authority ......................... 0     35     50     55      70
       Outlays .................................. 0     30     50     55      65
            Sec. 202 Provisions                                                 
 Covering catastrophic expenses for                                             
   prescription drugs:                                                          
       Budget authority ......................... 0    965  1,890  2,320   2,600
       Outlays .................................. 0    965  1,890  2,320   2,600
 Increasing pt. B premium to cover                                              
   resulting outlay costs:                                                      
       Budget authority ..................... -90.0  -1,0-  -2,0-  -2,4-  -2,740
                                                        85     15     50        
       Outlays .............................. -90.0  -1,0-  -2,0-  -2,4-  -2,740
                                                        85     15     50        
 Additional costs of Medicaid buy-in                                            
   requirement due to drug benefit:                                             
       Budget authority ......................... 0     20     35     55      75
       Outlays .................................. 0     20     35     55      75
            Sec. 203 Provisions                                                 
 Providing in-home personal care:                                               
       Budget authority ......................... 0    145    285    380     485
       Outlays .................................. 0    120    270    360     460
 Increasing pt. B premium to cover                                              
   resulting outlay costs:                                                      
       Budget authority ......................... 0   -120   -270   -360    -460
       Outlays .................................. 0   -120   -270   -360    -460
            Sec. 204 Provisions                                                 
 Extending home health benefits to 35                                           
   consecutive days:                                                            
       Budget authority ......................... 0    180    255    285     330
       Outlays .................................. 0    155    240    275     315
            Sec. 205 Provisions                                                 
 Increasing limit on payments for                                               
   outpatient mental health services to                                         
   $1,000 a year:                                                               
       Budget authority ......................... 0    100    200    270     350
       Outlays .................................. 0     85    185    255     335
 Indexing limit to MEI:                                                         
       Budget authority ......................... 0      0     15     25      30
       Outlays .................................. 0      0     15     25      30
 Clarifying classification of medical                                           
   management services:                                                         
       Budget authority ......................... 0     70    105    130     155
       Outlays .................................. 0     65    100    125     150
            Sec. 206 Provisions                                                 
 Covering costs of influenza vaccine:                                           
       Budget authority ......................... 0     45     70     75      80
       Outlays .................................. 0     40     70     75      80
 Increasing pt. B premium to cover                                              
   resulting outlay costs:                                                      
       Budget authority ......................... 0    -40    -70    -75     -80
       Outlays .................................. 0    -40    -70    -75     -80
            Sec. 208 Provisions                                                 
 Requiring state Medicaid programs to                                           
   buy-in all Medicare beneficiaries with                                       
   incomes below the Federal poverty line:                                      
       Budget authority ...................... 70.0    360    425    490     535
       Outlays ............................... 70.0    360    425    490     535
            Sec. 209 Provisions                                                 
 Adjusting pt. B premium:                                                       
       Budget authority ...................... -5.0    -65   -375   -610    -690
       Outlays ............................... -5.0    -65   -375   -610    -690
            Sec. 214 Provisions                                                 
 Protecting community spouses from                                              
   impoverishment:                                                              
       Budget authority ..................... 180.0    310    330    350     375
       Outlays .............................. 180.0    310    330    350     375
 Restricting transfer of assets:                                                
       Budget authority .................... -125.0   -135   -145   -155    -165
       Outlays ............................. -125.0   -135   -145   -155    -165
             Medicaid Savings                                                   
 Effects of Medicare provisions on Federal                                      
   Medicaid costs:                                                              
       Budget authority ..................... -80.0   -370   -555   -660    -780
       Outlays .............................. -80.0   -370   -555   -660    -780
                                            ------------------------------------
       Total direct spending/offsetting                                         
   receipts:                                                                    
           Budget authority ................ -106.0  6,245  8,778  10,2-  12,430
                                                                      00        
       Outlays .............................. 1,025  4,140  5,735  6,725   7,895
                                            ------------------------------------
     AMOUNTS SUBJECT TO APPROPRIATIONS                                          
            Sec. 201 Provisions                                                 
 Administrative costs to implement                                              
   copayment cap: Outlays .................... 30.0     30     20     20      20
 Notice to physicians for enrollees above                                       
   the cap: Outlays ............................. 0      1      1      1       1
            Sec. 202 Provisions                                                 
 Administrative costs for drug benefit:                                         
   Outlays ................................... 90.0    120    125    130     135
            Sec. 207 Provisions                                                 
 Annual notice to enrollees of benefits                                         
   under Medicare (half from HI; half from                                      
   SMI): Outlays .............................. 4.0      4      4      4       4
 Mailing directories of participating                                           
   physicians to all enrollees: Outlays ...... 25.0     25     25     25      25
            Sec. 213 Provisions                                                 
 Providing research funding on long-term                                        
   care (half from HI; half from SMI):                                          
   Outlays .................................... 5.0      5      5      5       5
            Sec. 308 Provisions                                                 
 Authorization of appropriations for                                            
   commission on comprehensive health                                           
   care: Outlays .............................. 1.5      0      0      0       0
                                            ------------------------------------
       Total amounts subject to                                                 
   appropriations: Outlays .................. 156.0    185    180    185     190
                 REVENUES                                                       
            Sec. 106 Provisions                                                 
 Imposing an income-related supplemental                                        
   premium: [FN2] Revenues ................ 1,421.0  5,018  5,888  6,641   7,550
                                            ------------------------------------
         Total:                                                                 
              Budget authority ............. -106.0  6,245  8,778  10,2-  12,430
                                                                      00        
              Outlays ..................... 1,181.0  4,325  5,915  6,910   8,085
              Revenues .................... 1,421.0  5,018  5,888  6,641   7,550
              Change in deficit ............ -241.0   -693     27    269     535
 -------------------------------------------------------------------------------
 FN1. Less than $0.5 million.                                                    
FN2. Estimates are from the Joint Committee on Taxation.                        

 Note.--Components may not sum to total due to rounding.  The effects of 
this bill fall within function 570 and function 550. 
  **907 Basis of estimate:    Under current law,Part A of Medicare (Hospital Insurance) pays most of the costs for Medicare-covered services provided by hospitals, skilled nursing facilities (SNFs), home health agencies, and hospices.  Enrollees share the costs of services through a variety of copayment requirements, most of which are related to the first-day hospital deductible amount (which was $520 in 1987).  Part B of Medicare (Supplementary Medical Insurance) pays for services provided by physicians, independent laboratories, and hospital outpatient departments.  Under current law, SMI enrollees are responsible for the first $75 of covered medical expenses, plus 20 percent of all reasonable charges above the deductible amount. 
  Title I of H.R. 2470 would change the HI copayment requirements, generally effective January 1, 1988, with the result that Medicare's reimbursement costs would increase.  It would also change the way in which the HI premium is calculated, which would affect only those enrollees not already entitled to HI benefits through previous payroll tax contributions.  Title II of H.R. 2470 would alter copayment requirements under Part B of Medicare by capping each enrollee's annual liability for copayments, first effective for calendar year 1989.  It would also provide for expansion of mental health and home health benefits under Medicare, and for additional benefits under Medicaid. 
  This amendment to H.R. 2470 would not affect Title I.  It would be a substitution for Title II.  It would provide new benefits under both Medicare and Medicaid in addition to those contained in the original bill.  It would also require higher increases in the SMI premium to finance the additional benefits. 
  **908 *85 Estimates of the costs to Medicare from the copayment provisions of this bill were derived by simulating the effects of proposed changes on a 1 percent random sample of Medicare enrollees (about 300,000 enrollee records).  Medicare reimbursement and copayment costs for these enrollees in 1985 under current law were aged to 1988 through 1992, using CBO's baseline projections for enrollment and reimbursements, separately for each major service category.  Total Medicare reimbursements under current law were compared to what reimbursements would be after implementation of the proposed provisions to obtain the estimated costs of the benefit expansion. 
  Under current law, Medicare reimbursements per enrollee are projected to increase by about 9.6 percent annually between 1987 and 1992.  Under this amendment bill, reimbursements per enrollee would increase by an estimated 11.4 percent annually over the same period.  About 70 percent of the additional Medicare benefit costs would be due to the assumption by Medicare of some enrollees' copayment liabilities for current services.  The remaining 30 percent of estimated costs would be due to increases in Medicare-covered services, due partly to expanded coverage and partly to increased use of services by enrollees in response to reduced cost-sharing.  The utilization responses assumed in the estimates were based on regression analyses of health care use by Medicare enrollees with and without supplementary insurance coverage for their Medicare copayment costs, using 1984 Health Insurance Survey data. 
  The revenue estimates for the income-related premiums were obtained from the Joint Committee on Taxation, and were based on simulations on a stratified random sample of current income tax returns, projected through 1992. 
  The specific provisions of the bill are explained in detail below.  Unless otherwise indicated, the Title I provisions would take effect on January 1, 1988, and the Title II provisions would take effect on January 1, 1988.

Direct spending/offsetting receipts

Section 101 provisions 

  Section 101 of the bill contains five provisions, discussed in turn below.  The estimates in this section take account of Medicare's additional reimbursements to hospitals to compensate for Medicare enrollees' bad debt-- that is, the failure by some enrollees to pay the deductible and coinsurance amounts for which they are liable.  Estimates by the Inspector General of the Department of Health and Human Services indicate that about 4 percent of enrollees' copayment liabilities for hospital stays are bad debt, which is eventually paid by Medicare. 
  Eliminating the limit on covered hospital days:  Under current law, Medicare will cover up to 90 days during each spell of illness, plus an additional lifetime reserve of up to 60 days.  In addition, there is a lifetime reserve of 190 days for inpatient psychiatric care.  This bill would eliminate the limit on covered hospital days for general care, but would retain the lifetime limit for inpatient psychiatric care.  Only a fraction of a percent of enrollees (fewer **909 *86 than 0.1 percent) exhaust their hospital benefits for general inpatient care each year, but the costs such patients incur are substantial.  Covering these days would cost Medicare $180 million in fiscal year 1988.  This estimate is based on information provided by the Health Care Financing Administration, indicating that this provision would add about 0.5 percent to total inpatient costs of Medicare-covered inpatient stays. 
  Eliminating enrollees' copayments for hospital coinsurance and reserve days:  Under current law, enrollees pay one-fourth of the first-day hospital deductible amount for days 61-90 in a given spell of illness (coinsurance days), and one-half of the deductible amount for any lifetime reserve days used.  This bill would eliminate enrollees' liability for coinsurance and reserve days.  About 0.5 percent of HI enrollees use coinsurance or reserve days each year, accounting for an estimated 23 million coninsurance day and 0.7 million reserve days in 1988.  Eliminating these inpatient coinsurance costs would cost Medicare $295 million in fiscal year 1988. 
  Limiting payment of the hospital deductible to the first stay each calendar year:  Under current law, enrollees are liable for a hospital deductible each time they are admitted to the hospital in a new spell of illness (which begins on the 61st day following discharge from a previous inpatient episode).  In 1988, about 800,000 enrollees will pay more than one first-day deductible under current law, while no one would be liable for more than one deductible each year under this bill.  In addition, the bill contains a hold-harmless provision that would protect enrollees who were readmitted after January 1, 1988, within a spell of illness that had begun prior to that date from paying another deductible for such admissions.  These provisions would cost Medicare an estimated $395 million in fiscal year 1988. 
  Indexing the first-stay hospital deductible to the COLA:  Under current law, the first-day deductible is tied to increases in the index used to update payment rates under the prospective payment system.  Under this bill, the deductible would instead be tied to increases in the (third-quarter) consumer price index (the Social Security COLA).  This would slow the rate of growth in the deductible, because the update factor is projected to increase by 35 percent from 1987 to 1992, while the COLA is projected to increase by only 23 percent over the same period.  In 1988, the deductible would be $544 under current law, but would be $541 if indexed to the COLA instead.  By 1992, the deductible would increase to $700 under current law, but would be only $641 if indexed to the COLA.  The additional costs to Medicare of this provision (after implementing all of the inpatient copayment provisions discussed above, as well as the SNF copayment provisions discussed above) would be an estimated $10 million in fiscal year 1988. 
  Changing the calculation of the Part A premium:  Under current law, the premium charged to HI enrollees who are not entitled to benefits through previous payroll tax contributions is based on the first-day deductible amount.  Under this bill, the method of determining the premium would be charged so that it would reflect the actuarial value of HI benefits.  This would reduce the projected monthly premium amount for 1988 from $236 to $155, affecting **910 *87 about 23,000 enrollees.  The costs to Medicare from this provision in fiscal year 1988 would be about $15 million.

Section 102 provisions 

  Section 102 contains provisions relating to Medicare coverage of stays in skilled nursing facilities (SNFs).  They would change coinsurance requirements, provide for coverage of up to 150 days a year, and eliminate the 3-day prior hospitalization requirement for covered SNF care. 
  Changing the requirements for coinsurance on SNF stays, and covering up to 150 days a year:  The bill would alter the way in which enrollees' coinsurance liability for stays in skilled nursing facilities is determined, and would change Medicare's coverage limits from 100 days per spell to 150 days a year. Under current law, coinsurance amounts equal to one-eighth of the hospital deductible amount ($68 per day in 1988) are charged each day for days 21-100 in SNFs during each spell of illness.  Under the bill, enrollees would pay coinsurance amounts equal to 20 percent of Medicare's national average reasonable cost for the first seven days of each SNF stay;  enrollees' coinsurance costs would be $23.50 per day in 1988 for each of the first seven days of each SNF stay. 
  Fewer than 2 percent of Medicare enrollees have covered SNF stays, but these enrollees will use about 8.6 million SNF days during 1988.  These provisions would increase Medicare costs by $170 million in fiscal year 1988.  About 80 percent of the costs would be due to lower coinsurance amounts paid by enrollees, while the remaining 20 percent of costs would be due to additional covered SNF days resulting from the change in coverage limits to 150 days a year.  The estimate assumes that those enrollees who would exhaust their SNF coverage under current law (about 7,500 in 1988) would use the full 150 days allowed under the bill. 
  Eliminating the prior hospitalization requirement for SNF stays:  This bill would remove the requirement that a Medicare enrollee be hospitalized for at least three days prior to admission to a SNF to be eligible for Medicare coverage, effective January 1, 1989.  As a result, the number of people receiving the SNF benefit would increase.  Increased costs resulting from this provision are estimated at $40 million for fiscal year 1989, based on findings from a demonstration and study conducted by the Health Care Financing Administration.

Section 103 provisions 

  Section 103 of the bill would eliminate the current 210-day lifetime limit on the number of days enrollees who are terminally ill may receive hospice services.  Nearly 98 percent of hospice beneficiaries die before the 210-day limit is reached, but tabulations by the Health Care Financing Administration indicate that those who survive for the full 210 days of their hospice benefit live another 50 days, on average.  Because not all of these additional Medicare costs under the hospiced benefit would be offset by reduced costs for inpatient, SNF, or home health services, there would be a small costs due to this provision, equal to about $0.4 million in fiscal year 1988.

**911 *88 Section 104 provisions 

  Under current law, enrollees are required to replace or pay for the first 3 pints of blood used each spell of illness.  Section 5 of the bill would require enrollees to replace or pay for the first 3 pints of blood used each year. Medicare costs would increase under this provision because enrollees would pay for an estimated 156,000 fewer pints of blood used in 1988 than they would under current law, costing Medicare about $50 per pint.  The additional costs to Medicare in fiscal year 1988 would be about $5 million.

Section 105 provisions 

  This section of the bill would transfer the financing for home health benefits from the HI trust fund to the SMI trust fund for all Part B enrollees, effective January 1, 1989.  Medicare beneficiaries who are not enrolled under Part B could continue to receive home health benefits under Part A.  This would generate no net outlay costs, but it would alter budget authority totals under the two trust funds.

Section 201 provisions 

  Capping Part B copayments:  Under Section 201 of the bill, each SMI enrollee's liability for copayments under the program would be capped at $1,043 in 1989.  In subsequent years, the value of the copayment cap would increase at the same rate as the third-quarter Consumer Price Index (the Social Security COLA).  Under CBO's baseline projections, the COLA would increase by about 4 percent annually over the five-year projection period, so that the SMI copayment cap would be $1,185 in 1992. 
  More than 8 percent of SMI enrollees would be affected by the copayment cap in 1989.  As a result, SMI benefit costs would increase by $2.1 billion in fiscal year 1989.  By 1992, more than 10 percent of enrollees would be affected by the copayment cap, at a cost to Medicare of $5.1 billion during that year. 
  Counting costs of certain screening tests toward cap:  The costs of annual colorectal examinations for enrollees age 65 or more, and of triennial mammograms for enrollees age 55 or more, would count toward the copayment cap. This would effectively reduce the copayment cap for enrollees who obtained such tests.  As a result of this provision, about 70,000 additional enrollees would exceed the copayment cap and a larger share of enrollees' copayment costs would be assumed by Medicare for all enrollees above the cap.  The incremental costs of this provision would be an estimated $30 million in fiscal year 1989.

Section 202 provisions 

  Covering catastrophic expenses for prescription drugs:  Under current law, Medicare generally pays only for immunosuppressive drugs in the first year following a covered transplant operation.  This section of the bill would expand Part B coverage to include all reasonable costs for prescription drugs above a deductible amount, which would be set at $500 for calendar year 1989 and indexed to the medical care component of the consumer price index (CPI-M) thereafter.  The deductible amount for the drug benefit would not **912 *89 count toward the SMI copayment cap.  About 17 percent of SMI enrollees would benefit from this provision in 1989, at an estimated benefit cost of $965 million for the fiscal year.  Details on estimation of the benefit costs are discussed here.  There would be additional administrative costs as well, discussed in the section on amounts subject to appropriations. 
  Because the proposal involves a deductible amount, it is necessary to estimate not only total spending by Medicare enrollees on prescription drugs, but also how that spending is distributed among enrollees and what proportion of enrollees who would exceed the deductible amount would actually file for reimbursement.  Each of these components is explained below. 
  Total spending on drugs by Medicare enrollees:  The CBO estimate of 1988 annual per capita prescription drug spending by Medicare enrollees of $250 was based on data from the Consumer Expenditure Survey (CES)--a 1984 survey of household spending from the Bureau of Labor Statistics.  The CES shows that per person spending for prescription drugs in households headed by an elderly person was $137 in 1984.  This figure was adjusted to reflect the age composition of households and direct purchases of drugs by third parties.  This adjusted estimate of spending per elderly person was projected to average $268 in 1989 and $331 in 1992, based on published forecasts of drug expenditures from the Health Care Financing Administration. 
  Distribution of spending:  CBO estimates that 5.5 million Medicare beneficiaries--16.9 percent--would exceed a deductible of $500 on prescription drugs in 1989.  This estimate is based on data from the 1977 Current Medicare Survey (CMS), a survey of about 5,000 Medicare beneficiaries.  (The 1984 CES household-level expenditure data cannot be used to provide an estimate of how expenditures vary by person.)  In order to estimate the 1989 distribution of drug spending, the CMS data were increased proportionately to reflect a mean of $268. 
  Utilization and spending changes in response to the new benefit:  The estimates assume that use of prescription drugs would rise only slightly under this proposal.  The small magnitude of this assumed response is based on two factors:  (1) the large deductible and (2) the fact that drug utilization is primarily determined by physicians.  Under the proposal only about 17 percent of enrollees would receive Medicare drug benefits.  We assume that this deductible level would inhibit the increased use that might occur if, instead, drugs were provided at a lower deductible to a larger proportion of enrollees. Much of the potential induced demand for drugs under insurance is already reflected in baseline spending, because outpatient drugs are prescribed during physician visits.  Since Medicare enrollees are already well insured for physicians' services under Medicare, Medicaid, and medigap policies, the addition of the proposed drug coverage would be expected to have little effect on prescription drug use. 
  Because several studies have estimated that up to 4 percent of all drugs that are dispensed to the elderly are provided free, this estimate assumes that many of these drugs no longer would be provided free to enrollees once Medicare reimbursement was available.  A **913 *90 spending increase of 2 percent was included in the estimate to reflect payment for previously free prescriptions by Medicare. 
  Participation rate:  The bill requires that enrollees and/or pharmacists initiate the request for reimbursement, once the deductible has been exceeded. Those who use more than one pharmacist or who shop at nonparticipating pharmacies would have to request that the pharmacists add their prescription costs and forward them to the government.  For a variety of reasons, some enrollees will not make this request and some pharmacies will not report all drug expenditures.  For example, persons who are covered by employer-based insurance or who exceed the deductible by small amounts would have little motivation to apply for reimbursement.  Hence, we assume that only 85 percent of eligible costs will actually be reimbursed. 
  Reimbursement limits:  The bill would reimburse drugs at the lower of three limits:  the actual charge, the average wholesale cost plus a $4.50 dispensing fee, or 125 percent of the cost of the lowest available generic drug plus a $4.50 dispensing fee.  The dispensing fee would be indexed to the CPI-M. 
  The effect of several of these limits on reimbursement is clear.  The requirement for setting reimbursement at the lowest available generic drug price would reduce reimbursement.  The effect of the generic limit was based on data from the Food and Drug Administration, discussions with representatives of the Pharmaceutical Manufacturers Association and a variety of other experts. Based on these data and discussions, it appears that approximately one-half of all drugs sold have a generic equivalent, average markup of drugs by pharmacies appears to be approximately 40 percent, and the market share represented by generic drugs is increasing at a rapid rate.  Given these factors, we estimate savings from the generic limit of 10 percent per year. 
  Increasing the Part B premium to cover resulting outlay costs:  This bill would require all of the expected increase in outlays for the drug benefit to be funded by an increase in the Part B premium.  Currently, Part B premiums are based on incurred reimbursement costs per aged Medicare enrollees and pay only about 25 percent of those costs.  Outlay estimates were obtained by adjusting incurred expenditures to allow for lags in payment, which are due to claims processing time and the delay in claim submissions.  The monthly premium increase required by the drug benefit would be an estimated $0.30 in 1988, $3.60 in 1989, $5.60 in 1990, $6.30 in 1991, and $6.80 in 1992. 
  Additional costs of Medicaid buyin requirement due to drug benefit:  Under a later provision of this amended bill, Medicaid programs would be required to pay SMI premiums and Medicare copayment costs for all poor Medicare enrollees who satisfy specified income and assets tests.  This drug benefit would generate additional costs under the buyin requirement, which would equal an estimated $20 million in fiscal year 1989.

Section 203 provisions 

  Providing in-home personal services:  Under current law, Medicare pays only for medical services under the home health benefit.  This section of the bill would provide for coverage of up to 120 hours **914 *91 each year for in- home personal services for chronically dependent enrollees who could not be left alone in their homes, at an estimated cost of $120 million in fiscal year 1989. 
  Increasing the Part B premium to cover resulting outlay costs:  The SMI premium would be increased by an amount projected to cover all additional costs under this new in-home benefit.  The required additional monthly premiums--for this benefit alone--would be an estimated $0.40 in 1989, and $0.80 in 1990.

Section 204 provisions 

  Currently, Medicare enrollees are entitled to receive two to three weeks of daily home health visits.  This bill would increase the limit to 35 days, and would clarify current law by specifying that "daily care" means up to 7 days a week.  The estimated cost of this provision, which would be effective January 1, 1989, is $155 million for fiscal year 1989.  The estimate is based on Medicare administrative data on the distribution of home health visits under current law, and on projections of the increased utilization that would result from clarifying the definition of daily care and increasing the limit on consecutive days.

Section 205 provisions 

  Increasing limit on outpatient mental health services:  Current law limits reimbursement for outpatient mental health services to $250 a year per enrollee.  This bill would increase the limit to $1,000 a year, effective for calendar year 1989.  The coinsurance rate on the additional benefits would remain at 50 percent, as under current law, and the additional copayments resulting from this provision would not count toward the SMI copayment cap described elsewhere in this bill.  The estimated costs for this provision are $85 million in fiscal year 1989.  The estimate is based on current use rates for the mental health benefit and projected increases in utilization due to the higher limit.  The estimates of increased utilization were based on results of a demonstration study of a similar benefit expansion conducted by the Department of Health and Human Services. 
  Indexing limit to MEI:  The additional costs of indexing the mental health limit to the Medicare Economic Index, so that the $1,000 limit on mental health reimbursements for 1989 would grow to an estimated $1,120 by 1992, would be an estimated $30 million by that year. 
  Clarifying classification of medical management services:  Current law would be clarified so that visits with physicians for medical management services would not be classified as mental health services, and would therefore not be counted toward the reimbursement limit for outpatient mental health services. The costs of this provision would be an estimated $65 million in fiscal year 1989.

Section 206 provisions 

  Covering costs of influenza vaccine:  Medicare coverage would be expanded to include 100 percent of the reasonable costs of administration of influenza vaccine.  An estimated 8.5 million enrollees would benefit from this provision, at a cost of $40 million in fiscal year 1989. 
  **915 *92 Increasing the Part B premium to cover resulting outlay costs:  The SMI premium would be increased by an amount projected to cover all additional outlay costs under this influenza vaccine benefit.  The required additional monthly premium--for this benefit alone--would be an estimated $0.10 in 1989, and $0.20 in 1990.

Section 208 provisions 

  Currently, state Medicaid programs may choose whether or not to pay Medicare premium and copayment costs for all Medicare enrollees with incomes below the poverty level.  This bill would require states to cover these costs, thereby affecting approximately 46 states that do not currently provide this Medicaid benefit to all poor Medicare enrollees, effective July 1, 1988. 
  This differs from a similar provision under the original Title II for several reasons.  First, the definition of poverty that would be used under the amended bill would be current federal poverty guidelines (published by the Office of Management and Budget) rather than those published by the Census Bureau for the second previous calendar year.  Second, the asset test used under the amended bill would be twice as large as that specified under the original bill. Finally, this section would retain the linkage between increases in coverage of the elderly and increases in coverage for infants and pregnant women contained in current law. 
  The estimated costs of this provision are $70 million in fiscal year 1988.  The cost estimate is based on counts from the Current Population Survey of poor Medicare enrollees who do not receive Medicaid benefits, and on Medicaid program data showing the current cost of the proposed benefits per Medicare- eligible Medicaid beneficiary.

Section 209 provisions 

  This section provides for several adjustments to the current-law SMI premium.  (The premiums discussed here would be distinct from the new outlay- based premiums intended to finance the new drug, in-home care, and influenza vaccine benefits.  Further, those new benefits would not enter into the calculation of insurance values discussed below.) 
  For most SMI enrollees, the SMI premium would be increased by $1.00 a month in 1990, and by an additional $0.40 a month in 1991, on top of the automatic increases that would result under current law.  (Under current law, beginning in 1989 SMI premium increases may not exceed the rate at which Social Security benefits are adjusted each year to offset cost-of-living increases, as measured by the change in the third-quarter Consumer Price Index.  This is referred to as the COLA.) 
  Two groups are exempt from the ad hoc premium increases described above, however, and would be subject to a different set of provisions.  For residents of Puerto Rico and the other territories, the current-law SMI premium would be increased in 1988 and 1989 by the insurance value of the new Medicare HI and SMI benefits provided under this bill.  For U.S. residents who are enrolled in Part B but who are not eligible for Part A benefits, the current-law SMI premium would be increased in 1989 by the insurance value of the new Medicare SMI benefits provided under this bill.  Beginning **916 *93 in 1990 and for all subsequent years, the premiums paid would be indexed to the COLA. 
  The net effect of these premium provisions would be to generate additional premium receipts of $5 million in fiscal year 1988, growing to $685 million by fiscal year 1992.

Section 214 provisions 

  Protecting community spouses from impoverishment:  In the case of a couple where one is in a nursing home, this provision is intended to protect the spouse remaining in the community from being impoverished by Medicaid's requirements for coverage of the nursing home stay.  It would require that states increase both the assets and the income that the community spouse could retain.  These provisions would be effective January 1, 1988.  Estimated costs are $180 million in fiscal year 1988. 
  Restricting transfer of assets:  For institutionalized patients applying for Medicaid benefits, the bill would require states to examine the previous 24- month period to determine whether the applicant had transferred assets to others that would otherwise have been available to pay for their nursing home care.  If so, eligibility for Medicaid coverage would be delayed. Approximately 18 states currently do this, and all would be required to do so under the bill.  Estimated savings would be $125 million in fiscal year 1988.

Federal Medicaid savings 

  About 9 percent of Medicare enrollees are dually eligible for Medicaid benefits.  For these enrollees, Medicaid generally pays both their copayment liabilities under Medicare and their SMI premium costs.  Consequently, Medicaid costs would be reduced by this bill because of lower copayment costs for Medicare enrollees, partially offset by increased Medicaid costs for the higher SMI premiums.  In addition, there would be some additional savings to Medicaid in states with "medically needy" programs because the copayment limitations provided under this bill would reduce the number of Medicare enrollees who would qualify for Medicaid benefits under such programs.  Savings are estimated to be $80 million in fiscal year 1988.

Amounts subject to appropriations

Section 201 provisions 

  Administrative costs to implement copayment cap:  Neither Medicare carriers nor the Health Care Financing Administration currently collect information on the amounts of coinsurance paid by enrollees for Part B benefits.  To implement the copayment cap proposed in this bill, comprehensive information about both deductible and coinsurance amounts paid under Part B would have to be compiled across all Medicare carriers for each SMI enrollee. The estimates of start-up and ongoing administrative costs under this proposal are based on discussions with the Bureau of Program Operations in the Health Care Financing Administration. 
  Notice to physicians for enrollees above the cap:  The bill would require carriers to notify physicians serving enrollees whose copayment costs had exceeded the SMI copayment cap, encouraging **917 *94 them to accept assignment on all subsequent claims for enrollees.  The costs of this provision are estimated at $1 million each year.

Section 202 provisions 

  Administrative costs for drug benefit:  Administrative costs for the drug benefit would be composed of startup costs, fixed ongoing costs, and claims processing costs.  These would total $90 million for fiscal year 1988, growing to $135 million by 1992. 
  The costs of 1988 are entirely startup costs, necessary to finance the costs of hiring and training personnel, development and installation of computer hardware and software, and activities necessary to enroll pharmacists.  Fixed ongoing costs would be used to increase central and regional Health Care Financing Administration office staff, to establish and maintain a nationwide data base of drug costs for enrollees, and to undertake utilization control and quality monitoring activities.  Costs for claims processing would vary based on the number of claims that were processed, and on whether the claims were electronically submitted or not.  In 1989, the estimated processing cost per claim is $1.20, and the estimate assumes that 33 million claims (for 50 million prescriptions) would be processed.

Section 207 provisions 

  Annual notice of benefits:  Under this provision, the Department of Health and Human Services would be required annually to mail each HI or SMI enrollee an explanation of Medicare benefits, beginning with calendar year 1988.  The funds would be taken equally from the HI and the SMI trust funds.  Estimated costs for this provision are $4 million annually, based on previous experience with such mailings by the Social Security Administration and by the Health Care Financing Administration. 
  Participating physicians directories:  In addition, the Department would be required to mail annually a directory of participating physicians to each SMI enrollee, beginning calendar year 1988.  The costs of this provision are estimated to be $25 million a year, again based on previous experience by the Social Security and the Health Care Financing administrations.

Section 213 provisions 

  Section 213 would authorize an appropriation of $5 million annually for each year from 1988 through 1992, to conduct research on long term care services for Medicare enrollees.  The funds would be taken equally from the HI and the SMI trust funds.

Section 308 provisions 

  The bill would create a Bipartisan Congressional Commission to make recommendations to the Congress on improving access to comprehensive health care services.  The Commission would be charged to deliver two reports within a year of its creation--one on long-term care for the aged and disabled, and one on comprehensive health care for all Americans.  It would be disbanded following release of these two reports.  The bill authorizes an appropriation of $1.5 million for the Commission.

**918 *95 Revenues

Section 106 provisions 

  This section would impose an income-related, tax-based supplementary premium on all people eligible for benefits under Part A of Medicare, excluding nonresidents, effective January 1, 1988.  For individuals who were eligible for only part of the year, this supplementary premium would be pro-rated for the part of year during which they were Medicare-eligible.  The supplementary premium rates would be indexed to the rate of growth in the subsidy value of Medicare benefits.  The Joint Tax Committee estimates that revenues from this income-related premium would total $1.4 billion in fiscal year 1988. 
  6. Estimated costs to State and local governments:  This bill would have an effect on state and local government budgets, because of the savings that would accrue to state Medicaid programs from the new Medicare benefits and because of the requirements that states expand Medicaid benefits.  The net effect is shown below.

               [By fiscal years, in millions of dollars]              
 ---------------------------------------------------------------------
                                          1988  1989  1990  1991  1992
 ---------------------------------------------------------------------
 Effects of State/local Medicaid costs ... 140   260   190   190   170
 ---------------------------------------------------------------------
  
   7. Estimate comparison:  None. 
  8. Previous CBO estimates:  On May 20, 1987, CBO provided an estimate for H.R. 2470, the Medicare Catastrophic Protection Act of 1987, as ordered reported by the Ways and Means Committee.  H.R. 2470 was then referred to the Energy and Commerce Committee which has made a number of amendments.  The major changes from the Ways and Means bill include covering catastrophic expenses for prescription drugs, providing in-home personal care, and covering the costs of influenza vaccines--together with increases in the Part B premium to cover the outlay costs of these activities.  The Energy and Commerce Committee would also count the costs of certain screening tests toward the catastrophic cap in Part B.  Finally, the Energy and Commerce Committee has added to Medicaid provisions to protect community spouses from impoverishment and to limit the transfer of assets in order to qualify for Medicaid benefits, and altered a third Medicaid provision requiring all states to pay the Medicare premium and copayment costs for Medicare enrollees with incomes below the poverty line. 
  Over the past several weeks, the CBO has made a number of estimates of proposals that would have Medicare insure some prescription drug spending by its enrollees.  In response to comments from the Administration and others, our data bases and estimating procedures have been improved.  In particular, the data on which we base the mean and distribution of current law prescription drug spending have been changed, with two implications--the current methods result in what we believe to be better estimates and earlier estimates have been changed to reflect these improvements. 
  **919 *96 9. Estimate prepared by:  Sandra Christensen, Holly Harvey, Don Muse, and Jack Rodgers. 
  10. Estimate approved by:  C.G. Nuckols, for James L. Blum, Assistant Director for Budget Analysis.

INFLATIONARY IMPACT STATEMENT

  Pursuant to clause 2(1)(4) of rule XI of the Rules of the House of Representatives, the Committee makes the following statement with regard to the inflationary impact of the reported bill: 
  The Committee believes that the bill as reported will not have a significant effect on health care costs or the general economy.  Medicare enrollees will receive greater protection against the financial risks of prolonged illnesses or catastrophic injuries, but will finance this protection out of increased premiums.  The bill includes measures to control the costs of expanded benefits.

AGENCY VIEWS

	THE SECRETARY OF HEALTH AND HUMAN SERVICES,

	Washington, DC, June 15, 1987.

Hon. JOHN D. DINGELL, 
Chairman, Committee on Energy and Commerce, House of Representatives, 
Washington, DC. 
  DEAR MR. CHAIRMAN:  When the President announced in his State of the Union message this year that he would transmit to the Congress legislation providing for acute care, catastrophic coverage under the Medicare program, a dialogue began which emphasizes the substantial consensus across the Nation for providing the elderly with this protection.  Indeed, the debate thus far has centered largely--not on whether to provide this protection--but on how to accomplish this goal. 
  Unfortunately, we are most concerned that unanimity on the need for the legislation could be jeopardized by the content of the bills currently being debated by the Ways and Means and Energy and Commerce Committees.  These bills contort the concept the President endorsed:  to provide an acute care, catastrophic benefit under Medicare.  Instead, it appears that the legislation has become a vehicle for modifications and add-ons to the basic Medicare program. 
  Enactment of legislation of the variety currently under consideration in the Congress will result in a cruel hoax on the intended beneficiaries.  These program add-ons, combined with the lower out-of-pocket threshold, result in program cost increases that quickly outpace the bill's financing, greatly jeopardizing the stability of the program's design.  The elderly will once again be faced with uncertainty as to the dependability of their coverage. This Administration will not tolerate that result. 
  Preliminary estimates by the Medicare actuary and Treasury indicate that even without the estimated $7-9 billion annual cost of a drug benefit, by 1993 the House bill's program costs will exceed revenues, with a shortfall of close to $10 billion likely by the year 2000.  I know that every member of the Committee shares the Administration's concern that this coverage must be self- financing **920 *97 and Given current projections as to the future solvency of the Medicare trust funds, such a shortfall would threaten Medicare itself--a truly catastrophic event this Administration cannot allow. 
  This Administration has continually expressed its opposition to the financing mechanism contained within H.R. 2470, the Medicare Catastrophic Protection Act of 1987.  We prefer the Administration's premium approach that avoids the serious problems created when the financing for an insurance program is tied to the tax code. 
  The bill which emerged from the Ways and Means Committee contained a number of disturbing add-ons to the concept of a catastrophic health care proposal. 
  When H.R. 2470 was approved by the Energy and Commerce Health Subcommittee, the list of expansions grew even longer, as the Subcommittee added:  a costly, new drug benefit;  a new, in-home care benefit for homemaker services;  a further expansion of the Ways and Means expansion for mental health coverage; and others.  The merits of these proposals to the Medicare program can be debated, but this is not the appropriate vehicle on which to place additional and worrisome costs that will eventually threaten the entire Medicare program. 
  We strongly oppose the addition of a new drug benefit to the Medicare program.  Our actuaries have estimated that the Ways and Means approach to the drug benefit could cost $7 billion the first year alone, and the Energy and Commerce approach $9 billion.  Even if either of these provisions were to be enacted, this benefit could not be administered through Medicare until January 1989, or perhaps 1990, at the earliest.  We believe that the administrative problems would be immense.  Much further analysis is required before the Administration could even recommend an appropriate strategy. 
  Inclusion in the legislation of several provisions alone could cause recommendation of a veto, namely the mandated Medicaid buy-in, which impinges on an area best left to the States, and the well-intentioned but ill-advised drug benefit, which--if it could be crafted--would run into billions of dollars in expenditures per year. 
  While we continue to stand enthusiastically behind our desire to enact a catastrophic health care program to ensure this Nation's elderly against devastating acute illnesses, that is not what the legislation currently before the Congress has become. 
  Should this legislation reach the President's desk in its current form, other senior advisers and I would be forced to recommend a veto.  This is not a step we would take lightly, for we are committed to providing the elderly and disabled with this catastrophic protection. 
  I strongly urge that you reconsider the direction in which this legislation is headed and steer it back toward our original goal of providing catastrophic health care insurance for the elderly and disabled.  We are advised by the Office of Management and Budget **921 *98 that enactment of H.R. 2470 would not be in accord with the program of the President. 
  Sincerely,

	OTIS R. BOWEN,

	Secretary.

* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *

*152 DISSENTING VIEWS ON H.R. 2470--MEDICARE CATASTROPHIC PROTECTION ACT

  No one will argue that it is not a worthwhile task to devise a financing mechanism to reduce the risks involved with serious illness.  For that reason, President Reagan received bipartisan support when he submitted legislation to Congress providing full acute care coverage to Medicare beneficiaries. Unfortunately, what began as an actuarially sound, simple reform to the Federal insurance program for the elderly has resulted in a broad expansion of Medicare benefits (largely for non-catastrophic care) financed through substantial increases in the program's existing premiums and by adding a new mandatory premium (which is essentially a tax) for nearly half of the program's beneficiaries. 
  The legislation considered by the Committee on Energy and Commerce, H.R. 2470 (as reported by the Committee on Ways and Means), may be titled the Medicare Catastrophic Protection Act of 1987, but its five-year program cost of $24 billion and estimated revenues from new taxes of over $26 billion should be considered the real catastrophe.  Regretfully, this Committee's amending process further increased program outlays by an additional $13 billion over five years according to the Congressional Budget Office.  These additional costs will result in nearly half of elderly beneficiaries experiencing a five- fold increase in their annual Medicare premiums. 
  To support this legislation is to do a great disservice to the elderly of this country.  The value of the new benefits established in H.R. 2470 may not be proportionate to the substantial increase in premiums which millions of individuals over 65 will be mandated to pay.  We opposed reporting H.R. 2470 when it was considered by the Committee because of the substantial increase in beneficiary premiums and program outlays.  We strongly believe that a major expansion of the Medicare program will jeopardize its long-term solvency. 
  Because Title I of H.R. 2470 is not under the jurisdiction of the Committee on Energy and Commerce, we could make no changes to the provision in Title I which requires all tax-paying individuals eligible for Medicare to pay a supplemental premium.  Though called a premium, it is mandatory, not deductible as a health care expense and collected by the Internal Revenue Service.  The maximum surtax, as the premium is better known, is $580 in the first year alone and the Department of Treasury estimates it will increase to $830 in 1991.  An elderly couple with an adjusted gross income of $34,000 would face a $1,160 increase to their current tax liability of approximately $2,700.  We cannot support such a steep increase in premium payments when they have no direct relationship to the use or value of the increase in benefits established by the bill. 
  **922 *153 Additionally, this legislation greatly expands Medicare benefits for non-acute care catastrophic benefits, which may be worthwhile, but not appropriate for inclusion in Medicare catastrophic legislation.  H.R. 2470 expands the current limit on outpatient mental health services, provides a new benefit for in-home care by a home health aide or homemaker, and allows that the expenses for certain routine cancer screening be included in the catastrophic out-of-pocket Part B limit.  These expansions increase both program outlays (Federal spending) and beneficiary cost sharing for benefits that many Medicare eligibles do not consider essential. Regardless of how many of the elderly will utilize these benefits, all will pay for them.  Due to the limits in the outyears on premium levels mandated in the legislation, the Federal Government will have to pick up an ever greater proportion of the total bill.  If the rate at which costs increase is greater than the rate at which premiums are allowed to increase, the difference will have to come out of general revenues.  We believe the elderly rely on Congress to maintain the long-term viability of the Medicare program.  Clearly, we cannot justify the many non-acute care benefit expansions included in H.R. 2470 during a time of already astronomical Federal deficits. 
  Of particular concern to us is the Committee's addition of a catastrophic drug benefit to the Medicare program.  The data from the Department of Health and Human Services, several States with drug programs, and private insurance companies show a wide variance in utilization and program costs.  Many Medicare beneficiaries already pay for private Medigap policies that provide drug coverage and do not want to be saddled with an additional premium that pays for drugs only after a $500 deductible is met.  We supported an amendment which would have required States to expand their Medicaid drug programs to include individuals over 65 who are at 200 percent of the Federal poverty level.  For this population, the expense of out-patient drug therapy is truly catastrophic and should be provided through Federal and State financing. 
  In conclusion, we reaffirm our continued support and commitment to Medicare coverage for catastrophic acute care expenses and commend the President for his legislation.  By establishing new program benefits in H.R. 2470, Congress has made a promise to the elderly.  These programs, together with their funding mechanisms, will not be affordable to beneficiaries in the very near future-- making this only a false promise.  Therefore, we cannot be party to the legislation reported by this Committee, and we must voice our strong opposition.

	NORMAN F. LENT.

	ED MADIGAN.

	CARLOS J. MOORHEAD.

	BILL DANNEMEYER.

	TOM TAUKE.

	DAN COATS.

	THOMAS J. BLILEY, Jr.

	JACK FIELDS.

	MICHAEL G. OXLEY.

	HOWARD C. NIELSON.

	DAN SCHAEFER.

	JOE BARTON. 

(Note:  1.  PORTIONS OF THE SENATE, HOUSE AND CONFERENCE REPORTS, WHICH ARE    
DUPLICATIVE OR ARE DEEMED TO BE UNNECESSARY TO THE INTERPRETATION OF THE LAWS, 
ARE OMITTED.  OMITTED MATERIAL IS INDICATED BY FIVE ASTERISKS:  *****.         
        2.  TO RETRIEVE REPORTS ON A PUBLIC LAW, RUN A TOPIC FIELD SEARCH      
USING THE PUBLIC LAW NUMBER, e.g., TO(99-495))                                 

H.R. REP. 100-105(II), H.R. Rep. No. 105(II), 100TH Cong., 1ST Sess. 1987, 1988 U.S.C.C.A.N. 857, 1987 WL 61566 (Leg.Hist.)

END OF DOCUMENT

**803 P.L. 100-360, MEDICARE CATASTROPHIC COVERAGE ACT OF 1988
DATES OF CONSIDERATION AND PASSAGE
House July 22, 1987;  June 2, 1988
Senate October 27, 1987;  June 8, 1988
House Report (Ways and Means Committee) No. 100-105(I),
May 22, 1987 [To accompany H.R. 2470]
House Report (Energy and Commerce Committee) No. 100-105(II),
July 1, 1987 [To accompany H.R. 2470]
Senate Report (Finance Committee) No. 100-126, July 27, 1987
[To accompany S. 1127]
House Conference Report No. 100-661, May 31, 1988
[To accompany H.R. 2470]
Cong. Record Vol. 133 (1987)
Cong. Record Vol. 134 (1988)
The House bill was passed in lieu of the Senate bill.  The House Report (parts
I and II) is set out below and the House Conference Report follows.

(CONSULT NOTE FOLLOWING TEXT FOR INFORMATION ABOUT OMITTED MATERIAL.  EACH     
COMMITTEE REPORT IS A SEPARATE DOCUMENT ON WESTLAW.)                           

HOUSE REPORT NO. 100-105(I)
May 22, 1987

  *1 The Committee on Ways and Means, to whom was referred the bill (H.R. 2470) to amend title XVIII of the Social Security Act to provide protection against catastrophic medical expenses under the medicare program, and for other purposes, having considered the same, report favorably thereon without amendment and recommend that the bill do pass.

                                    CONTENTS                                    
                                                                            Page
    I.  Introduction ......................................................... 2
            Purpose .......................................................... 2
            Short summary .................................................... 3
            Background and Need for Legislation .............................. 8
   II.  Explanation and Justification ........................................ 9
            Provisions Relating to Part A .................................... 9
                Inpatient Hospital Services (Sec. 101) ....................... 9
                Extended Care Services (Sec. 102) ........................... 13
                Hospice Care (Sec. 103) ..................................... 14
                Blood Deductible (Sec. 104) ................................. 15
                Home Health Benefits (Sec. 105) ............................. 15
                Supplemental Premium (Sec. 106) ............................. 16
            Provisions Relating to Part B ................................... 21
                Limitation on Medicare Out-of-Pocket Expenses Under Part B      
          (Sec. 201) ........................................................ 21
                Extending Home Health Services (Sec. 202) ................... 23
                Increase In Maximum Payment Allowed for Outpatient Mental       
          Health Benefits (Sec. 203) ........................................ 24
                Mailing of Notice of Medicare Benefits and Participating        
          Physician Directories (Sec. 204) .................................. 25
                Providing Additional Medical Assistance for Indigent            
          Medicare Beneficiaries (Sec. 205) ................................. 26
                Adjustment in Medicare Part B Premium (Sec. 206) ............ 27
                Changes in Certification of Medicare Supplemental Health        
          Insurance Policies (Sec. 207) ..................................... 30
                Extension of Social HMO Demonstration Projects (Sec. 208) ... 32
                Study on Comprehensive Medical Coverage Under the Medicare      
          Program (Sec. 209) ................................................ 32
                Research on Long-Term Care for Medicare Beneficiaries           
          (Sec. 210) ........................................................ 33
  III.  Budget Effects of the Bill .......................................... 34
            Committee Estimate .............................................. 34
            Statement Regarding New Budget Authority and Tax Expenditures ... 35
            Cost Estimate Prepared by the Congressional Budget Office ....... 35
   IV.  Other Matters Required to be Discussed Under House Rules ............ 44
            Vote of the Committee ........................................... 44
            Oversight Findings .............................................. 44
            Oversight by Committee on Government Operations ................. 44
            Inflation Impact ................................................ 44
    V.  Changes in Existing Law Made by the Bill, as Reported ............... 44
   VI.  Additional Views .................................................... 73
  VII.  Dissenting Views .................................................... 77
 VIII.  Additional Dissenting Views ......................................... 82

 
**804 I. Introduction

PURPOSE

  The Committee bill, H.R. 2470, the Medicare Catastrophic Protection Act of 1987, would provide acute care catastrophic protection for hospital and physician services and improve coverage under the Medicare program in several ways.  This bill would protect Medicare beneficiaries from catastrophic hospital expenses by limiting beneficiary liability to one hospital deductible in a calendar year.  It would limit beneficiary expenses for stays in a skilled nursing facility to seven days of coinsurance in a calendar year.  Hospice reimbursement would be extended beyond the current 210 day limit to assure that terminally ill Medicare beneficiaries would have access to the hospice benefit. 
  The bill would also limit Medicare beneficiary liability for covered Part B services.  This limit would be approximately $1,043 in 1988 and increase in subsequent years by the same percentage increase as provided for Social Security benefits.  The bill would also improve the Medicare benefit with regard to home health and outpatient mental health services.  Another provision of the bill would require states to pay the Medicare premium, deductible and coinsurance amounts for all elderly and disabled with incomes up to the Federal Census Bureau poverty threshold.  Changes concerning the Federal standards and requirements for Medicare Supplemental Insurance (medigap) policies are also included in the bill in order to protect Medicare beneficiaries who purchase these policies. 
  Lastly, the bill provides for financing of these benefits in a budget neutral manner.  Medicare beneficiaries who file a Federal income tax return would pay a supplemental premium based on their adjusted gross income beginning in 1988. Further, in 1990 and 1991 a small additional premium amount would be added to Medicare *3 **805 beneficiaries' current Part B premium.  Medicare beneficiaries in American Commonwealths and Territories would also pay an additional premium beyond the current law Medicare Part B premium, as would individuals who are not eligible for Part A of Medicare but purchase Part B of Medicare.

SHORT SUMMARY

Provisions relating to part A 
 
I. Inpatient hospital services 

  a. Inpatient hospital deductible.--The inpatient hospital deductible would apply only to a beneficiary's first period of continuous hospitalization beginning in a period of continuous hospitalization beginning in a calendar year.  The deductible would be indexed to the Social Security cost-of-living adjustment (COLA) each year.  This deductible is estimated to be approximately $541 in 1988. 
  b. Elimination of day limitation on inpatient hospital services.--The Medicare limits on payment for days of inpatient hospital care (90 days of inpatient hospital care plus a lifetime reserve of 60 days) would be eliminated so that Medicare would pay for an unlimited number of hospital days for covered services.  The 190-day lifetime limit on inpatient psychiatric hospital services would be retained. 
  c. Elimination of coinsurance amounts for inpatient hospital services.--The current hospital inpatient coinsurance amounts for days 61 through 90 and coinsurance for the 60 lifetime reserve days would be eliminated. 
  d. Elimination of spell of illness.--The "spell of illness" methodology would be eliminated for determining the number of hospital days Medicare would cover, the skilled nursing facility coinsurance and the Part A blood deductible. 
  e. Adjustments in payments for inpatient hospital services.--When adjusting the Medicare hospital payment system, the Secretary of Health and Human Services (HHS) would be required to take into account the reductions in beneficiary payments to hospitals because of the elimination of the day limitation.  The Secretary, when appropriate, would adjust the payment rates under the prospective payment system (PPS), the outlier cutoff points, the weighting factors, and the target amounts for paying non-PPS hospitals.

II. Extended care services (skilled nursing facility) 

  a. Coinsurance on first seven days.--Beneficiaries would be required to pay coinsurance amounts for the first seven days of such services. 
  b. Coinsurance equal to 20 percent.--The coinsurance amount per day would be equal to 20 percent of the national average per diem Medicare reasonable cost for skilled nursing facility (SNF) services in the succeeding year.  The coinsurance amount is estimated to be approximately $24 per day in 1988. 
  c. Cover 150 days of care.--The Medicare program would cover 150 days, instead of the current 100 days, of skilled nursing care services in a calendar year. 
  **806 *4 d. Prior hospitalization requirement.--The three-day prior hospitalization requirement for skilled nursing facility benefits would be eliminated effective for skilled nursing facility stays beginning on or after January 1, 1989.

III. Hospice care 

  a. Extending day limit on hospice care.--The Medicare program would extend the hospice benefit, and reimburse a hospice, beyond the current 210-day benefit period if the beneficiary's physician or hospice director recertified that the beneficiary was still terminally ill.

IV. Blood deductible 

  a. Change blood deductible requirement.--A Medicare beneficiary would be responsible for payment of a deductible equal to the expenses incurred for the first three pints of whole blood (or equivalent quantities of packed red blood cells) furnished each calendar year.  The blood deductible could be met by replacing the blood, in accordance with regulations.

V. Transfer of home health benefits to part B 

  a. Transfer of home health benefits to Part B.--Beginning on January 1, 1989, home health care benefits would be a covered benefit under Part B only, except for individuals eligible for Part A but not enrolled in Part B.  There would be no change in coverage or reimbursement policies for these home health benefits.

VI. Financing 

  a. Supplemental premium.--A supplemental premium would be calculated from a Medicare Part A eligible individual's adjusted gross income for tax purposes. This supplemental premium would depend on income, and would be determined from a table in the tax form instructions.  However, adjusted gross income would not be increased.  The supplemental premium would be adjusted to reflect the increase in the cost of Medicare benefits.  The supplemental premium would be mandated and not treated as a deductible medical expense.  The maximum supplemental premium an individual would pay in 1988 would be approximately $580 and in 1992, approximately $930. 
  Individuals not required to pay the supplemental premium would include:  (1) any individual who is entitled to benefits under Part A of Medicare solely by reason of the payment of a premium for Part A, (2) any individual who is required to pay an additional Part B premium by virtue of being a resident of an American Commonwealth or Territory, (3) any individual who is required to pay an additional Part B premium because the individual is entitled only to Part B benefits, and (4) any qualified nonresident.

VI. Effective date 

  a. Effective date.--The above Part A benefits would be effective for services provided on or after January 1, 1988.  Tax changes would apply to taxable years ending after December 31, 1987.

**807 *5 Provisions relating to Part B 
 
I. Limitation on Medicare out-of-pocket expenses under part B

  a. Limit out-of-pocket expenses.--After a Medicare beneficiary had incurred out-of-pocket Part B covered expenses in a calendar year which exceeded the Part B catastrophic limit, (a) Medicare would be required to pay 100 percent of reasonable charges (or in some cases, the reasonable costs) for any additional Part B covered services in the year, and (b) no further deductibles would be required. 
  Out-of-pocket Part B expenses would be defined to include the Part B $75 deductible, the Part B blood deductible, $250 of reimburseable mental health services and the 20-percent coinsurance required to be paid by beneficiaries for Part B benefits. 
  The Part B catastrophic limit would be $1,043 in 1989 and increased by the Social Security COLA in succeeding years. 
  For prepaid health care organizations paid on the basis of aggregate reasonable cost, the Secretary would be required to provide for an appropriate adjustment to their payment amounts to reflect the increase in protection as if payment were made on an individual-by-individual basis. 
  b. Institutional provider limitation.--Institutional providers with agreements with the Medicare program would be prohibited from charging Medicare beneficiaries for services for which catastrophic benefit payments are made to the provider.

II. Home health services 

  a. Home health.--The "intermittent" skilled nursing care definition for home health services would be expanded so that "daily" would be defined as up seven days a week for up to 35 days in any given period, instead of five days a week for up to two or three weeks.  A subsequent extension could be provided based on a physician's certification of exceptional circumstances requiring the continuation of services beyond the 35 days.

III. Outpatient mental health services 

  a. Outpatient mental health.--The present law maximum Medicare reimbursement for mental health outpatient services would be raised from the current limit of $250 ot $1,000 per calendar year.  The coinsurance requirement would remain the same.

IV. Mailing notice requirement and physician directories 

  a. Mailing notice requirement and physician directories.--The Secretary would be required to prepare an annual notice to be sent to all Medicare beneficiaries that would provide a simple, clear explanation of Medicare benefits.  This notice would also include an explanation of the limits of the Medicare and Medicaid programs with regard to long term care benefits.  In addition, a directory of participating physicians would be sent to each beneficiary each year starting in January, 1988.

**808 *6 V. Providing additional medical assistance for indigent Medicare beneficiaries 

  a. Providing Additional Assistance for Indigent Medicare Beneficiaries.--The Federal Supplemental Security Income program (SSI) would be amended to establish a separate category of elderly and disabled for whom state Medicaid programs, including states operating under section 1115(a) waivers, would be required to pay the Medicare premium, deductibles and coinsurance amounts. 
  All elderly and disabled individuals with incomes up to the Federal Census Bureau poverty threshold level would be entitled to participate in this program.  The current Federal matching requirements would apply to this provision.  The States would be required to begin paying monthly premiums for months beginning with July, 1988, and for items and services provided on and after July 1, 1988.

VI. Part B premium adjustment 

  a. Part B premium adjustment.--The Part B premium would be adjusted so that  $1,00 per month would be added to the current law Part B monthly premium in 1990;  and a net amount equal to approximately $1.50 per month would be added in 1991 and 1992.  Thereafter, the Part B premium would be increased by the same percentage increase as the increase in the cost-of-living adjustment for Social Security benefits. 
  b. Part B premium for residents of U.S. Commonwealths and Territories.-- Medicare beneficiaries residing in the American Territories and Commonwealths would be required to pay an additional Part B premium approximately equal to the average per capita value of the new catastrophic benefits contained in this bill. 
  This amount would be divided by twelve, and one-twelfth would be added to the current law monthly Part B premium beneficiaries now pay.  In subsequent years the monthly premium would be increased by the same percentage increase as the increase in the cost-of-living adjustment for Social Security benefits. 
  c. Part B premium for individuals enrolled under part B but not entitled to benefits under part A.--Medicare beneficiaries who are not entitled to Part A benefits but who voluntarily enroll in Part B would be required to pay an additional Part B premium equal to the average per capital value of the new catastrophic benefits contained in this bill. 
  This amount would be divided by twelve, and one-twelfth would be added to the current law monthly Part B premium beneficiaries now pay.  In subsequent years the monthly premium would be increased by the same percentage increase as the increase in the cost-of-living adjustment for Social Security benefits.

VII. Medicare supplemental health insurance policies 

  a. Establishment of new medigap standards.--The Secretary, taking into consideration any recommendations developed by the National Association of Insurance Commissioners and the Medicare catastrophic legislation passed by the Congress, would be required to report to Congress, within 1500 days after enactment of the legislation, his recommendations for changes that would be made in **809 *7 the Federal requirements for certification of Medicare supplemental policies. 
  b. Required mailing of notice.--Companies that issue Medicare supplemental policies that are in effect on January 1, 1988, would be required by January 31, 1988, on a one-time basis, to send a letter to their policyholders who are entitled to Medicare, explaining the improved benefits contained in the catastrophic legislation passed by the Congress and how these improvements will affect the benefits contained in the medigap policies and the cost of these premiums. 
  c. Required submission of advertising.--Companies that issue Medicare supplemental policies would be required to submit their advertising files to each State Insurance Commission, in which they do business, for review as to whether their marketing practices comply with State law with respect to advertising used on or after January 1, 1988. 
  d. Transition for current policies.--Federal penalties for noncompliance with the substantial duplication of health benefits requirement contained in section 1882(d)(3)(A) would be suspended for two years, beginning January 1, 1988, and ending December 31, 1989, for existing Medicare supplemental policies, but new policies would still be subject to the penalties and fines of not more than $25,000 or imprisonment for not more than five years, or both, after Medicare catastrophic legislation is enacted.

VIII. Extension of social HMO demonstration project 

  a. Social HMO waiver.--The current Health Care Financing Administration waiver would be extended through September, 1992, for the four Special Health Maintenance Organization demonstration projects.

IX. Study on comprehensive medical coverage under the Medicare Program 

  a. Comprehensive Medicare coverage study.--The General Accounting Office would be required to conduct a study to assess the need for, and costs of, including comprehensive medical coverage under the Medicare program, such as extended-care services, routine dental and eye examinations, and long-term care services.

X. Research on long-term care for Medicare beneficiaries 

  a. Long-term care research.--Five million dollars would be authorized for each of the next five years for the Secretary of the Department of Health and Human Services to support research on long-term care.  The research would focus on issues of delivering and financing of long-term care services.

XI. Effective date 

  a. Effective date.--The effective dates for Part B benefits would be for services furnished on or after January 1, 1989.  The additional premium for individuals who voluntarily enroll in Medicare would begin in January 1990. The additional premium for Medicare beneficiaries residing in the Commonwealths and Territories would begin in January 1988.  The additional premium for those individualed *8 **810 to Part A benefits except by payment of a premium but who buy Part B would begin in January 1989.

BACKGROUND AND NEED FOR LEGISLATION

  The Committee bill, H.R. 2470, would protect Medicare beneficiaries from catastrophic expenses associated with covered hospital and physician services. The need for this bill is evident, as Medicare, the Federal program designed to meet the acute medical care needs of older Americans does not cover truly catastrophic hospital and physician expenses. 
  Despite the trend toward generally improved health status of the elderly, their needs for health care remain substantial.  Greater life expectancy merely postpones the inevitable need for care of chronic and terminal illnesses.  Many of the elderly have one or more chronic conditions, many of which give rise to the need for continuing health care.  For example, nearly half report having arthritis, forty percent report high blood pressure, and nearly one-third report heart disease.  The incidence of many chronic conditions is directly related to age and inversely related to family income. A recent study found that the six percent of Medicare beneficiaries who died in 1978 accounted for twenty eight percent of Medicare expenditures, suggesting that Medicare beneficiaries in their last year of life are severely or chronically ill. 
  Expenditures for personal health care services for the elderly nearly tripled between 1977 and 1984, rising from $43 billion to an estimated $120 billion. Per capita spending rose an average of thirteen percent annually during those years, from $1,785 to $4,202. 
  Fairly extensive coverage is provided for short-term hospital stays under Medicare Part A.  Coverage for long-term hospital stays is less adequate. These long stays are subject to significant coinsurance charges.  Further a beneficiary may potentially exhaust all benefits and be required to pay thousands of dollars of hospital and physician charges.  In addition to a monthly premium, beneficiaries enrolled in Part B are liable for certain charges in connection with their use of physicians and other charges in connection with their use of physicians and other services covered under the program.  All beneficiaries are liable for the $75 deductible and the twenty percent coinsurance charges.  In addition, where a physician or other provider does not accept "assignment" (i.e., agree to accept Medicare's determination of the reasonable charge amount as payment in full for covered services), the beneficiary is liable for the difference between Medicare's reasonable charge amount and the physician's actual charges. 
  Even though Medicare in 1987 will spend close to $80 billion on medicare care, the elderly will also have out-of-pocket expenses of over $30 billion, not including long-term care.  Out-of-pocket expenses by the elderly represent the difference between total health expenditures by the elderly and known third party payments.  These out-of-pocket payments include Medicare copayments (less any benefits paid by so-called "Medigap" plans), collected reasonable charge reductions, net private health insurance copayments, and the purchase of care not covered by any third party.  It is important to note that direct out-of- pocket payments to providers are **811 *9 not the only expenditures by the aged for health care.  The aged also pay Medicare Supplementary Medical Insurance (Part B) and private health insurance premiums that are not defined as out-of-pocket expenditures.  Private health insurance, including Medigap policies, covers an additional estimated seven percent ($304 per capita) of personal health expenditures for the elderly. 
  About eight million senior citizens will spend some time in the hospital this year.  For those with one inpatient stay the average out-of- pocket liability will run about $1,335, but for those with lengthy hospital stays the expenses can add up to thousands of dollars resulting in financial ruin. 
  For some elderly the amount of health care expenses paid out of pocket can be a greater burden than for others, depending on their income.  In 1986, over twenty percent of senior citizens had to spend at least fifteen percent of their income on medicare care, while seven percent spent twenty-five percent or more of their income paying medical bills. 
  While Social Security payments have lifted many of the elderly out of poverty, nineteen percent or about six million, have incomes below the poverty threshold of $5,000 and forty-nine percent of older Americans still have income below $10,000.  Having to spend twenty-five percent of $10,000 of income on medical expenses is truly catastrophic. 
  It has been argued that Medigap or private supplemental insurance policies are already meeting the catastrophic medical needs of the elderly.  While seventy percent of the elderly buy Medigap insurance, many of these policies, according to a recent General Accounting Office study (GAO/HRD-87-8), are very inefficient supplements.  Many return, on average, only sixty cents on the dollar in benefits.  In other words, seniors paid more than a billion dollars in premiums than the policies paid out in benefits.  In addition, many policies have pre-existing clauses which prevent seniors from filing claims for needed medical care.  The Medicare program has only two percent administrative costs, which means it can pay out ninety-eight percent in benefits without denying benefits for those with pre-existing conditions. 
  Furthermore, the likelihood of a Medicare beneficiary having a supplemental insurance policy increases with income.  Low-income elderly, therefore, are often without supplemental policies that could meet some of their catastrophic medical needs. 
  Given the rising cost of medical care, the aging of the population and the growing disparity between what Medicare will and will not pay for, it is evident that the Medicare program needs to be expended to fill the acute care gaps in coverage, which can lead to financial bankruptcy by Medicare beneficiaries.

II. EXPLANATION AND JUSTIFICATION

TITLE 1--PROVISIONS RELATING TO PART A OF MEDICARE

Sec. 101. Inpatient hospital services

Present law 

  (a) Application of inpatient hospital deductible on a calendar year basis and limitation to one deductible each year.--Under current **812 *10 law beneficiaries are required to pay a first day hospital deductible for inpatient hospital services furnished in each "spell of illness" ($520 in 1987).  A "spell of illness" is a period of consecutive days that begins with the first day on which a patient is furnished inpatient hospital or extended care services and ends with a period of 60 consecutive days during which the beneficiary was neither an inpatient of a hospital nor a skilled nursing facility.  A beneficiary may be discharged from and readmitted to a hospital or skilled nursing facility several times during a spell of illness and still be in the same spell if 60 days have not elapsed between discharge and readmission. 
  (b) Elimination of general day limitation on inpatient hospital services.--Under current law a beneficiary is entitled to inpatient hospital services for up to 90 days in any one "spell of illness."  In addition to the 90 days of hospital care, each beneficiary has a lifetime reserve of 60 days of added coverage after the 90 days have been exhausted.  After a beneficiary has received 90 days of care in a "spell of illness" and exhausted the 60 lifetime reserve days, Medicare does not provide for further hospital reimbursement and the beneficiary is responsible for all hospital charges. 
  Under current law, there are separate day limitation restrictions on inpatient psychiatric hospital care.  If an individual is an inpatient of a participating psychiatric hospital on the first day for which the beneficiary is entitled to hospital insurance benefits, the days on which the beneficiary was an inpatient of a psychiatric hospital in the 150-day period immediately before this first day are deducted from the 150 days of inpatient psychiatric services for which the beneficiary is otherwise entitled to have payment made during the first "spell of illness", if these services were furnished to the beneficiary in a psychiatric hospital.  Further, payment may not be made for more than a total of 190 days of inpatient psychiatric hospital services during a beneficiary's lifetime. 
  (c) Elimination of coinsurance amounts for inpatient hospital services.-- Under current law beneficiaries are required to pay coinsurance when inpatient hospital services are received for more than 60 days during a "spell of illness."  The beneficiary is responsible for a coinsurance amount for each day after the 60th and through the 90th day and by law the daily coinsurance amount is equal to one-fourth of the inpatient hospital deductible ($130 a day in 1987).  There is also a coinsurance amount for each day, after the 90th day and through the 150th day in any "spell of illness", that is chargeable against the individual's 60 lifetime reserve days.  The coinsurance for these days by law is equal to one-half of the inpatient hospital deductible ($260 a day in 1987). 
  (d) Indexing of inpatient hospital deductible.--Under current law the amount of the hospital deductible is revised each January and is equal to the inpatient hospital deductible for the preceding calendar year, updated by the same percentage that applies to prospective payment (PPS) rates and adjusted to reflect changes in real case mix. 
  (e) Determination of part A premium.--Under current law individuals age 65 or over who are not entitled to Hospital Insurance (Part A) benefits may voluntarily enroll in the Hospital Insurance program if they pay a monthly premium.  The premium currently **813 *11 does not reflect the actuarial value of the Hospital Insurance benefit.  Instead, the Secretary is required to calculate the premium each year under a formula that is equal to $33 multiplied by the ratio of the inpatient hospital deductible for the subsequent calendar year to the deductible promulgated for 1973. 
  (f) Adjusting payments for inpatient hospital services.--Under current law, hospitals in general are paid on the basis of a prospective payment system in which Medicare pays a prospective amount for each Medicare discharge based on one of the 470 different diagnosis-related groups (DRGs).  The DRG payments are based on the assumption that Medicare will cover at most 90 days of covered hospital services in a "spell of illness" and 60 lifetime reserve days. 
  The Committee believes there is a need for acute hospital care catastrophic coverage.  Either million senior citizens will spend some time in the hospital this year.  For the fifteen percent of Medicare beneficiaries who will have one inpatient stay the average out-of-pocket liability will run about $1,165.  For the seven percent who will have two or more stays in the hospital the average out-of-pocket cost will amount to over $2,000.  For the half a percent of beneficiaries who have lengthy hospital stays requiring the payment of coinsurance amounts, the average out-of-pocket expenses will average approximately $7,600.  For low and moderate income elderly such costs can deplete lifetime savings, leaving substantial debts. 
  In 1986, over twenty percent of senior citizens had to spend at least fifteen percent of their income on their medical care, which seven percent were forced to spend twenty five percent or more of their income paying medical bills. 
  The Committee also believes complex features of the program such as the  "spell of illness" methodology should be eliminated.  For these reasons the Subcommittee has proposed the following changes in the Medicare program to eliminate the potential for financial ruin resulting from lengthy hospital stays and to reduce the complexity of the program. 
  Because the hospital benefit will be extended to 365 days of hospital care from the current limit of 150 days in a calendar year, the Committee believes there is a need to give the Secretary discretion to adjust, if necessary, the DRG payments, as well as the targeted amounts, outlier cutoff points and weighting factors in determining payments to hospitals.

Explanation of provisions 

  (a) Application of inpatient hospital deductible on a calendar year basis and limitation to one deductible each year.--A beneficiary would be required to pay only one hospital deductible in a calendar year no matter how many times the beneficiary was admitted to a hospital during the calendar year.  The "spell of illness" methodology would be eliminated for determining the number of hospital deductibles, the number of days Medicare would cover, and the hospital coinsurance amounts.  A new deductible would not be required if the hospitalization began in one calendar year and continued into the following year, but a deductible would be required if the beneficiary reentered the hospital later in the second year. 
  **814 *12 (b) Elimination of general day limitation on inpatient hospital services.--The Medicare limits on payment for 150 days of inpatient hospital care would be eliminated so that Medicare would pay for an unlimited number of hospital days for covered services in a calendar year.  However, the current 190 day lifetime limit and 150 day rule on inpatient psychiatric hospital services would be retained. 
  (c) Elimination of coinsurance amounts for hospital services.--The current requirement for the payment of hospital coinsurance amounts for inpatient days 61 through 90 and the 60 lifetime reserve days would be eliminated. 
  (d) Indexing of inpatient hospital deductible.--The method of determining the inpatient hospital deductible beginning in 1988 would be changed so that it would equal the preceeding year's deductible, increased by the cost-of-living adjustment to Social Security benefits.  Not later than November 15 of each year, beginning in 1987, the Secretary would be required to promulgate the inpatient hospital deductible for the succeeding year. 
  (e) Determination of part A premium.--The Secretary would be required to establish a Part A premium for those who voluntarily enroll in Part A equal to the actuarial value of the Part A benefit.  The actuarial value would equal one-twelfth of the estimated average per capita amount payable from the Hospital Insurance Trust Fund for services and related administrative costs incurred in the succeeding calendar year for individuals age 65 and over entitled to hospital benefits during that entire year.  The Secretary would be required to determine and promulgate the premium during September of each year and issue a public statement setting forth the actuarial assumptions and basis employed in determining the actuarial rate. 
  (f) Adjustment in payments for inpatient hospital services.--When adjusting the Medicare hospital payment system, the Secretary would be required to take into account the reductions in beneficiary payments to hospitals because of the elimination of the day limitation.  The Secretary, when appropriate, would adjust the payment rates under the prospective payment system (PPS), the outlier cutoff points, the weighting factors, and the target amounts for paying non-PPS hospitals.

Effective date 

  (a) and (d). The changes relating to the deductible would be for inpatient hospital services furnished on or after January 1, 1988, and succeeding years. However, in the case of an individual for whom a spell of illness began before January 1, 1988, and had not yet ended as of such date, the deductible would not apply to services furnished during that spell of illness during 1988 or 1989. 
  (b) and (c) The changes relating to the extension of benefits and coinsurance would be effective for inpatient hospital services furnished on or after January 1, 1988. 
  (e) The changes relating to the Part A premium would apply to premiums for months beginning with January 1, 1988. 
  (f) The Secretary, when appropriate, would adjust inpatient hospital payments to hospitals for services furnished on or after January 1, 1988.

**815 *13 Sec. 102. Extended care services

Present law 

  (a) Coinsurance rate of 20 percent of national average per diem for services furnished during first 7 days of each calendar year.--Under current law a beneficiary is responsible for a coinsurance amount equal to one-eighth of the inpatient hospital deductible for each day after the 20th and before the 101st day of extended care services furnished during a "spell of illness" ($65 a day in 1987). 
  The Committee believes the current method of calculating the coinsurance amount has resulted in an excessive coinsurance requirement.  In parts of the country the daily coinsurance amount is now greater than the cost of the day's stay in the skilled nursing facility. 
  (b) Extension to 150 days in each calendar year.--Under current law a beneficiary is entitled to post-hospital extended care services in a qualified skilled nursing facility for up to 100 days in any one "spell of illness." 
  It is the belief of the Committee that the "spell of illness" methodology for determining skilled nursing facility coinsurance is an unnecessary complexity which can become a financial barrier to a beneficiary's access to care. 
  (c) Eliminating hospital requirement for coverage of extended care services.--Under current law services in a skilled nursing facility are covered under Medicare only after an individual has been transferred to the facility from a hospital in which the individual was a patient for not less than three consecutive calendar days before being discharged in connection with the transfer. 
  The Commission believes the three day prior hospitalization rule has created a barrier to needed skilled nursing care for those who do not require hospitalization.  Given that an increasing number of surgical procedures are performed on an outpatient basis, it is the Committee's belief that Medicare beneficiaries who require skilled nursing care should be entitled to such care in a skilled nursing facility when they do not need to be hospitalized and otherwise qualify for the home health benefit.  The Congress has already eliminated the three day prior hospitalization rule for the home health benefit.

Explanation of provision 

  (a) Coinsurance rate of 20 percent of national average per diem for services furnished during first 7 days of each calendar year.--A Medicare beneficiary would be required to pay coinsurance amounts for the first 7 days of covered services in a calendar year.  The coinsurance amount for each day would equal 20 percent of the national average per diem Medicare reasonable cost for SNF services in the succeeding calendar year, as estimated by the Secretary each year.  The Secretary would, in September of each year (beginning in 1987) promulgate the coinsurance amount which shall apply to post-hospital extended care services furnished in the succeeding year. 
  (b) Extension to 150 days in each calendar year.--The Medicare program would cover up to 150 days of post-hospital extended care services furnished during a calendar year. 
  **816 *14 (c) Eliminating hospital requirement for coverage of extended care services.--The three day prior hospitalization requirement to receive extended care services in a skilled nursing facility would be eliminated.

Effective date 

  (a) and (b) The coinsurance and extension of days would be effective for services furnished on or after January 1, 1988. 
  (c) The elimination of the three day hospital requirement would become effective for skilled nursing facility stays beginning on or after January 1, 1989.

Sec. 103. Hospice care

Present law 

  (a) Extension of coverage period.--Under current law, a beneficiary who is terminally ill is entitled to elect to receive hospice care for periods of 90 days and one subsequent period of 30 days for a total of 210 of hospice care. 
  In keeping with efforts to cover catastrophic acute care medical costs, the Committee believes the hospice benefit should continue to be available to Medicare beneficiaries who are still terminally ill after the 210 day hospice benefit expires. 
  (b) Continued Certification of Terminal Illness for Extended Benefits.--Under current law in order to receive the hospice benefit the beneficiary's attending physician and the medical director (or staff physician) of the hospice program must certify, not later than two days after hospice care is initiated, that the beneficiary is terminally ill (i.e. that the beneficiary has a medical prognosis that his life expectancy is six months or less).  If the beneficiary elects to receive hospice care for a second or third period, the medical director must recertify at the beginning of that period that the beneficiary is terminally ill. 
  Currently, some hospices are refusing to provide the hospice benefit to Medicare beneficiaries if they believe the individual will live beyond the 210 day limit because the hospice will not be reimbursed for care delivered beyond the 210 day limit.

Explanation of provision 

  (a) Extension of coverage period.--A Medicare beneficiary would be entitled to a subsequent extension of the hospice benefit after the 210 day limit under certain circumstances. 
  (b) Continued certification of terminal illness for extended benefits.--A subsequent extension period for the hospice benefit would be granted beyond the 210 day limit if the Medicare beneficiary was recertified as terminally ill by the attending physician or medical director.

Effective date 

  (a) and (b) The changes in the hospice benefit would be effective for hospice care furnished on or after January 1, 1988.

**817 *15 Sec. 104. Blood deductible

Present law 

  Under current law a beneficiary is required to pay a separate deductible equal to the cost of the first three pints of whole blood (or equivalent quantities of red blood cells) received by a beneficiary as part of the services furnished under the hospital insurance (Part A) program during each "spell of illness."  There is also a separate deductible under Part B of Medicare equal to the expenses incurred for the first three pints of whole blood (or equivalent quantities of red blood cells) furnished to a beneficiary during a calendar year. 
  In keeping with the elimination of the "spell of illness" concept for hospital services, it is necessary to conform the blood deductible rules and eliminate the "spell of illness" concept for the blood deductible.

Explanation of provision 

  A Medicare beneficiary would be responsible for payment of a deductible equal to the expenses incurred for the first three pints of whole blood (or equivalent quantities of packed red blood cells) furnished each calendar year, except that the deductible for such blood would be reduce appropriately, in accordance with regulations developed by the Secretary of Health and Human Services, to the extent that there had been a replacement of such blood.  The Secretary is directed to utilize the same replacement requirements that are currently used for the Part B blood deductible replacement requirements. 
  A Medicare beneficiary would be required to pay only one blood deductible in a calendar year under Parts A or B in any calendar year.

Effective date 

  The changes in the blood deductible would be effective for blood or packed red blood cells furnished on or after January 1, 1988.

Sec. 105. Home health benefits

Present law 

  Under current law home health care is a covered benefit under both Medicare Parts A and B.  Payment for home health care, however, is made from the Part A trust fund for all home health services except for those provided to individuals enrolled under Part B, but not entitled to receive benefits under Part A.  Only about 1 percent of home health is reimbursed under Part B. 
  Eligibility and reimbursement policies are identical for home health services reimbursed under Parts A and B.  There is no coinsurance or deductible payment requirement for home health either under Part A or Part B. 
  Under current law, the Part B premium is set at 25 percent of total Part B program costs.  Beginning in 1989, the Part B premium will be set at the lower of:  (1) an amount sufficient to cover one-half of the costs of the program, or (2) the current premium amount increased by the percentage by which cash benefits were **818 *16 increased under the Social Security cost of living adjustment (COLA). 
  Traditionally, Medicare Part A has been reimbursed from the Hospital Insurance Trust Fund which is financed almost exclusively from payroll taxes. It is the belief of the Committee that in order to help maintain the solvency of the Hospital Insurance Trust Fund that the home health benefit be transferred to the Part B portion of the Medicare program.

Explanation of provision 

  Beginning with fiscal year 1989, home health care would no longer be a covered benefit under Medicare Part A, except for individuals eligible for benefits under Part A who have not enrolled under Part B.  Individuals eligible for benefits under Part A who have not enrolled under Part B would continue to be eligible for home health benefits under Part A.  Individuals enrolled under Part B would only be entitled to receive home health benefits under Part B. 
  There would be no change in coverage or reimbursement policies for home health services.  There also would be no change in current law regarding calculation of the Part B premium:  the 1989 premium would be based on the 1988 premium increased by the Social Security COLA.

Effective date 

  Effective for home health services furnished on and after January 1, 1989.

Sec. 106. Supplemental premium

Present law 

  Under current law, individuals who have attained age 65 and who are eligible for monthly social security or railroad retirement cash benefits are eligible, without additional application, to coverage under the Hospital Insurance (Part A) program of Medicare without any payment for the coverage.  Eligibility for Part A coverage begins with the first day of the month in which an individual eligible for retirement benefits as a social security retirement beneficiary, qualified railroad retirement beneficiary, or "survivor" beneficiary under either program attains age 65.  Entitlement ends with the earlier of the last day of the month of death or the last day of the month before the month in which the beneficiary no longer meets the requirements for entitlement to social security, railroad retirement, or survivor benefits. 
  Part A coverage also is available, without payment of the Part A premium, to individuals under age 65 who have been entitled for not less than 24 months to social security or railroad retirement benefits on the basis of disability. This entitlement for Part A coverage applies to qualified railroad retirement disability beneficiaries and the following categories of social security beneficiaries:  disabled workers, disabled widows and widowers between the ages of 50 and 65, certain women age 50 or older entitled to mother's benefits, and individuals age 18 and over who receive social security benefits because they became disabled before reaching age 22.  **819 *17 Entitlement to Part A begins with the first day of the 25th month of entitlement to social security or railroad retirement benefits on the basis of disability.  Such entitlement to Part A continues until the end of the month following the month in which notice of the termination of disability status is mailed to the beneficiary, or, if earlier, with the end of the month before the month in which the beneficiary attains age 65. 
  Further, Part A coverage is available, without payment of the Part A premium, to individuals, even though they have not reached age 65, who have end-stage renal disease (i.e., kidney impairment that appears irreversible and permanent and requires either a regular course of dialysis or kidney transplantation to maintain life).  End-stage renal disease Medicare benefits are available only after an application for Medicare benefits is filed. 
  The bill substantially improves Medicare benefits by adding catastrophic coverage.  In developing a funding mechanism for such improvements, the Committee followed four basic principles.  First, the funding mechanism should cover the cost of the benefit improvements.  Second, the committee believed that the cost of the benefit improvements should be borne by those receiving the improved benefits.  Third, the burden of the additional cost largely should be based on the ability to pay, since there is already in place a $17.90 per month Part B premium that is scheduled to increase substantially under present law.  This protects low-income beneficiaries from having to pay a substantial share of the new costs.  Fourth, the committee did not want to require the filing of a tax return by any individual not otherwise required to file a return. 
  The Committee examined various alternatives in light of these principles and determined that an income-related supplemental premium paid by Medicare enrollees and collected through the income tax system was the fairest and most administrable method of financing the bulk of the new catastrophic benefits.  In addition, because the Committee believed that a small portion of the cost of the new benefits should be borne equally by all Part B enrollees, the bill would provide that Part B enrollees would pay an additional $1 per month Part B premium beginning in 1990 and an additional $.40 per month beginning in 1991. 
  Under the bill, the supplemental premium would be collected only from those required to file tax returns and thus will affect less than half of all Medicare beneficiaries.  Unlike the existing Part B premium, which is the same for all Part B enrollees regardless of income, the supplemental premium would increase according to the enrollee's adjusted gross income ("AGI"). 
  The supplemental premium would be mandatory for individuals eligible to receive Part A coverage in order to avoid the adverse selection problem (i.e., withdrawal by the healthier part of the population) that could occur if a substantial premium were imposed on a voluntary basis.  The effect of adverse selection could be to increase the per enrollee cost of Medicare and thus require that the supplemental premium be raised to retain budget neutrality. 
  The Committee decided that the supplemental premium should be less than the portion of the value of the Medicare coverage received that is not paid for by the basic premium or employee payroll *18 **820 taxes. Therefore, the maximum supplemental premium was set at 33 percent of the portion of Medicare coverage not paid for the the beneficiary (i.e., 50 percent of Part A coverage and the excess of the value of Part B coverage over the Part B premium).

Explanation of provision 

  In general, under the bill, an individual (other than certain individuals described below) who is eligible in any year for Medicare Part A coverage by reason of eligibility for social security, railroad retirement, disability, or end-stage renal disease benefits, and who is not required to pay the Part A premium, would be required to pay a supplemental premium based on the individual's AGI for that year. [FN1]  This premium would not be treated as a medical expense for purposes of section 213, which allows a deduction for medical expenses in excess of 7.5 percent of AGI.  The premium would be paid and collected in the same manner as an income tax.

FN1 In additional, enrollees in Part B are required to pay an additional $1 per month Part B premium beginning in 1990 and an additional $.40 per month beginning in 1991.  (See sec. 206 of the bill.)  These additional premiums are to be indexed in the same manner in which the Part B premium is currently indexed.

Amount of the premium 

  Under the bill, the amount of the premium imposed on any medicare-eligible individual would be determined for taxable years beginning in 1988 under the following table:

   If the adjusted gross income for the taxable year is:                        
             Over                     But not over           The annual premium 
                                                                    per         
                                                             Medicare-eligible  
                                                               individual is:   
 $0 .......................... $6,000 .............................. $0         
 $6,000 ...................... $6,143 ............................. $10         
 $6,143 ...................... $6,287 ............................. $20         
 $6,287 ...................... $6,430 ............................. $30         
 $6,430 ...................... $6,573 ............................. $40         
 $6,573 ...................... $6,716 ............................. $50         
 $6,716 ...................... $6,860 ............................. $60         
 $6,860 ...................... $7,003 ............................. $70         
 $7,003 ...................... $7,146 ............................. $80         
 $7,146 ...................... $7,289 ............................. $90         
 $7,289 ...................... $7,433 ............................. $100        
 $7,433 ...................... $7,576 ............................. $110        
 $7,576 ...................... $7,719 ............................. $120        
 $7,719 ...................... $7,862 ............................. $130        
 $7,862 ...................... $8,006 ............................. $140        
 $8,006 ...................... $8,149 ............................. $150        
 $8,149 ...................... $8,292 ............................. $160        
 $8,292 ...................... $8,436 ............................. $170        
 $8,436 ...................... $8,579 ............................. $180        
 $8,579 ...................... $8,722 ............................. $190        
 $8,722 ...................... $8,865 ............................. $200        
 $8,865 ...................... $9,009 ............................. $210        
 $9,009 ...................... $9,152 ............................. $220        
 $9,152 ...................... $9,295 ............................. $230        
 $9,295 ...................... $9,438 ............................. $240        
 $9,438 ...................... $9,582 ............................. $250        
 $9,582 ...................... $9,725 ............................. $260        
 $9,725 ...................... $9,868 ............................. $270        
 $9,868 ...................... $10,011 ............................ $280        
 $10,011 ..................... $10,155 ............................ $290        
 $10,155 ..................... $10,298 ............................ $300        
 $10,298 ..................... $10,441 ............................ $310        
 $10,441 ..................... $10,585 ............................ $320        
 $10,585 ..................... $10,728 ............................ $330        
 $10,728 ..................... $10,871 ............................ $340        
 $10,871 ..................... $11,014 ............................ $350        
 $11,014 ..................... $11,158 ............................ $360        
 $11,158 ..................... $11,301 ............................ $370        
 $11,301 ..................... $11,444 ............................ $380        
 $11,444 ..................... $11,587 ............................ $390        
 $11,587 ..................... $11,731 ............................ $400        
 $11,731 ..................... $11,874 ............................ $410        
 $11,874 ..................... $12,017 ............................ $420        
 $12,017 ..................... $12,160 ............................ $430        
 $12,160 ..................... $12,304 ............................ $440        
 $12,304 ..................... $12,447 ............................ $450        
 $12,447 ..................... $12,590 ............................ $460        
 $12,590 ..................... $12,734 ............................ $470        
 $12,734 ..................... $12,877 ............................ $480        
 $12,877 ..................... $13,020 ............................ $490        
 $13,020 ..................... $13,163 ............................ $500        
 $13,163 ..................... $13,307 ............................ $510        
 $13,307 ..................... $13,450 ............................ $520        
 $13,450 ..................... $13,593 ............................ $530        
 $13,593 ..................... $13,736 ............................ $540        
 $13,736 ..................... $13,880 ............................ $550        
 $13,880 ..................... $14,023 ............................ $560        
 $14,023 ..................... $14,166 ............................ $570        
 $14,166 .......................................................... $580        
  
   **821 The annual premium determined under the above table would be pro-rated based on the number of months an individual is a medicare-eligible individual during the taxable year.  The same proration rule is to apply in the case of a short taxable year, except that in such case, the individual's adjusted gross income would be annualized (assuming that the individual would have received adjusted gross income at the same rate for a full 12 months).

Special rule for joint returns 

  In the case of a joint return, the premium table would be applied separately to each spouse who is a medicare-eligible individual.  For this purpose, the AGI of each spouse would be deemed to be one-half of the couple's combined AGI under the joint return.

Adjustment of the premium table for years after 1988 

  By December 15 of 1988, and of each subsequent calendar year, the Secretary would prescribe an adjusted table applicable to taxable years beginning in the immediately succeeding calendar year.  The Secretary would adjust the premium amounts by the medicare inflation factor.  Each other dollar amount would be adjusted by the cost-of-living adjustment applicable to such year for purposes of the income tax brackets (sec. 1(f)(3) of the Code).  Adjustments of amounts in the table would be rounded to the nearest dollar. 
  **822 *20 The medicare inflation factor for any calendar year would be the percentage (if any) by which the medicare value for such year exceeds the medicare value for 1988.  The medicare value for any year is the sum for January of such year of (1)50 percent of the value of Part A coverage (i.e., the monthly actuarial rate established under sec. 1818(d)(1) of the Social Security Act), and (2) the excess of (a) the value of Part B coverage (i.e., twice the monthly actuarial rate established under sec. 1839(a)(1) of the Social Security Act) over (b) the monthly premium paid for such coverage. [FN2]  For purposes of determining the premium paid for Part B coverage, the following would be disregarded:  (1) any penalty premium charged to individuals who are not continuously enrolled in Part B throughout the period they are entitled to enroll in Part B (sec. 1839(b) of the Social Security Act);  (2) the extra Part B premium payable by residents of a U.S. possession and by individuals who are enrolled in Part B but not Part A (sec. 1839(e)(4) and (5) of the Social Security Act discussed below);  and (3) the special ceiling on premiums limiting any premium increase to the increase in an individual's social security benefit (sec. 1839(f) of the Social Security Act).

FN2 Under the Social Security Act, the monthly actuarial rates for Part A and Part B coverage are established prior to December 15 of the preceding year.

Medicare-eligible individual 

  In general.--Generally, an individual would be a medicare-eligible individual with respect to a month if such individual is entitled to (or, on application, with no payment, would be entitled to) Part A coverage for such month.  An individual, other than a nonresident alien, would be treated as a medicare- eligible individual for the month in which he attained age 65 and any subsequent month unless such individual established to the satisfaction of the Secretary that he was not a medicare-eligible individual for such month. 
  Exceptions.--An individual would not be a medicare-eligible individual for any month for which he was (1) entitled to benefits solely because he paid a Part A premium;  (2) a resident of a U.S. prossession who paid the extra Part B premium applicable only to such residents (sec. 1839(e)(4) of the Social Security Act);  or (3) a qualified nonresident. 
  A qualified nonresident would be an individual (1) who had received no medical services during the current and four preceding taxable years for which payment was or would be made under Medicare Part A;  (2) who was not entitled to Medicare Part B benefits at any time during the current and four preceding taxable years;  and (3) who had been present in a foreign country or countries for at least 330 full days during the 12-month period ending at the close of the current taxable year and each of the four consecutive preceding 12-month periods.  In the year of death, the 330 day test would be satisfied if the decedent spent more than 90 percent of the days preceding the death in a foreign country or countries. 
  The exemption for Part A enrollees who pay the Part A premium was based on the fact that such enrollees already paid for the full cost of Part A coverage.  The residents of United States possessions were excepted because they paid an additional Part B premium for the new catastrophic benefits. Qualified nonresidents were **823 *21 viewed as, in effect, not receiving coverage under Part A and thus were exempt from the supplemental premium.

Treatment as a tax 

  For purposes of the rules regarding payment (including estimated payments) and collection of taxes (Subtitle F), the supplemental premium would be considered an income tax.  In addition, the supplemental premium would not be treated as a medical expense for purposes of section 213, which allows a deduction for medical expenses in excess of 7.5 percent of AGI. 
  It would not however, be considered an income tax for purposes of determining either the amount of any credits allowable against income tax or the alternative minimum tax (sec. 55).  Section 15, relating to changes in tax rates, would not apply to the supplemental premium.

Information reporting 

  The bill would require the Secretary of Health and Human Services to make an information return stating (1) the name, address, and taxpayer identification number of each individual who is entitled to Part A coverage without payment for any month during the calendar year (other than an individual who is:  (a) entitled to Medicare Part A solely by reason of the payment of a Part A premium;  on (b) resident of a U.S. possession who pays the extra Part B premium applicable only to such residents (sec. 1839(e)(4)), and (2) the number of months such taxpayer is so entitled.

Effective date 

  The supplemental premium provision of the bill would be effective for taxable years beginning after December 31, 1987.

TITLE II--PROVISIONS RELATING TO PART B OF THE MEDICARE PROGRAM

Sec. 201. Limitation on Medicare out-of-pocket expenses under Part B

Present law 

  (a) Limitation on Medicare out-of-pocket expenses under part B.--Under current law any Medicare beneficiary who is entitled to Medicare Hospital Insurance (Part A) benefits is automatically enrolled and covered for Supplementary Medical Insurance benefits (Part B), unless the person indicates he does not want to be covered for such benefits.  Those not entitled to Medicare Hospital Insurance benefits may voluntarily elect to enroll in the Supplementary Medical Insurance program. 
  In general, the Supplementary Medical Insurance benefits program is financed through premium payments by enrollees ($17.90 a month in 1987), together with contributions from general revenue funds appropriated by the Federal government, and certain deductible ($75 in 1987) and cost-sharing (coinsurance) provisions. 
  The Supplementary Medical Insurance benefits program pays for certain physician services, and other outpatient services including X-Ray, laboratory tests, durable medical equipment, prosthetic devices, and certain therapies. 
  **824 *22 Under current law, there are certain cost sharing requirements.  Before Medicare makes any payment for covered expenses during any calendar year, the individual must meet an annual deductible of $75.  The deductible must be made up of "covered" expenses--that is, expenses which would, except for the deductible, constitute incurred expenses with respect to which benefits are otherwise payable. 
  Medicare beneficiaries must pay coinsurance amounts for covered Part B services under current law.  Services by a physician or supplier of services under the Supplementary Medical Insurance program are generally reimbursed under Medicare on a "reasonable charge" basis.  Medicare reimburses 80 percent of covered "reasonable charges" (or in some cases, the "reasonable costs") and beneficiaries are responsible for the remaining 20 percent in coinsurance payments.  Beneficiaries are also responsible for any amount above the "reasonable charge" or "reasonable cost" determination. 
  Payment of a Part B blood deductible is also required under current law.  A beneficiary is required to pay a separate deductible equal to the cost of the first three pints of whole blood (or equivalent quantities of red blood cells) furnished to a beneficiary in an outpatient setting during a calendar year. However, if the beneficiary arranges for the replacement on a pint-for-pint basis, the beneficiary may not be charged the deductible. 
  The Committee believes that out-of-pocket costs for Part B services have become an increasing burden to Medicare beneficiaries.  The General Accounting Office (GAO), in a recent report entitled "Medicare and Medicaid Effects of Recent Legislation on Program and Beneficiary Costs," found that beneficiary out-of-pocket cost per capita for Part B services increased from $395 in 1980 to $516 in 1985, about a thirty-one percent increase. 
  (b) Limitation on charges where catastrophic limit is reached.--Under current law institutional providers of services with agreements with the Medicare program may charge Medicare beneficiaries coinsurance amounts under the Part B program. 
  The Committee believes it must ensure that institutional providers  (i.e., hospitals) not charge Medicare beneficiaries coinsurance once the beneficiary has reached the Part B catastrophic limit, whereby, Medicare would pay 100 percent of the reasonable charge, or in some cases, the reasonable cost allowed.

Explanation of provision 

  (a) Limitation on Medicare out-of-pocket expenses under part B.--After a Medicare beneficiary has incurred out-of-pocket Part B covered expenses in a calendar year which exceeded the Part B catastrophic limit:  (1) Medicare would pay 100 percent of reasonable charges (or in some cases, the reasonable costs) for any additional Part B covered services in the year, and (2) no further deductibles would be required.  Amounts above the full Medicare level paid to physicians who did not accept assignment would not be included in the catastrophic limit. 
  Out-of-pocket Part B expenses would be defined to include the Part B $75 deductible, the Part B blood deductible, the 20 percent coinsurance required to be paid by beneficiaries for Part B benefits and $250 of reimbursable outpatient mental health services. 
  **825 *23 The Part B catastrophic limit would be $1,043 in 1989.  For succeeding years, the limit would equal the limit for the preceding year, increased by the cost-of-living adjustment to Social Security benefits. Because of the need to ensure that the overall catastrophic proposal is budget neutral, the Part B limit will not become effective until January, 1989, and is therefore, $1,000 plus the projected cost-of-living adjustment, or $1,043, for that year. 
  For prepaid health care organizations paid on the basis of aggregate reasonable cost, the Secretary would be required to provide for an appropriate adjustment to their payment amounts to reflect the increase in protection as if payment were made on an individual-by-individual basis. 
  (b) Limitation on charges where catastrophic limit is reached.--Institutional providers of services with agreements with the Medicare program would be prohibited from charging Medicare beneficiaries for services for which catastrophic benefit payments are made to the provider.

Effective date 

  The limitation on out-of-pocket expenses would be effective for services provided on or after January 1, 1989.

Sec. 202. Extending home health services

Present law 

  Under current law home health services are covered under Medicare if:  (1) the services are ordered by and included in the plan of treatment established by a physician;  (2) the services are required on an intermittent basis;  (3) the services are performed by or under the direct supervision of a licensed nurse;  and (4) the services are reasonable and necessary for the treatment of an illness or injury. 
  To meet the requirement for intermittent skilled nursing care, an individual must have a medically predictable recurring need for skilled nursing services. Current guidelines generally define intermittent as permitting daily skilled nursing visits for up to eight hours a day for up to two to three weeks if medically reasonable and necessary.  Daily is defined as five days per week. 
  The Committee believes that the intermittent rule has created an unnecessary barrier to receiving home health services.  The Committee believes that daily care should be available on the weekends as well as during the week and that allowing for only three weeks of continuous care in a given period does not meet the needs of many Medicare beneficiaries.

Explanation of provision 

  The intermittent skilled nursing care definition for home health services would be expanded so that "daily" would be defined as seven days per week and care would be provided for up to 35 days in a given period.  A beneficiary could receive more than 35 days of consecutive home health services if the physician certified that the beneficiary required a subsequent period based on certification of exceptional circumstances requiring such services. 
  All other Medicare home health requirements would continue to apply.  All that would be changed would be the definition of daily to **826 *24 mean seven days a week and that the intermittent rule would not become operative until a Medicare beneficiary required daily care under this new definition.  In these cases, a Medicare beneficiary could only receive care for up to 35 consecutive days in a given period, except by physician certification of exceptional circumstances.

Effective date 

  The change in the intermittent care rule would be effective for services furnished on or after January 1, 1989.

Sec. 203. Increase in maximum payment allowed for outpatient mental health services

Present law 

  Under current law the maximum reimbursement for services provided by a psychiatrist or non-psychiatric physician providing for outpatient treatment of mental, psychoneurotic, or personality disorder is $250 per calendar year for each Medicare beneficiary.  Medicare only recognizes a maximum of 62.5 percent of $500 of charges, or $312.50, and will reimburse 80 percent of this amount or $250.  Consequently, the effective coinsurance rate is 50 percent for the first $500 of outpatient mental health services. 
  The amount of Medicare reimburseable mental health services has not changed since the Medicare program was instituted in 1965.  The Subcommittee believes that the $250 limit for mental health services has not kept pace with inflation and should be raised in order to provide a reasonable mental health benefit. If the $250 limit had been adjusted for inflation, it is estimated that the benefit would now be worth over $2,000.  Increasing the outpatient benefit should reduce the current incentive for hospitalizing those with mental disorders.

Explanation of provisions 

  The current law maximum reimbursement for services provided by a psychiatrist or non-psychiatric physician providing for outpatient treatment of mental, psychoneurotic, or personality disorders would be raised to $1,000 per calendar year for each Medicare beneficiary.  The coinsurance requirement would remain the same.  Thus, Medicare would recognize up to 6.5 percent of $2,000 of charges or $1,250, and would reimburse 80 percent of this amount or $1,000. Amounts in excess of current reimburseable limits ($250) would not be counted towards the Part B catastrophic limit. 
  The $1,000 reimbursement limitation per calendar year applies only to expenses incurred for physicians' services and any items or supplies furnished by the physician in his office in connection with the treatment for a mental, psychoneurotic or personality disorder. 
  As under current law, services by other health personnel, including home health services, outpatient hospital services and services furnished in a community mental health center, would not be subject to the special psychiatric limitation even though the services are in connection with a condition included in the definition of "mental, psychoneurotic and personality disorder." Further, as under current law, the services of auxiliary personnel who are rendering *25 **827 services "incident to" the physician's professional service would not be included in the $1,000 reimbursement limitation.

Effective date 

  The expanded outpatient mental health benefit would become effective for services provided on or after January 1, 1989.

Sec. 204. Mailing of notice of Medicare benefits and participating physician directories

Present law 

  Under current law the Social Security Administration annually publishes a  "Medicare Handbook," which explains Medicare coverage and describes in general what Medicare does not cover.  The Social Security Administration also publishes annually directories by geographic area of physicians who participate in the Medicare program.  Under the Omnibus Reconciliation Act of 1986, these directories are to be made available in Social Security officers and hospitals, and a notice explaining that the directories are free upon request is to be included with the Social Security check mailed to beneficiaries in April. 
  The Committee believes that the passage of Medicare catastrophic legislation will result in some uncertainty on the part of Medicare beneficiaries about what the new benefits do and do not include.  In is also the belief of the Committee that the method by which the participating physician directories are currently distributed is too cumbersome a process.

Explanation of provision 

  The Secretary would be required to distribute annually a notice to all Medicare beneficiaries (whether they receive benefits under Part A or B) which would provide a simple, clear explanation of Medicare benefits and the health care services from which benefits are not available.  This notice would also include a general explanation of the limits of the Medicare and Medicaid programs with regard to long term care benefits. 
  In addition, a directory of participating physicians would be sent to each beneficiary each year starting in January, 1988 by Medicare carriers. Directories would be organized regionally to facilitate their use by beneficiaries.  One or more directories would be used in each carrier service area as appropriate.  Physicians would be listed by specialty and locality. 
  Currently, funding for the distribution of the participating physician directories comes from the Medicare carriers' budgets.  It is the expectation of the Committee that the Appropriation Committee will provide additional funding for the carriers' to cover the cost of mailing a directory to every Medicare beneficiary each year.

Effective date 

  The provision would first apply to annual notices and directories for 1988.  The annual notice would be sent by January 31, 1988, or 3 months after the date of enactment of this legislation.

**828 *26 Sec. 205. Providing additional medical assistance for Indigent Medicare beneficiaries

Present law 

  Under current law, eligibility of the elderly and the disabled for Medicaid is linked to actual or potential receipt of cash assistance under the Federal Supplemental Security Income (SSI) program.  The income and resource eligibility criteria for the Medicaid differ substantially among the states. All state Medicaid plans, except for Wyoming, pay the monthly Medicare Part B premium payment for their dual eligible beneficiaries who are cash assistance SSI recipients under a "buy-in" agreement.  If a state does not buy-in for Part B coverage on behalf of cash assistance beneficiaries, it cannot receive Federal matching payments for medical services which would have been covered under Medicare if there had been a buy-in arrangement.  The Federal government does match state payments for copayments for cash assistance beneficiaries. States may pay the Medicare coinsurance (generally 20 percent of the "reasonable charge") and deductible amounts in full;  States may also pay lesser amounts. 
  Public Law 99-509 created an optional categorically needy group composed of the elderly and disabled with incomes up to the Federal poverty level.  A State choosing this option could pay all Medicare cost sharing for these individuals and if so, was also required to cover some newly eligible pregnant women and children.  States are required to use the SSI resources standard or a higher resource standard in determining eligibility. 
  As a result of the catastrophic coverage provided by this legislation, States would pay a reduced amount for those individuals for whom they currently pay the Medicare deductibles and coinsurance.  It is the belief of the Committee that the States should use these savings to improve benefits for the indigent elderly and disabled. 
  Currently, none of the States buy into the Medicare program for all of the elderly whose incomes are below the Federal Census Bureau poverty level, now $5,255 for single elderly individuals and $6,628 for a couple in 1987.  The Congressional Budget Office, in 1986, estimates that about 3.3 million of the elderly had incomes below for Federal Poverty level, but only 1.1 million are covered under Medicaid.  The 2.2 million individuals not now receiving Medicaid are also most likely to lack private Medigap insurance and least likely to be able to afford Medicare's cost sharing requirements.

Explanation of provisions 

  The Federal Supplemental Security Income (SSI) program would be amended to establish a separate category of elderly and disabled for whom state Medicaid programs, including states operating under Section 1115(a) waivers, would be required to pay the Medicare premium, deductibles and coinsurance amounts. Federal matching payments would be available for these expenses under the same formula states are currently reimbursed under the Medicaid program. 
  **829 *27 Although states are required to cover Medicare's cost sharing requirements under this proposal, States would be permitted to utilize the Section 1843 mechanism to implement their Medicare "buy-in" programs to cover Medicare eligible individuals. 
  All elderly and disabled with incomes up to the Federal Census Bureau poverty level (i.e. incomes up to $5,255 for an elderly individual and $6,628 for a couple in 1987) and who meet the resource standard would be entitled to participate in this program.  States would be required to use the SSI resource standards, or a higher resource standard, in determining eligibility. 
  This proposal would not require the States to make payment for regular Medicaid benefits.

Effective date 

  The States would be required to pay the (1) monthly premium for months beginning with July, 1988, and (2) items and services furnished on and after July 1, 1988.

Sec. 206. Adjustment in Medicare Part B premium

Present law 

  (a) Transitional Adjustments in 1990 and 1991.--Under current law premiums for Part B of Medicare are paid on a monthly basis according to an amount established in advance for each calendar year.  The current method (effective for 1984-1988) of determining the monthly premium is to use a formula that sets the premium rate at 25 percent of the amount needed, in the aggregate, to cover program costs for aged beneficiaries.  In the case of beneficiaries who have their premiums deducted from their Social Security checks, if there is a Social Security cost-of-living adjustment that is less than the amount for the increased premium, the premium increase otherwise applicable for 1987 or 1988 will be reduced to avoid a reduction in the beneficiaries' Social Security checks. 
  For calendar years beginning in 1989, the calculation of the Part B premium will return to prior law so that the premium rate will be the lower of:  (1) an amount sufficient to cover one-half of the costs of the program for the aged or (2) the current premium amount increased by the percentage by which cash benefits were increased under the cost-of-living adjustment (COLA) provisions of the Social Security program. 
  To assure that the total catastrophic proposal is revenue neutral for fiscal years 1988 through 1992, a small additional premium will be necessary in 1990, 1991, 1992. 
  (b) Part B premium for residents of U.S. Commonwealths and Territories.-- Under current law all Medicare beneficiaries who voluntarily enroll in Part B of Medicare are subject to the same Part B premium payment rules and receive the same Medicare benefits, notwithstanding that they may reside in the American Commonwealths of Puerto Rico and Northern Mariana Islands or the Territories of Guam, the Virgin Islands, and America Samoa. 
  Concern has been expressed by some of the Commonwealths and Territories that if their residents, who are Medicare beneficiaries, are not required to share in the cost of the catastrophic benefits contained in this legislation, as are Medicare beneficiaries in the **830 *28 States, then their Medicare beneficiaries will not be entitled to Medicare catastrophic benefits provided in this legislation. 
  It is the Committee's intention to finance all of the catastrophic benefits in 1988 and 1989 from a supplemental premium charged Medicare beneficiaries who file a Federal Income Tax Return.  As each Commonwealth and Territory has its own internal revenue code that is not amended by Federal legislation and the residents of these U.S. possession are not subject to the Federal Internal Revenue Code unless they have U.S. source income, it is the Committee's belief that some alternative method of payment is necessary in order to require Medicare beneficiaries in the U.S. possessions to pay their fair share of the cost of the catastrophic benefits. 
  Because Medicare beneficiaries in the U.S. possessions are subject to payment of the Part B premium if they voluntarily enroll in Part B, the Committee believes that requiring an additional premium to the current Part B premium for these Medicare beneficiaries is the most equitable and administratively feasible method of collecting revenue to finance the catastrophic benefits in the U.S. possessions. 
  (c) Part B premium for individuals enrolled under part B but not entitled to benefits under part A.--Under current law individuals aged 65 and over who are not Social Security beneficiaries and therefore not entitled to Medicare Part A benefits may voluntarily elect to enroll in Medicare Part B.  These individuals pay the same premium as is charged all other Medicare beneficiaries who enroll in Part B and are entitled to the same benefits as other Medicare Part B beneficiaries. 
  Because these individuals will not be subject to the Medicare supplemental premium collected through the Federal income tax code, it is the Committee's intent to charge these beneficiaries an additional premium which would be added to their Part B premium.  In this manner, these beneficiaries will help finance the Part B catastrophic benefits.

Explanation of provision 

  (a) Transitional adjustments in 1990 and 1991.--The monthly Part B premium for each Medicare beneficiary voluntarily enrolled in Part B for each month in calendar year 1990 would be $1.00 greater than the amount otherwise determined under current law.  For calendar year 1991 the monthly Part B premium would be 40 cents greater than the amount otherwise determined under current law following the $1.00 increase in 1990.  The net effect, according to CBO estimates, would be to increase the Part B premium by approximately $1.50 a month in 1991 and 1992 above current law Part B monthly premium amounts.  In later years, as in current law, the Part B premium would increase (1) by an amount sufficient to cover one-half of the costs of the program for the aged or (2) by an amount increased by the percentage increase in the Social Security cost-of-living adjustment (COLA) increase, whichever is smaller. 
  (b) Part B premium for residents of U.S. Commonwealths and Territories.--In the case of a resident of the Commonwealths of Puerto Rico or Northern Mariana Islands of Territories of Guam, the Virgin Islands or America Samoa, of the United States who **831 *29 voluntarily enrolls in Medicare Part B the monthly Part B premium otherwise determined for that Medicare beneficiary in 1988 or 1989 would be increased by an amount that would equal one twelfth of the product of the average per capital additional benefits contained in this legislation (and related administrative costs), as determined by the Secretary during September of the previous year and the ratio of (1) the per capita actuarial value of the benefits under Parts A and B for residents of the Commonwealth or Territory who are entitled to Medicare Parts A and B benefits, to (2) the per capita actuarial value of the benefits under Parts A and B for resident of the United States who are entitled to Medicare Part A and B benefits. 
  In 1990, the monthly Part B premium beneficiaries would pay would be the sum of:  (1) the current law Part B premium in 1989, (2) the amount added in 1989 for residents in each Territory or Commonwealth and (3) would be increased by the percentage of an amount sufficient to cover one-half of the costs of the program for the aged or by an amount increased by the percentage increase in the Social Security cost-of-living adjustment (COLA) increase, whichever is smaller. 
  For subsequent years the Part B monthly premium would be increased by current law provisions. 
  The monthly Part B premium assessed Medicare beneficiaries in the Commonwealths and Territories would not include the additional premium amounts described in section (a) above as beneficiaries in the Commonwealths and Territories would be required to pay the value of the additional benefits through the additional premium assessed under this section. 
  (c) Part B Premium for Individuals Enrolled Under Part B But Not Entitled to Benefits Under Part A.--The monthly Part B premium for Medicare beneficiaries entitled to benefits under Part B but not entitled to (or, on application without payment of an additional premium, would not be entitled to) benefits under Part A, would be in 1989, (1) the monthly premium otherwise determined for the individual under current law, (2) and increased by an amount equal to one-twelfth of the average, per capita additional benefits (and related administrative costs) the Secretary estimates (during September of 1988) would be payable for the additional benefits contained in this legislation. 
  In 1990, the monthly Part B premium beneficiaries would pay would be the sum of:  (1) the current law Part B premium in 1989, (2) plus the amount added in 1989 for the Part B buy-in only beneficiaries and (3) would be increased by the percentage of an amount sufficient to cover one-half or the costs of the program for the aged or by an amount increased by the percentage increase in the Social Security cost-of-living adjustment (COLA) increase, whichever is smaller. 
  For subsequent years the part B monthly premium would be increased by current law provisions.

Effective date 

  (a) The provision would apply to monthly premiums for months beginning with January 1990.  (b) The provision would apply to monthly premiums for months beginning with January 1988.  (c) **832 *30 The provision would apply to monthly premiums for months beginning with January 1989.

Sec. 207. Changes in certification of Medicare supplemental health insurance policies.

Present law 

  (a) Establishment of New Medigap Standards.--Under current law Medicare supplemental health insurance policies (Medigap policies) must meet minimum standards before companies can market them as Medigap policies.  The Standards are contained in a model state program approved by the National Association of Insurance Commissioners (NAIC) on June 1, 1979, and incorporated in section 1882 of the Social Security Act.  This section is commonly referred to as the "Baucus Amendment." 
  The standards contained in section 1882 require Medigap policies to:   (1) cover all of the Medicare Part A inpatient coinsurance for the 61st through 90th day in the hospital, and the 91st through 150th day lifetime reserve days, plus 90 percent of covered hospital inpatient expenses for a lifetime maximum of up to 365 days after the insured has exhausted Medicare benefits;  (2) cover the Medicare Part B coinsurance, which may be subject to a $200 deductible and a maximum benefit of $5,000 per year;  (3) cover the Part A and B blood deductibles;  (4) not define preexisting conditions more restrictive than as a condition that was diagnosed or treated within 6 months before the effective date of the policy;  (5) automatically change as Medicare's deductibles and coinsurance requirements change;  (6) have a "free look" period, during which an individual may return an unwanted policy for cancellation and receive a full refund of any premium paid;  (7) provide cancellation and termination clauses to be prominently displayed;  and (8) at the time of sale, provide a buyer's guide explaining benefits and limitations of Medicare supplemental insurance. 
  In addition, loss ratio targets were established for Medigap policies that set a goal for the percentage of insurance premiums to be returned to policyholders in the form of benefits.  Medigap policies must be expected to pay benefits at least equal to 60 percent of the earned premiums for individual policies and 75 percent for group policies. 
  There are Federal sanctions, consisting of fines and/or imprisonment, for (1) furnishing false information to obtain the Secretary's certification, (2) posing as a Federal agent to sell Medigap policies, (3) knowingly selling policies that duplicate coverage the individual already has, and (4) selling supplemental policies by mail in states that have not approved, or are deemed not to have approved, their sale. 
  (b) Required mailing of notice.--Under current law there is no requirement that Medicare supplemental health insurance companies send a notice to their policyholders explaining changes made by the Congress and how this affects the premium charged. 
  (c) Required submission of advertising.--Under current law there is no requirement that Medicare supplemental health insurance companies submit for review their advertising copy to State Insurance Commissioners. 
  **833 *31 (d) Transition for current policies.--Under current law, whoever knowingly sells a health insurance policy to an individual entitled to Medicare Part A or enrolled in Medicare Part B, with knowledge that such policy substantially duplicates health benefits under the Medicare program, is considered guilty of a felony and upon conviction may be fined not more than $25,000 or imprisoned for not more than 5 years, or both. 
  The Committee believes that because the Federal Minimum Benefit Requirements for Medigap policies contained in the Baucus Amendment include benefits that are in the catastrophic proposal, there is a need to amend the Federal law and in particular to waive the Federal penalties for duplication of Medicare benefits for some period in order to give States the opportunity to change their minimum benefit requirements for Medigap policies. 
  In order to reduce the confusion about Medicare benefits once catastrophic legislation is enacted, the Committee believes that Medigap insurers should be required to inform their policyholders of the changes in Medicare benefits and submit their advertising to State Insurance Commissioners.

Explanation of provisions 

  (a) Recommendations for new standards.--The Secretary of Health and Human Services, taking into consideration the Medicare catastrophic legislation passed by the Congress and any recommendations developed by the National Association of Insurance Commissioners, would be required to report to the Congress within 150 days after enactment his recommendations for changes that should be made in the Federal requirements contained in Section 1882 of the Social Security Act for certification of Medicare Supplemental policies. 
  It is the sense of Committee that Congress would promptly act on such recommendations and provide for appropriate changes in the Federal standards, for which states would adjust their laws in a timely manner. 
  (b) Required mailing of notice.--Medicare Supplemental policies in effect on January 1, 1988, would be required, on a one time basis by January 31, 1988, to send a letter to their Medicare policyholders that explains the improved benefits contained in the catastrophic legislation passed by the Congress and how these improvements will affect the benefits contained in the medigap policies and the cost of the medigap premium. 
  (c) Required submission of advertising.--Companies providing Medicare supplemental policies would be required to submit their advertising (whether through the written, radio or television medium) to each State Insurance Commissioner (or comparable officer identified by the Secretary) in which they do business for review as to whether their marketing practices comply with state law. 
  The Committee intends that advertising copy would be submitted for review but that the company could use the advertisement, whether written, by radio or television medium, without waiting for formal approval of the advertising copy. 
  The Committee further wishes to clarify that only the advertisement to be shown to consumers be submitted for review and not **834 *32 financial or other records surrounding the advertisement copy be submitted to the State Insurance Commissioner or other body designated by the State. 
  (d) Transition for current policies.--The Federal penalties for noncompliance with the substantial duplication of health benefit requirements contained in Section 1882 of the Social Security Act for existing Medicare supplemental health insurance policies would be suspended for the period January 1, 1988, and ending on December 31, 1989.  However, new policies issued as of January 1, 1988, would still be subject to the penalties of fines of not more than $25,000 or imprisonment for not more than 5 years, or both, after Medicare catastrophic legislation is enacted.

Sec. 208. Extension of social HMO demonstration projects

Present law 

  Under Sec. 2355 of the Deficit Reduction Act of 1984 the Secretary of Health and Human Services approved waivers to establish a project to demonstrate the concept of a social health maintenance organization.  The four demonstration sites selected were:  SCAN Health Plan, Inc. Long Beach, California;  Kaiser Permanente Medicare Plus II, Portland Oregon;  Seniors Plus, Minneapolis, Minnesota;  and Elderplan, Inc., Brooklyn, New York.  These sites are to provide for the integration of health and social services under the direct financial management of a provider of services.  The Social HMOs are to enroll Medicare beneficiaries voluntarily in the HMO model and services are financed on a prepaid, capitated, at-risk basis.  Operations began in the spring of 1985 and are scheduled to end in the fall of 1988. 
  Because the demonstration sites have had some difficulty in enrolling a sufficient number of Medicare beneficiaries and therefore have not had an adequate amount of time to properly study the concept of a social HMO, the Committee believes that the waivers for the four demonstration sites should be extended.

Explanation of provision 

  The Secretary of Health and Human Services would be directed to extend without interruption, through September 30, 1992, the waivers granted under Sec. 2355 of the Deficit Reduction Act of 1984 for the social HMO demonstration project under the same terms and conditions (other than duration of the project) established under Sec. 2355.  The Social HMOs would be at full risk in the third year and succeeding years.  An interim report to Congress would be due by December, 1988, and a final report to Congress on the project would be due not later than March 31, 1993.

Sec. 209. Study on comprehensive medical coverage under the Medicare Program

Present law 

  There is no study now being conducted on the cost of expanding the Medicare program to provide comprehensive medical services, including long term care, either under a capitation arrangement or by a fee for service method of payment. 
  **835 *33 Because of the strong interest on the part of several Members of Congress and other interested parties that Medicare be expanded to include services not now covered under the Medicare program, in particular long term care, the Committee believes that a study should be conducted to assess, the need for, and costs of, providing these services under the Medicare program.

Explanation of provision. 

  The General Accounting Office (GAO) would be requested to conduct a study to assess the need for, and cost of, the following services in the Medicare program for Medicare beneficiaries:  (1) an annual preventive care visit which would include diagnostic procedures performed during annual physician examination, including (as medically appropriate by sex) a routine Papanicolaou test, blood test for cholesterol levels, colorectal exam, and a mammogram, (2) an annual vision examination and the dispensing of prescription eyeglasses, (3) dental services, including an annual dental examination and cleaning, tooth extractions, simple restorations, services required for dentures, surgical preparation of endentulous ridges, periodontal therapy and endodontics, (4) biannual hearing threshold testing and hearing aids for those with a significant hearing loss, (5) comprehensive long-term care services (including adult day care services, intermediate care facility services, home and community based services, outpatient drug therapy, and respite care) provided on a case-managed basis in the environment of least restriction, where approved and regularly recertified by a geriatric assessment team, and (6) prescription drugs and biologicals. 
  The GAO would be directed to make separate determinations of the cost of each of the services described above on the basis of fee-for service reimbursement and on the basis of a comprehensive captitation payment arrangement.  Cost estimates would be determined for 1988 and the succeeding four years.

Effective data 

  The GAO would be required to report to the Congress on the results of the study not later than six months after the date of the enactment of this Act.

Sec. 210. Research on long-term care for Medicare beneficiaries

Present law 

  The Federal government has funded some research on the delivery and cost of long term care for the Medicare population for a number of years, but essential data is still lacking and there has been no effort to coordinate the findings from these earlier studies. 
  Knowing that a greater proportion of the American population will require long term care services in the coming decades, it is the belief of the Committee that there is insufficient data for the Committee to make informed decisions concerning the delivery and cost of providing long term care under the Medicare program.

**836 *34 Explanation of provision 

  The Secretary of Health and Human Services would be required to provide for a new program of research on issues relating to the delivery and financing of long term care for Medicare beneficiaries. 
  There would be authorized to be appropriated, in equal parts from the Hospital Insurance Trust Fund and the Federal Supplementary Medical Insurance Trust Fund, $5 million each fiscal year from 1988 through 1992 to carry out the new research projects. 
  The new research projects would be in addition to the current level of effort by the Health Care Financing Administration's Office of Research and Demonstrations, the National Center for Health Services Research, the National Institute on Aging, and the Office of the Assistant Secretary for Planning and Evaluation. 
  This new research would focus on issues of delivering and financing long term care and would include at least the following areas:  (1) the financial characteristics of Medicare beneficiaries who receive or need long-term care services, including whether such beneficiaries are eligible for Medicaid benefits for such care, (2) how the financial and other characteristics of Medicare beneficiaries affect their utilization of institutional and noninstitutional long-term care services, (3) how relatives of Medicare beneficiaries are affected financially and in other ways because the beneficiaries require or receive long-term care services, (4) the quality of long-term care services (in community-based and custodial settings) and how the provision of long-term care services may reduce expenditures for acute health care services, and (5) the effectiveness of consumer protections in the States and at the Federal level which assure adequate access to long term care (other than in a nursing home) and protect the rights of Medicare beneficiaries.

III. Budget Effects of the Bill

1. COMMITTEE ESTIMATE

  In compliance with clause 7(a) of Rule XIII of the Rules of the House of Representatives, the following statement is made:  the Committee agrees with the estimate prepared by the Congressional Budget Office (CBO) which is included below.  This estimate indicates that the combined costs and revenues in the bill will not add to the budget deficit, but indeed reduce the deficit slightly.  The revenue estimate from the Joint Committee on Taxation is also included below. 
  A summary of the direct spending and revenue impact of the bill is shown in the table below:

             [By fiscal year, in millions of dollars]            
 ----------------------------------------------------------------
                                1988    1989   1990   1991   1992
 ----------------------------------------------------------------
 Outlays (direct spending) ... 1,025   3,880  5,410  6,330  7,445
 Revenues .................... 1,421   5,018  5,888  6,641  7,550
                               ----------------------------------
    Net impact upon deficit ... -396  -1,138   -478   -311   -105
 ----------------------------------------------------------------

 
**837 *35 2. STATEMENT REGARDING NEW BUDGET AUTHORITY AND TAX EXPENDITURES

  In compliance with clause 2(1)(3)(B) of Rule XI of the Rules of the House of Representatives, the Committee states that the letter from the Congressional Budget Office indicates that there is a change in budget authority and that there are no new or increased tax expenditures as a result of the bill.

3. COST ESTIMATE PREPARED BY THE CONGRESSIONAL BUDGET OFFICE

  In compliance with clause 2(1)(3)(C) 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.

CONGRESSIONAL BUDGET OFFICE COST ESTIMATE

  1. Bill number:  H.R. 2470. 
  2. Bill title:  The Medicare Catastrophic Protection Act of 1987. 
  3. Bill status:  As ordered reported by the Committee on Ways and Means on May 19, 1987. 
  4. Bill purpose:  To amend title XVIII of the Social Security Act to provide protection against catastrophic medical expenses under the Medicare program, and for other purposes. 
  5. Estimated cost to the Federal Government:

                    [By fiscal years, in millions of dollars]                   
 -------------------------------------------------------------------------------
                                            1988    1989    1990    1991    1992
 Direct spending/offsetting receipts:                                           
   Section 101 provisions:                                                      
     Eliminating the limit on covered                                           
   hospital days:                                                               
       Budget authority                      -10     -30     -60     -90    -130
       Outlays                               180     300     345     380     420
     Eliminating enrollees' copayments                                          
   for hospital coinsurance and reserve                                         
   days:                                                                        
       Budget authority                      -15     -50     -95    -150    -210
       Outlays                               295     485     560     615     680
     Limiting payment of the hospital                                           
   deductible to the first stay each                                            
   year:                                                                        
       Budget authority                      -20     -60    ]110    -160    -220
       Outlays                               395     530     550     595     655
     Indexing the first-stay hospital                                           
   deductible amount to the COLA:                                               
       Budget authority                    [FN1]      -5     -15     -35     -65 
      Outlays                                10      75     175     290     410 
    Changing the calculation of the                                            
   part A premium:                                                              
       Budget authority                       15      25      25      25      25
       Outlays                                15      25      25      25      25
     Effect on trust fund from change in                                        
   part A premium:                                                              
       Budget authority                      -16     -27     -30     -30     -35
       Outlays                                 0       0       0       0       0
   Section 102 provisions:                                                      
     Changing the requirements for                                              
   coinsurance on SNF stays, and                                                
   covering up to 150 days a year:                                              
       Budget authority                      -10     -30     -55     -85    -120
       Outlays                               170     275     315     350     385
     Eliminating the prior                                                      
   hospitalization requirement of                                               
   coverage of SNF stays:                                                       
       Budget authority                   ( [FN-      -2      -5     -10     -15 
                                            1])                                 
      Outlays                                 0      40      55      65      75
   Section 103 provisions:                                                      
     Eliminating the 210 day limit on                                           
   hospice benefits:                                                            
       Budget authority                   ( [FN-  ( [FN-  ( [FN-  ( [FN-  ( [FN- 
                                            1])     1])     1])     1])     1]) 
      Outlays                            ( [FN-       1       1       1       1 
                                            1])                                 
  Section 104 provisions                                                       
     Changing blood deductible                                                  
   requirements from 3 per spell to 3 a                                         
   year:                                                                        
       Budget authority                   ( [FN-      -1      -2      -5      -5 
                                            1])                                 
      Outlays                                 5       8      10      10      11 
  Section 105 provisions:                                                      
     Transfering home health benefits to                                        
   part B:                                                                      
       Effect on part A:                                                        
         Budget authority                      0     130     445     865   1,360
         Outlays                               0  -2,896  -4,440  -5,106  -5,867
       Effect on part B:                                                        
         Budget authority                      0   3,435   4,690   5,270   6,075
         Outlays                               0   2,896   4,440   5,106   5,867
   Section 201 provisions:                                                      
     Benefits from the cap on part B                                            
   copayments:                                                                  
       Budget authority                        0   2,445   3,760   4,480   5,330
       Outlays                                 0   2,065   3,515   4,310   5,125
   Section 202 provisions:                                                      
     Extending home health benefits to                                          
   35 consecutive days:                                                         
       Budget authority                        0     180     255     285     330
       Outlays                                 0     155     240     275     315
   Section 203 provisions:                                                      
     Increasing limit on payments for                                           
   outpatient mental health services to                                         
   $1,000 a year:                                                               
       Budget authority                        0     100     200     270     350
       Outlays                                 0      85     185     255     335
   Section 205 provisions:                                                      
     Requiring state Medicaid programs                                          
   to buy-in all Medicare beneficiaries                                         
   with incomes below the poverty line:                                         
       Budget authority                       40     225     275     325     360
       Outlays                                40     225     275     325     360
   Section 206 provisions:                                                      
     Adjusting part B premium:                                                  
       Budget authority                       -5     -60    -370    -610    -685
       Outlays                                -5     -60    -370    -610    -685
   Spending under Medicaid:                                                     
     Effects of Medicare provisions on                                          
   Federal Medicaid costs:                                                      
       Budget authority                      -85    -330    -470    -560    -660
       Outlays                               -85    -330    -470    -560    -660
   Total direct spending/offsetting                                             
   receipts:                                                                    
       Budget authority                     -106   5,945   8,438   9,785  11,685
       Outlays                             1,025   3,880   5,410   6,330   7,445
 Amounts subject to appropriations:                                             
   Section 201 provisions:                                                      
     Administrative costs to implement                                          
   copayment cap:                                                               
       Outlays                                30      30      20      20      20
   Section 204 provisions:                                                      
     Annual notice to enrollees of                                              
   benefits under Medicare (half from                                           
   HI; half from SMI):                                                          
       Outlays                                 4       4       4       4       4
     Mailing directories of                                                     
   participating physicians to all                                              
   enrollees:                                                                   
       Outlays                                25      25      25      25      25
   Section 210 provisions:                                                      
     Providing research funding on                                              
   long-term care (half from HI; half                                           
   from SMI):                                                                   
       Outlays                                 5       5       5       5       5
   Total amounts subject to                                                     
   appropriations:                                                              
       Outlays                                64      64      54      54      54
 Revenues:                                                                      
   Section 106 provisions:                                                      
     Imposing an income-related                                                 
   supplemental premium: [FN1]                                                  
       Revenues                            1,421   5,018   5,888   6,641   7,550
 Total:                                                                         
   Budget authority                         -106   5,945   8,438   9,785  11,685
   Outlays                                 1,089   3,994   5,464   6,384   7,499
   Revenues                                1,421   5,018   5,888   6,641   7,550
   Change in deficit                        -332  -1,074    -424    -257     -51
 -------------------------------------------------------------------------------
 FN1 Less than $0.5 million                                                      

 Note:  Components may not sum to total due to rounding. 
  **839 *37 The effects of thisbill fall within function 570 and function 550. 
  1. Estimates are from the Joint Committee on Taxation.

Basis of estimate 

  Under current law, Part A of Medicare (Hospital Insurance) pays most of the costs for Medicare-covered services provided by hospitals, skilled nursing facilities (SNFs), home health agencies, and hospices.  Enrollees share the costs of services through a variety of copayment requirements, most of which are related to the first-day hospital deductible amount (which was $520 in 1987).  The bill would change the HI copayment requirements, effective January 1, 1988, with the result that Medicare's reimbursement costs would increase. It would also change the way in which the HI premium is calculated, which would affect only those enrollees not already entitled to HI benefits through previous payroll tax contributions. 
  Part B of Medicare (Supplementary Medical Insurance) pays for services provided by physicians, independent laboratories, and hospital outpatient departments.  Under current law, SMI enrollees are responsible for the first $75 of covered medical expenses, plus 20 percent of all reasonable charges above the deductible amount.  This bill would alter copayment requirements under Part B of Medicare by capping each enrollee's annual liability for copayments, first effective for calendar year 1989.  It would also provide some expansion of mental health and home health benefits. 
  Over the five-year projection period, the additional benefits provided under this bill would be financed by increases in the SMI premium and by implementation of a new income-related premium collected through the income tax system. 
  Estimates of the costs to Medicare from the copayment provisions of this bill were derived by simulating the effects of proposed changes on a 1 percent random sample of Medicare enrollees (about 300,000 enrollee records).  Medicare reimbursement and copayment costs for these enrollees in 1985 under current law were aged to 1988 through 1992, using CBO's baseline projections for enrollment and reimbursements, separately for each major service category.  Total Medicare reimbursements under current law were compared to what reimbursements would be after implementation of the proposed provisions to obtain the estimated costs of the benefit expansion. 
  **840 *38 Under current law, Medicare reimbursements per enrollee are projected to increase by about 9.6 percent annually between 1987 and 1992. Under this bill, reimbursements per enrollee would increase by an estimated 10.9 percent annually over the same period.  About 85 percent of the additional benefit costs would be due to the assumption by Medicare of some enrollees' copayment liabilities for current services.  The remaining 15 percent of estimated costs would be due to increased use of Medicare-covered services by enrollees.  The utilization responses assumed in the estimate were based on regression analyses of health care used by Medicare enrollees with and without supplementary insurance coverage for their Medicare copayment costs, using 1984 Health Insurance Survey data. 
  The revenue estimates for the income-related premiums were obtained from the Joint Committee on Taxation, and were based on simulations on a stratified random sample of current income tax returns, projected through 1992. 
  The specific provisions of the bill are explained in detail below.  Unless otherwise indicated, the provisions would take effect on January 1, 1988.

Direct spending/offsetting receipts

Section 101 provisions 

  Section 101 of the bill contains five provisions, discussed in turn below.  The estimates in this section take account of Medicare's additional reimbursements to hospitals to compensate for Medicare enrollees' bad debt-- that is, the failure by some enrollees to pay the deductible and coinsurance amounts for which they are liable.  Estimates by the Inspector General of the Department of Health and Human Services indicate that about 4 percent of enrollees' copayment liabilities for hospital stays are bad debt, which is eventually paid by Medicare. 
  Eliminating the limit on covered hospital days.--Under current law, Medicare will cover up to 90 days during each spell of illness, plus an additional lifetime reserve of up to 60 days.  In addition, there is a lifetime reserve of 190 days for inpatient psychiatric care.  This bill would eliminate the limit on covered hospital days for general care, but would retain the lifetime limit for inpatient psychiatric care.  Only a fraction of a percent of enrollees (fewer than 0.1 percent) exhaust their hospital benefits for general inpatient care each year, but the costs such patients incur are substantial.  Covering these days would cost Medicare $180 million in fiscal year 1988.  This estimate is based on information provided by the Health Care Financing Administration, indicating that this provision would add about 0.5 percent to total inpatient costs for Medicare-covered inpatient stays. 
  Eliminating enrollees' copayments for hospital coinsurance and reserve days.--Under current law, enrollees pay one-fourth of the first-day hospital deductible amount for days 61-90 in a given spell of illness (coinsurance days), and one-half of the deductible amount for any lifetime reserve days used.  This bill would eliminate enrollees' liability for coinsurance and reserve days.  About 0.5 percent of HI enrollees used coinsurance or reserve days each year, accounting *39 **841 on estimated 2.3 million coinsurance days and 0.7 million reserve days in 1988.  Eliminating these inpatient coinsurance costs would cost Medicare $295 million in fiscal year 1988. 
  Limiting payment of the hospital deductible to the first stay each calendar year.--Under current law, enrollees are liable for a hospital deductible each time they are admitted to the hospital in a new spell of illness (which begins on the 61st day following discharge from a previous inpatient episode).  In 1988, about 800,000 enrollees will pay more than one first-day deductible under current law, while no one would be liable for more than one deductible each year under this bill.  In addition, the bill contains as hold-harmless provision that would protect enrollees who were readmitted after January 1, 1988, within a spell of illness that had begun prior to that date from paying another deductible for such admissions.  These provisions would cost Medicare an estimated $395 million in fiscal year 1988. 
  Indexing the first-stay hospital deductible to the COLA.--Under current law, the first-day deductible is tied to increases in the index used to update payment rates under the prospective payment system.  Under this bill, the deductible would instead be tied to increases in the (third-quarter) consumer price index (the Social Security COLA).  This would slow the rate of growth in the deductible, because the update factor is projected to increase by 35 percent from 1987 to 1992, while the COLA will increase by only 23 percent over the same period.  In 1988, the deductible would be $544 under current law, but would be $541 if indexed to the COLA instead.  By 1992, the deductible would increase to $700 under current law, but would be only $641 if indexed to the COLA.  The additional costs to Medicare of this provision (after implementing all of the inpatient copayment provisions discussed above, as well as the SNF copayment provision discussed below) would be $10 million in fiscal year 1988. 
  Changing the calculation of the Part A premium.--Under current law, the premium charged to HI enrollees who are not entitled to benefits through previous payroll tax contributions is based on the first-day deductible amount.  Under this bill, the method of determining the premium would be changed so that it would reflect the actuarial value of HI benefits.  This would reduce the projected monthly premium amount for 1988 from $236 to $155, affecting about 23,000 enrollees.  The costs to Medicare from this provision in fiscal year 1988 would be about $15 million.

Section 102 provisions 

  Section 102 contains provisions relating to Medicare coverage of stays in skilled nursing facilities.  They would change coinsurance requirements, provide for coverage of up to 150 days a year, and eliminate the 3-day prior hospitalization requirement for covered SNF care. 
  Changing the requirements for coinsurance on SNF stays, and covering up to 150 days a year.--The bill would alter the way in which enrollees' coinsurance liability for stays in skilled nursing facilities is determined, and would change Medicare's coverage limits from 100 days per spell to 150 days a year. Under current law, coinsurance amounts equal to one-eighth of the hospital deductible (*40 **842 $68 per day in 1988) are charged each day for days 21-100 in SNFs during each spell of illness.  Under the bill, enrollees would pay coinsurance amounts equal to 20 percent of Medicare's national average reasonable cost for the first seven days of each SNF stay;  enrollees' coinsurance costs would be $23.50 per day in 1988 for each of the first seven days of each SNF stay. 
  Fewer than 2 percent of Medicare enrollees have covered SNF stays, but these enrollees will use about 8.6 million SNF days during 1988.  These provisions would increase Medicare costs by $170 million in fiscal year 1988.  About 80 percent of the costs would be due to lower coinsurance amounts paid by enrollees, while the remaining 20 percent of costs would be due to additional covered SNF days resulting from the change in coverage limits to 150 days a year.  The estimate assumes that those enrollees who would exhaust their SNF coverage under current law (about 7,500 in 1988) would use the full 150 days allowed under the bill. 
  Eliminating the prior hospitalization requirement for SNF stays.--This bill would remove the requirement that a Medicare enrollee be hospitalized for at least three days prior to admission to a SNF to be eligible for Medicare coverage, effective January 1, 1989.  As a result, the number of people receiving the SNF benefit would increase.  Increased costs resulting from this provision are estimated at $40 million for fiscal year 1989, based on findings from a demonstration and study conducted by the Health Care Financing Administration.

Section 103 provisions 

  Section 103 of the bill would eliminate the current 210-day lifetime limit on the number of days enrollees who are terminally ill may receive hospice services.  Nearly 98 percent of hospice beneficiaries die before the 210-day limit is reached, but tabulations by the Health Care Financing Administration indicate that those who survive for the full 210 days of their hospice benefit live another 50 days, on average.  Because not all of these additional Medicare costs under the hospice benefit would be offset by reduced costs for inpatient, SNF, or home health services, there would be a small cost due to this provision, eqaual to about $0.4 million in fiscal year 1988.

Section 104 provisions 

  Under current law, enrollees are required to replace or pay for the first 3 pints of blood used each spell of illness.  Section 5 of the bill would require enrollees to replace or pay for the first 3 pints of blood used each year. Medicare costs would increase under this provision because enrollees would pay for an estimated 156,000 fewer pints of blood used in 1988 then they would under current law, costing Medicare about $50 per pint.  The additional costs to Medicare in fiscal year 1988 would be about $5 million.

Section 105 provisions 

  This section of the bill would transfer the financing for home health benefits from the HI trust fund to the SMI trust fund for all Part B enrollees, effective January 1, 1987.  Medicare beneficiaries who are not enrolled under Part B could continue to receive home **843 *41 health benefits under Part A.  This would generate not net outlays costs, but it would alter budget authority totals under the two trust funds.

Section 201 provisions 

  Under Section 201 of the bill, each SMI enrollee's liability for copayments under the program would be capped at $1,043 in 1989.  In subsequent years, the value of the copayment cap would increase at the same rate as the third-quarter Consumer Price Index (the Social Security COLA).  Under CBO's baseline projections, the COLA would increase by about 4 percent annually over the five- year projection period, so that the SMI copayment cap would be $1,185 in 1992. 
  About 8.4 percent (or 2.7 million) of SMI enrollees would be affected by the copayment cap in 1989.  As a result, SMI benefit costs would increase by $2.1 billion in fiscal year 1989.  By 1992, more than 10 percent of enrollees would be affected by the copayment cap, at a cost to Medicare of $5.1 billion during the first year.

Section 202 provisions 

  Currently, Medicare enrollees are entitled to receive two to three weeks of daily home health visits.  This bill would increase the limit to 35 days, and would clarify current law by specifying that "daily care" means up to 7 days a week.  The estimated cost of this provision, which would be effective January 1, 1989, is $155 million for fiscal year 1989.  The estimate is based on Medicare administrative data on the distribution of home health visits under current law, and on projections of the increased utilization that would result from clarifying the definition of daily care and increasing the limit on consecutive days.

Section 203 provisions 

  Current law limits reimbursement for outpatient mental health services to  $250 a year per enrollee.  This bill would increase the limit to $1,000 a year, effective for calendar year 1989.  The coinsurance rate on the additional benefits would remain at 50 percent, as under current law, and the additional copayments resulting from this provision would not count toward the SMI copayment cap described elsewhere in this bill.  The estimate costs for this provision are $85 million in fiscal year 1989.  The estimate is based on current use rates for the mental health benefit and projected increases in utilization due to the higher limit.  The estimates of increased utilization were based on results of a demonstration study of a similar benefit expansion conducted by the Department of Health and Human Services.

Section 205 provisions 

  Currently, state Medicaid programs may choose whether or not to pay Medicare premium and copayment costs for all Medicare enrollees with incomes below the poverty level.  This bill would require states to cover these costs, thereby affecting approximately 46 states that do not currently provide this Medicaid benefit to all poor Medicare enrollees, effective July 1, 1988.  The estimated costs of this provision are $40 million in fiscal year 1988.  The cost estimate *42 **844 is based on counts from the Current Population Survey of poor Medicare enrollees who do not receive Medicaid benefits, and on Medicaid program data showing the current cost of the proposed benefits per Medicare-eligible Medicaid beneficiary.

Section 206 provisions 

  This section provides for several adjustments to the current-law SMI premium.  For most SMI enrollees, the SMI premium would be increased by $1.00 a month in 1990, and by an additional $0.40 a month in 1991, on top of the automatic increases that would result under current law.  (Under current law, beginning in 1989 SMI premium increases may not exceed the rate at which Social Security benefits are adjusted each year to offset cost-of-living increases, as measured by the change in the third-quarter Consumer Price Index.  This is referred to as the COLA.) 
  Two groups are exempt from the ad hoc premium increases described above, however, and would be subject to a different set of provisions.  For residents of Puerto Rico and the other territories, the current-law SMI premium would be increased in 1988 and 1989 by the full insurance value of the new Medicare HI and SMI benefits provided under this bill.  For U.S. residents who are enrolled in Part B but who are not eligible for Part A benefits, the current-law SMI premium would be increased in 1989 by the insurance value of the new Medicare SMI benefits provided under this bill.  Beginning in 1990 and for all subsequent years, the total premium paid in 1989 by both groups of these enrollees would be indexed to the COLA. 
  The net effect of these premium provisions would to generate additional premium receipts of $5 million fiscal year 1988, growing to $685 million by fiscal year 1992.

Federal Medicaid savings 

  About 9 percent of Medicare enrollees are dually eligible for Medicaid benefits.  For these enrollees, Medicaid generally pays both their copayment liabilities under Medicare and their SMI premium costs.  Consequently, Medicaid costs would be reduced by this bill because of lower copayment costs for dually-eligible enrollees, partially offset by increased Medicaid costs for the higher SMI premiums.  In addition, there would be some additional savings to Medicaid in states with "medically needy" programs because the copayment limitations provided under this bill would reduce the number of Medicare enrollees who would qualify for Medicaid benefits under such programs.  Savings are estimated to be $85 million in fiscal year 1988.

Amounts subject to appropriations

Section 201 provisions 

  Neither Medicare carriers nor the Health Care Financing Administration currently collect information on the amounts of coinsurance paid by enrollees for Part B benefits.  To implement the copayment cap proposed in this bill, comprehensive information about both deductible and coinsurance amounts paid under Part B would have to be complied across all Medicare carriers for each **845 *43 SMI enrollee.  The estimates of start-up and ongoing administrative costs under this proposal are based on discussions with the Bureau of Program Operations in the Health Care Financing Administration.

Section 204 provisions 

  Under this provision, the Department of Health and Human Services would be required annually to mail each HI or SMI enrollee an explantation of Medicare benefits, beginning with calendar year 1988.  The funds would be taken equally from the HI and the SMI trust funds.  Estimated costs for this provision are $4 million annually, based on previous experience with such mailings by the Social Security Administration and by the Health Care Financing Administration. 
  In addition, the Department would be required to mail annually a directory of participating physicians to each SMI enrollee, beginning calendar year 1988. The costs of this provision are estimated to be $25 million a year, again based on previous experience by the Social Security and the Health Care Financing administrations.

Section 210 provisions 

  Section 210 authorizes an appropriation of $5 million annually for each year from 1988 through 1992, to conduct research on long term care services for Medicare enrollees.  The funds would be taken equally from the HI and the SMI trust funds.

Revenues

Section 106 provisions 

  This section would impose an income-related, tax-based supplementary premium on all people eligible for benefits under Part A of Medicare, excluding nonresidents, effective January 1, 1988.  For individuals who were eligible for only part of the year, this supplementary premium would be pro-rated for the part of year during which they were Medicare-eligible.  The supplementary premium rates would be indexed to the rate of growth in the subsidy value of Medicare benefits.  The Joint Tax Committee estimates that revenues from this income-related premium would total $1.4 billion in fiscal year 1988. 
  6. Estimated savings to State and local governments:  This bill would have an effect on State and local government budgets, since States share in the financing of Medicaid--paying about 45 percent of outlays.  CBO estimates the following effects:

       [By fiscal years, in millions of dollars]       
 ------------------------------------------------------
                           1988  1989  1990  1991  1992
 ------------------------------------------------------
 Effects on State/local                                
 Medicaid costs .......... -70   -270  -385  -460  -540
 ------------------------------------------------------
  
   7. Estimate comparison:  None. 
  8. Previous CBO estimates:  H.R. 1280 and H.R. 1281. 
  **846 *44 Estimate prepared by:  Sandra Christensen, Hinda Ripps Chaikind, Holly Harvey, and Don Muse. 
  10. Estimated approved by:  C.G. Nuckols (for James L. Blum, Assistant Director for Budget Analysis).

IV. OTHER MATTERS REQUIRED TO BE DISCUSSED UNDER THE RULES OF THE HOUSE

1. VOTE OF THE COMMITTEE

  In compliance with clause 2(1)(2)(B) of Rule XI of the Rules of the House of Representatives, the following statement is made:  the bill, H.R. 2470 was ordered favorably reported to the House of Representatives on May 19, 1987, by voice vote.

2. OVERSIGHT FINDINGS

  In compliance with clause 2(1)(3)(A) of Rule XI of the Rules of the House of Representatives, the Committee reports that the need for this legislation was confirmed by the oversight hearings of the Subcommittee on Health. 
  The Subcommittee conducted a total of eight hearings on the legislation including six hearings on extending catastrophic coverage under the Medicare program (January 29, 1987;  February 25, 1987;  March 3, 1987;  March 4, 1987, March 10, 1987;  and March 30, 1987).  The Subcommittee conducted a hearing March 31, 1987, on the feasibility of financing and delivery a long-term care benefit under the Medicare program and a hearing April 23, 1987, on extending coverage of prescription drugs under the Medicare program.

3. OVERSIGHT BY COMMITTEE ON GOVERNMENT OPERATIONS

  In compliance with clause 2(1)(3)(D) of Rule XI of the House of Representatives, the Committee states that no oversight findings and recommendations have been submitted to the Committee on Government Operations with respect to the subject matter contained in the bill.

4. INFLATION IMPACT

  In compliance with clause 2(1)(4) of Rule XI of the Rules of the House of Representatives, with regard to the inflationary impact of the report bill, the Committee believes that the bill has no measurable effect on health care prices or consumer prices generally as the bill is budget neutral in each of the five years for which cost estimates are available.

* * * * *

**847 *73 VI. ADDITIONAL VIEWS

ADDITIONAL VIEWS OF THE HONORABLE BILL FRENZEL

  When I first heard of the President's proposal to provide catastrophic health insurance as a part of Medicare, I thought it was a wonderful idea.  I still do.  However, subcommittee changes to the original concept have produced a bill that may not live up to the original promises. 
  As submitted by the President, the bill was tight and its financing was simple.  The concept was reasonably clean.  Young persons were not being forced to finance health care for their elders. 
  The Health subcommittee and the full Committee made a number of important changes.  The most obvious ones were in financing.  Instead of the flat across- the-board premium, the finance plan included both an across-the-board premium (Part B premium adjustment of $1.00 in 1990 rising to $1.50 in 1992) and a mandatory supplemental premium ranging from $1.18 to $70.00 per month based on income. 
  Because of anxieties expressed in the full Committee the variable financing element was described as a supplemental premium rather than a taxable actuarial value.  The concept of the "premium" is substantially similar to "the taxable actuarial value." 
  For me, the financing is not the biggest problem.  Either a flat premium or a variable income-based fee is acceptable.  Actually, I prefer the income-based approach as a first step toward means-testing the Medicare program. 
  The benefit section, however, poses some real risks.  One fact from the subcommittee background materials pamphlet (pg. 67) illustrates the problem. In the five-year period covered by the CBO estimates, the President's benefit package would have cost about $13 billion.  The subcommittee's proposal costs about twice as much, $24 billion. 
  That is the general dimension of the problem.  However, the most frightening aspect of the bill is the cost/revenue relationship in the years beyond 1992. The Department of Health and Human Services says that costs will exceed revenues in the period after 1992.  CBO, with its usual uselessness, says only that it has no estimates after 1992. 
  HHS estimates annual deficits of $10 billion by 2000, and $30 billion by 2005.  If those figures are anywhere near right, the result will be a raid on the Medicare Trust Fund or unacceptable premiums for older Americans.  Either alternative is enough to give any sober Congressman pause. 
  *74 The bill fills a needed gap in Medicare policy.  Something like it is needed.  Clearly some sort of legislation is called for. 
  This bill has a long way to go.  It would be premature to stop it now.  But it is appropriate to raise questions now, and demand answers now, and seek ways to reduce what seem to be unacceptable risks.

	Bill Frenzel.

**848 *75 ADDITIONAL VIEWS OF THE HONORABLE BRIAN DONNELLY TO ACCOMPANY
H.R. 2470

  The Committee on Ways and Means deserves credit for its efforts in drafting this legislation, the first major expansion of the Medicare program since its enactment in 1965.  Unfortunately, I can only provide reluctant support for this measure.  It is may belief that the legislation promises more than it delivers, and I have great concerns over two areas which the legislation does not address.

NON-ASSIGNED CLAIMS UNDER MEDICARE

  The legislation's noble intent is to limit beneficiary out-of-pocket expenses for Part B services to $1,043 per year.  The reality, of course, is that the legislation does not limit beneficiary expenses to the extent that the beneficiary's physician does not accept assignment.  Thus, beneficiaries in all but one state 1 still can and will face "catastrophic" medical expenses even after H.R. 2470 is fully implemented. 
    1 Massachusetts has enacted legislation prohibiting physicians from  "balance billing" their patients.  The law, which was the subject of numerous constitutional challenges, was recently upheld by the First Circuit Court of Appeals. 
    Realistically, there is no reason that physicians should be allowed to balance bill Medicare beneficiaries who have incurred $1,043 in Part B expenses.  Physician reimbursement under Medicare is determined on the basis of actual, customary and prevailing charges:  standards determined by the physicians themselves. 
    Unfortunately, the Committee defeated an amendment I offered which would have mandated that all Medicare claims be assigned once a beneficiary had exceeded the Part B cap of $1,043 established in the legislation.  According to the Congressional Budget Office, my amendment would have saved beneficiaries $938 million in calendar year 1988, a number which clearly demonstrates how pervasive the problem of balance billing is. 
    I recognize that the entire issue of physician reimbursement under Medicare is extremely controversial, and the Committee on Ways and Means will be closely examining those issues later this year.  I felt--and still feel--that the only way to rein in health care costs is to impose some type of assignment requirement on physicians, and I will continue to pursue this issue further.

LONG-TERM CARE

  Another area where the Committee bill falls short in addressing the true needs of the elderly is in the area of long-term care.  The true catastrophic expenses for senior citizens come from custodial nursing home care.  Yet Medicare reimburses only a miniscule portion of the costs for this care:  much to the shock of many Medicare 
*76 beneficiaries.  Very few private insurance companies offer such coverage. 
  In this bill, the Committee missed an important opportunity to address these concerns of the elderly.  The longer we wait, the more **849 acute the problem will become.  Senior citizens, generally, face catastrophic medical expenses when they are forced to go into a nursing home, not when they are hospitalized.  No amount of planning and foresight on their part can prepare them for the costs they face in a nursing home.  Rather, beneficiaries "spend down" their life savings and force Medicaid to pay for their care.  Certainly, we have the ability to deal with senior citizens in a more humane manner. 
  The Committee rejected a modest amendment I offered dealing with long-term care which would have expanded the enormously successful S/HMO concept pioneered by Brandeis University.  Although the Committee did agree to reauthorize the four existing S/HMOs, I would have preferred to see much larger demonstration projects.  Fortunately, the Committee did agree with me on the need for research into long-term care, and authorized $5 million for each of the next five years for this research. 
  In conclusion, it is with reluctance that I support H.R. 2470.  I believe that the Committee could and should have gone further in the areas I have mentioned, and hope that these issues are addressed on the floor of the House or by the Senate.

	Brian Donnelly.

*77 VII. DISSENTING VIEWS OF THE HONORABLE BILL ARCHER, PHILIP M. CRANE,
RICHARD T. SCHULZE, HAL DAUB, JUDD GREGG, AND HANK BROWN

  The original goal of the Committee on Ways & Means regarding Medicare catastrophic protection legislation was a noble one:  to protect the elderly from the threat of financial ruin resulting from a devastating and prolonged illness.  The thousands of elderly individuals who face impoverishment as a result of high hospital and other medical costs are of great concern to many of us.  We believe, however, that while the problem of catastrophic health expenses warrants a solution, the alternative reported by the Committee (H.R. 2470, "The Medicare Catastrophic Protection Act of 1987") jeopardizes the financial viability of the Medicare program itself. 
  We are genuinely disappointed at the lack of actuarial information available to the Committee about how this expansion of the Medicare program will strain the already troubled Medicare trust fund.  Many of us are disappointed that the Committee reported bill remains silent on the more probable catastrophic costs faced by the elderly, those of long-term care, such as prolonged stays in nursing homes.  Furthermore, a number of us are wary of any Medicare program expansion not containing adequate safeguards to prevent the type of over- utilization that might threaten the program's collapse.  In addition, a number of us are deeply concerned that this new entitlement program will eliminate much of the retirement health insurance market.  Further, the proposal does not seek ways to expand the private sector's involvement in insuring those elderly individuals who face an acute catastrophic illness against financial ruin. 
  When evaluating the Committee acute care proposal, one might do well to remember the guidelines set forth by the President for **850 his intitiative on Catastrophic Illness Insurance for the elderly.  These guidelines were enumerated in the press release issued immediately following his 1987 State of the Union Address.  The guidelines are as follows: 
    We must provide meaningful protection against out-of-pocket expenses that substantially threaten family savings; 
    The importance of Medicare, Medicaid and Medigap should be maintained and we should not encourage excessive use of services; 
    Any catastrophic illness coverage should be voluntary, not a new government entitlement;  and 
    The proposal must be fully budget-netural, without the explosive potential of program expansions. 
  Several of us had hoped that the Committee would follow these guidelines in the design of the Committee bills so as to create a constructive and positive solution to the problem posed to the Committee.  But even a cursory glance at the summary of this bill *78 shows us that the Committee's expansion of the Medicare program meets very few, if any, of the President's guidelines.  Many of us feel that a number of the provisions of the bills directly conflict with these guidelines. 
  When dealing with any type of modifications or expansion of the Medicare program, Congress must be keenly aware of the prediction in the 1987 report of the Medicare trustees that, under alternative II-B assumptions, the trust funds would be exhausted by the year 2002.  Any expansion of the benefits offered by the Medicare program should be budget neutral in both the near and distant future.  However, many of us are genuinely skeptical that the Committee has taken proper precautions to ensure that this new entitlement program, along with its many well-intended expansions of current Medicare benefits, will not create large deficits in future years.  Should deficits occur, this program will only quicken the arrival of the impending Medicare financial crisis, thus threatening the future availability of the very core of benefits already offered under the Medicare program. 
  While few of us dispute that this bill does provide meaningful protection for out-of-pocket expenses, as called for in the first of the President's guidelines, several of us would like to point out that a number of the elderly might be misled to believe that all out-of-pocket costs of illness, whether for acute or long-term medical care, above the cap of approximately $1700, are covered.  The title of the bill "The Medicare Catastrophic Protection Act of 1987," is certainly a misnomer.  Even with the expanding the program, Medicare still does not cover many medical bills that can be substantial.  For example, such costly expenses may include physician fees beyond Medicare-approved charges, dental care, prescription eyeglasses, and outpatient prescription drugs.  More important, the bill does not address the issue of expenses for long-term care, which can be truly catastrophic and often represent the greatest fears for the elderly.  Clearly, the bill is misleading, as it gives the elderly the impression that nursing home or other extended care services will now be covered by Medicare. 
  Several of us are also distressed to see that this bill seems to conflict directly with the President's guideline that the importance of **851 medigap insurance be maintained.  Instead of encouraging greater use of the private sector, the proposed Medicare catastrophic program replaces, and would even discourage, the Medicare supplemental insurance market in the private sector. Nearly 70 percent of Medicare's 28.4 million beneficiaries currently purchase supplemental policies (medigap insurance), many of which provide coverage for health care costs similar to or better than the expanded entitlement program in the Committee's bill.  Given that another eight percent of beneficiaries are also eligible for Medicaid, which assists low-income elderly by meeting virtually all of their acute care health costs, there remain only five million beneficiaries who are currently without medigap or Medicaid coverage.  Of these five million beneficiaries, fewer than 12,000 can expect to incure hospital stays longer than the 150 day limit currently contained in the Medicare program. 
  This leads to a critical question which a number of us feel was insufficiently discussed by the Committee:  Should the government *79 be spending an additional five billion dollars a year to provide for so few of Medicare's beneficiaries? 
  Several of us feel that the Medicare catastrophic proposal contained in H.R. 2470 undermines the Medigap market by eliminating the most insurable risks from the market.  At the same time, many of us feel that it is not likely that the Medigap insurers then will cover those expenses not covered in the proposals, such as drugs, eyeglasses, dental, or other services, which neither Medigap policies nor Medicare now cover. 
  In addition, a number of us would like to point out that four to five million Americans now have comprehensive medical coverage, with both Medicare and retiree health "benefits" from their employers.  Many of them do not currently pay even Part B premiums.  While these Medicare beneficiaries will receive no enhanced coverage from the Committee proposal, those elderly with taxable income, under the financing mechanism, will be forced to pay surtaxes for benefits for which they already have paid through private insurance coverage. The result will be greater reliance on the government benefits as these elderly accept enhanced Part B coverage for which they would now mostly be paying in the form of surtaxes. 
  The second of the President's guidelines also cautions that "we should not encourage excessive use of services."  However, many of us are quite skeptical whether this bill contains adequate safeguards to prevent over-utilization. One need look only at the projected growth rates of the expansion of benefits beyond the acute care provision to see the huge potential for over- utilization.  Over the first five years of the expansion of benefits, spending on the new mental health benefit will grow 55%, spending on the new home health benefit will increase 76%, and spending on the new skilled nursing facility benefit will increase 136%.  In addition, many of us feel that the Part B cap of $1,000 will add "fuel to the fire" of the fastest growing segment of the Medicare program, physician payment.  If Medicare begins to pay 100% of the allowed charges after the first $1,000, SMI trust fund expenditures could grow even more rapidly than the current 15.3% growth this year **852 and 30% growth projected over the past four years.  About 2.5% of the increase in physician payments is due to a higher than expected volume in services, a phenomenon unexplained by the expanding population of Medicare beneficiaries. Many of us feel that the low cap likely will add an incentive to provide even more tests and procedures. 
  In regard to the third guideline set by the President, that "any catastrophic illness coverage should be voluntary, not a new government entitlement," many of us feel that provisions in the Committee reported bill are clearly new entitlements.  H.R. 2470 entitles all Medicare beneficiaries to unlimited inpatient hospital stays, expands the current entitlement of 100 days of skilled nursing facility care per spell of illness to 150 days per year, and expands the current entitlement for hospice care.  While the bill provides Medicare catastrophic coverage for those persons voluntarily enrolling in Part B, many of us would like to note that this bill does not give those individuals who enroll in Part B (about 97% of Medicare beneficiaries) the option of accepting this additional coverage. 
  *80 Thus, for those enrolled in Part B, but covered by private insurance for acute catastrophic expenses (about 65.4% of the elderly), this can be seen as an unnecessary new entitlement program.  Furthermore, it is disturbing to several of us to find that the financing mechanism, in that it levies a surtax on all the elderly who have taxable income, forces those individuals who do not enroll in Part B, but who have taxable income, to pay for the benefits which they will never receive. 
  As concerns the fourth and final guideline of the President, that the proposal remain fully budget-neutral, many of us feel that the bill threatens to be a budget buster.  As stated earlier, we are concerned with the lack of actuarial estimates available to the Committee as to whether or not the acute care benefit will be budget neutral beyond the first five years of the program. 
  During the Committee mark-up, the Health Care Financing Administration actuary testified that, given the original financing proposal (including in taxable income the actuarial value of the Part A and Part B benefits), the new program would have a $10 billion revenue shortfall in the year 2000, worsening to a $30 billion revenue shortfall by the year 2005.  Given the currently projected depletion date of the Medicare Trust Funds (2002, under the Medicare Trustee's intermediate economic assumptions), these figures certainly cause many of us to question whether the Committee has taken the proper safeguards to prevent this expansion of the Medicare program from threatening the program's very existence.  While the Subcommittee-reported financing was replaced by a premium and surtax formula, we do not believe that there has been adequate evidence available to show that this new funding method will ensure that this new entitlement program will remain budget neutral.  Preliminary estimates by the Department of Treasury, using the Medicare actuaries' alternative II-B assumptions, show that the average cost per Medicare enrollee of the Committee's proposal is approximately $150 per enrollee in 1989.  By the year 2005, if the program is to remain budget neutral, this average cost will have grown to be somewhere between $800 to $1000 per **853 enrollee, and this is in 1988 dollars!  In addition, the Treasury Department estimates that, by the year 2005, the $1700 cap on out-of-pocket costs will have risen to between $3000 and $4000, again in 1988 dollars.  Furthermore, the Treasury Department estimates that this program, which in 1989 will represent about 5% of the Medicare program costs, will grow to be about 10% of the Medicare program in the year 2005.  Certainly, these figures warrant a far greater consideration of the long-term potential for explosive costs than the few minutes which was given by the Committee. 
  It is clear to us that the Committee proposal conflicts with many of the guidelines set by the President for the catastrophic illness insurance program.  We do not wish to see an expansion of Medicare which threatens the very financial security of the system itself.  We also do not wish to see a bill which misleads the elderly into believing that all their retirement health needs beyond an out-of-pocket cap will be taken care of by the national government.  In addition, we certainly question the wisdom of replacing the private insurance market with a new federal government program.  Furthermore, we are opposed to the involuntary nature of this program.  *81 Also, we are quite wary of the projected increases of the mandatory progressive surtaxes levied upon certain sectors of the elderly population.  For the reasons cited here and many more, we cannot support H.R. 2470, as reported by the Committee on Ways and Means, in its current form.

	BILL ARCHER.

	HAL DAUB.

	HANK BROWN.

	PHIL CRANE.

	RICHARD SCHULZE.

	JUDD GREGG.

**854 *82 VIII. ADDITIONAL DISSENTING VIEWS

ADDITIONAL DISSENTING VIEWS OF THE HONORABLE HAL DAUB

  The time has certainly come for Congress to reexamine the Medicare Program and to address the changing needs of our Nation's senior citizens.  Efforts to provide protection against catastrophic health care costs are commendable; however, I am concerned that the committee's bill, H.R. 2470, "The Medicare Catastrophic Protection Act of 1987," will perpetuate the myth among many of the elderly that Medicare covers all the costs of illness, whether acute medical or longterm care expenses.  The title of the bill is certainly a misnomer.  The legislation does not "close" all of the gaps that now exist in Medicare coverage. 
  My greatest concern is that H.R. 2470 fails to protect the elderly sufficiently against what I believe to be the most devastating catastrophic expenses--namely, those associated with longterm care.  In testimony before the Ways and Means Health Subcommittee, representatives of various senior groups have attested to the fact that the greatest deficiency in the present health care system is the lack of a longterm care system encompassing medical, social, and personal care services provided in a variety of community, home-based, and non-institutional settings. 
  I have authored legislation, H.R. 1776, "The Longterm Health Care Amendments of 1987," which addresses these critical issues now facing our elderly population, and which offers incentives for the working-age population so that they may begin to provide for their future health care needs. 
  My legislation incorporates a balance of governmental, individual, and employer incentives that begin to build those reserves that will be necessary to adequately fund any longterm care program.  There is no doubt that the provision of longterm care benefits--whether it be through a government program or via the establishment of individual insurance incentives--will be a costly proposition.  Considering, though, that the committee's bill, H.R. 2470, will expend $25 billion over the next five years, I strongly believe that these funds would be more appropriately spent in the longterm care area. 
  The definition of "catastrophic illness" alone can be interpreted in many ways, depending upon where one sees the greatest demand for need.  I am convinced that our senior citizen's catastrophic costs arise from those costs associated with longterm care. 
  The committee had a real opportunity to address some very critical health policy issues, but missed the mark.  I cannot support H.R. 2470 in its present form.

	HAL DAUB.

**855 *83 ADDITIONAL DISSENTING VIEWS OF THE HONORABLE JUDD GREGG

  Clearly, the time has come to consider Medicare coverage for catastrophic illness.  No one should have to live with the fear that a long hospital stay could drain a lifetime of savings.  The question before Congress, then, is not whether we should reevaluate the adequacy of the current Medicare benefit but, more appropriately:  HOW should we approach this challenge?  The Committee on Ways and Means was presented with two basic approaches to the issue of Medicare coverage for catastrophic illness:  H.R. 2470, the Stark-Gradison "Catastrophic Protection Act of 1987" and H.R. 1245, President Reagan's initiative, "The Medicare Catastrophic Illness Coverage Act."  In approving H.R. 2470 and rejecting H.R. 1245, the Committee has issued a shortsighted and fiscally unsound response to the long-range health care needs of our senior citizens. 
  The President's initiative, H.R. 1245, makes some much-needed changes in the Medicare system, is actuarially sound and costs one-half the price of H.R. 2470.  Consequently, it is a much more appropriate and fiscally responsible approach to the issue of Medicare coverage for catastrophic illness.  Furthermore, H.R. 1245 does not contain many of the serious policy implications found in H.R. 2470.  First, actuaries at the Department of Health and Human Services project that the Stark-Gradison benefits package could drain the Medicare Trust Funds by as much as $10 billion in the year 2000, and $30 billion in the year 2005.  Using moderate economic forecasts, we can expect the Hospital Insurance Trust Fund to run deficits of $1.6 billion as early as 1995.  By the year 2002, the fund will be insolvent and will have deficits of as much as $32 billion.  Paying for current benefits will be difficult enough given the problems of an already grossly underfunded program.  H.R. 2470 will make a bad situation much worse;  H.R. 1245 will not. 
  A second problem with the Stark-Gradison plan is the fact that, to a great extent, what is being delivered is a replacement of private insurance.  Today, 70% of senior citizens are covered for high out-of-pocket expenses by Medicare supplemental policies.  Medicaid provides coverage for another 10% of the population over 65.  In an HIAA survey of top commercial Medigap policies, 86% of insureds were covered for 100% of all Medicare allowable hospital expenses, 92% were covered for the Part A hospital deductible and 93% had unlimited coverage for Medicare allowable Part B expenses.  Stark-Gradison, then, at a cost of $24 billion, gives additional coverage to only a small percentage of people, while essentially socializing an entire area of health care that is now being satisfactorily handled by the private sector.  Scarce federal resources are being misapplied and, rather than encouraging the private sector to bear some of the costs of the insurance, we are actually replacing private dollars with federal tax dollars. 
  *84 Third, one must wonder at the arbitrary and unrealistic definition of  "catastrophic cost" imposed by Stark-Gradison.  Clearly, there is a need for insurance coverage, in some cases even federal coverage, for extremely expensive health care services, where private **856 sector activity is insufficient.  But is $1500 truly catastrophic, particularly in view of the fact that many low-income seniors qualify for Medicaid which offsets a large portion of the $1500?  If we are to consider $1500 in health care costs to be catastrophic, how do we view the $4410 spent annually by the average elderly household for shelter or the $2372 food cost and $2246 transportation cost encountered each year by the average senior citizen?  Why Congress is so rigid in adhering to an arbitrary definition of "catastrophic" when the costs are so high and the benefits so misdirected is incomprehensible. 
  In truth, H.R. 1245, not H.R. 2470, is the best approach to Medicare coverage for catastrophic illness.  The President's initiative accomplishes a worthy goal of restructuring the current Medicare acute care benefit, and is a clear and definite improvement over the present system.  It does not contain benefits that will raid the already fragile Medicare Trust Funds or sprial in the out-years.  Unlike H.R. 2470, which indexes its catastrophic cap to the Social Security COLA, H.R. 1245 indexes its cap to Medicare inflation, thus guaranteering costs to increase at a slower, more predictable pace.  H.R. 1245, at a five-year cost of $12 billion, provides beneficiaries with added acute care protection but, unlike Strak-Gradison, does not spend $24 billion dollars in the process. 
  Finally, H.R. 1245 does not raid the pockets of beneficiaries.  It does not cut off future revenue sources for other burdensome, often catastrophic, out- of-pocket costs incurred by the elderly:  balance billing, dental and eye care, and most importantly, long-term care.  Under H.R. 2470, some beneficiaries who are now paying $214.80 annually for their Medicare Part B coverage (which in 1965 was $36 annually) would be required to pay as much as $1,265.00 in 1992, an increase of 590%.  It is clearly unfair to make some individuals pay almost six times what they are paying now for a benefit that is very likely already being covered by private Medicare supplemental policies.  An income-related supplemental premium approach could easily be applied to H.R. 1245 to require those who can afford to pay more to do so, at generally less cost than under H.R. 2470. 
  In summary, the major difference between H.R. 1245 and H.R. 2470 is the fact that H.R. 1245 addresses problems and H.R. 2470 creates them.  In the frenzy to provide new benefits, few are considering priorities or worrying about uncontrollable costs.  The creation of huge deficits in the Medicare Trust Funds in the out-years, the failure to leverage private dollars with federal dollars, and the misguided replacement of private sector involvement with federal programs most certainly should not be the doctrine at the heart of this federal initiative or those to come.  It is unfortunate that the Committee could not recognize this and be more receptive to a plan which does not result in a $24 billion dollars catastrophe.

	JUDD GREGG. 

(Note:  1.  PORTIONS OF THE SENATE, HOUSE AND CONFERENCE REPORTS, WHICH ARE    
DUPLICATIVE OR ARE DEEMED TO BE UNNECESSARY TO THE INTERPRETATION OF THE LAWS, 
ARE OMITTED.  OMITTED MATERIAL IS INDICATED BY FIVE ASTERISKS:  *****.         
        2.  TO RETRIEVE REPORTS ON A PUBLIC LAW, RUN A TOPIC FIELD SEARCH      
USING THE PUBLIC LAW NUMBER, e.g., TO(99-495))                                 

H.R. REP. 100-105(I), H.R. Rep. No. 105(I), 100TH Cong., 1ST Sess. 1987, 1988 U.S.C.C.A.N. 803, 1987 WL 61565 (Leg.Hist.)

END OF DOCUMENT