Medicare Privatization – A Bait and Switch Failure and Government Scandal 2/24/2020

Talking Points: • From 1997 to 2018, Medicare Advantage (MA) market share grew only as Congress funded $380 billion

in subsidies. Medicare Trustees, HHS Inspector General and MedPAC warned Congress that the subsidies were not productive and classified them as overpayments, part of the $85 billion annual total Medicare and Medicaid overpayments. Congress and HHS ignore these independent watchdogs.

• 2018 Medicare payments for Parts, A, B and D were $741 billion growing to $1.6 trillion by 2028. Up $648 a month. Enrollee payments grow 4 times faster than new enrollees.1 Congress will dump Medicare on seniors to avoid paying the 2028 bill, deceiving MA plan enrollees and 40 million original Medicare (FFS) enrollees in a scandalous bi-partisan bait and switch funded by all taxpayers.

• Congress funded 19 new benefits for MA plan enrollees only, in 2020.2 A Feb. 5, 2020, letter signed by 338 members of Congress in both parties urged the CMS Administrator for updates (more benefits) to Medicare Advantage plans in 2021. This is blatant discrimination and steps outside the reality that Medicare C is a nested Medicare plan. It is a private plan that is funded by CMS directly and sucks the life out of the Medicare Part A (HI) and B-D (SMI) trusts and all taxpayers who fund 72% of B and D benefits. Medicare assures enrollee equal access to benefits. Denial of new benefits to original Medicare participants is a benefit cut, is immoral, unethical and discriminatory. The Better Medicare Alliance (an MA plan insurer lobby) refers to 361 members of Congress as “Congressional Champions”. BMA probably wrote the letter for their Champions to sign but our President promised no benefit cuts!

• Insurance companies are falsifying advertising by directly implying and claiming that “most” MA plans

don’t charge premiums and that new benefits are free. Both false: all Medicare enrollees pay $144.60 a month for access to all Part A and 80% of all B benefits; insurers should not charge a premium for A and B unless their bid is higher than FFS benchmarks; and taxpayers subsidize insurer benefit costs and new benefits. MedPAC estimates 2020 rebates / enrollee to be 50% above 2016 (at 13% of $293 billion in MA payments) or $38 billion!3 A waste! Are taxpayers OK with insurance company rebates/subsidies?

• The 2019 Medicare Trustee’s Report disclosed that 2018 expenditures per MA plan enrollee were higher than for original Medicare Fee for Service (FFS) enrollees! Part B paid per enrollee was 16% higher than FFS’s! Part A with cherry-picking younger enrollees (fewer days in hospitals) scored 10% lower.4 Without cherry-picking, the 103% score would be much higher. Trustees cited that cherry-picking new enrollees made it close but warned MA enrollee costs would raise sharply as seniors switch into or age within MA plans. The NRLN asserts that Insurance companies would drop Medicare’s business if rebates were eliminated. They should have to compete the American way – win without rebates!

• What business would pay its suppliers a 50% rebate for delivering products or services at a 1 star out of 5

quality rating? Only CMS. The capitation payment system is corrupted by politics and insurers cheat risk assessment and patient coding rules. CMS pays capitation monthly payment but gave up FFS direct supplier selection, cost and quality control. MA quality standards are highly suspect. Curative and Chronic disease and wellness programs can all be managed under FFS. MA plans are a scam that pose greater negative consequences than the prescription drug pricing model.

• In 2017, annual MA plan gross margins averaged $1,608, twice (2X) those for individual and group plans.

Pre-tax net margins for MA plans is 20%-25% higher than for other healthcare individual or group plans.

(Over)

The NRLN Asks Congress and the Executive Branch to:

• Grandfather seniors who have purchased MA plans in good faith, protect benefits and subsidies and direct the Government Accountability Office (GAO), CBO and HHS Inspector General to investigate financials of MA and Original Medicare Part A and Part B, with & without unwarranted subsidies, then…

• Switch back to FFS and focus on costs as well as medical innovation and wellness management and continue to encourage private insurance carriers to compete with Medicare but without subsidies. Only improved effectiveness and lower cost can avert long term individual loss of purchasing power and national economic consequences as the over-age 65 population grows to 100 million.

• Make 2019 and 2020 subsidies for home air filters, carpet shampooing, heart healthy meals and other services available to the 38.2 million original Medicare A & B, FFS enrollees with chronic illnesses. There can be no reason why they should be denied new chronic Asthma treatments!

• Reduce Medicare and Medicaid $85 billion in annual wrong and improper payments; use savings to eliminate the 75-year deficits of Medicare A and B.

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Reference Tables and Charts:

1 – NRLN table of data extracted from the 2019 Medicare Trustee’s Report

showing the total projected Medicare expenditures and expenditures per enrollee in

original Medicare Parts A and B and those in Medicare C, Medicare Advantage Plans.

2 – An NRLN Table of benefits extracted from the 2018 Bi-Partisan Budget Act showing new

benefits legislated for Medicare Advantage Plan enrollees but denied to original Medicare

beneficiaries.

3 – A MedPAC table reflecting a Medicare Policy Advisory Committee (MedPAC) analysis of

CMS rebate payments made to Medicare Advantage plan insurance companies from 2016 –

2020 (preliminary).

4 – An NRLN table of data extracted from the 2019 Medicare Trustee Report of Medicare

Part A and Part B expenditures (incurred basis) for Medicare C (MA plans) and Original

Medicare FFS in total and on a per enrollee basis. Includes Part A and B calculations of the

% that MA plan expenditure per enrollee were of FFS per enrollee expenditures.

For more information on this subject, contact Alyson Parker at 813-545-6792 or executivedirector@nrln.org

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Congress Must Act to Reduce Price of Prescription Drugs Talk Is Cheap – Drugs Are Not!

2/24/2020

Talking Points

• Few issues have been debated more on Capitol Hill over the past year than prescription drug prices. Despite a lot of talk about making prescription drug prices more affordable, a comprehensive bill has not been passed by both the House and Senate. Talk Is Cheap – Drugs Are Not!

• Americans, especially the 58 million Americans age 65 and older and people with disabilities on Medicare, are caught in the terrible perfect story of prescription drug price gouging. They are taking more expensive medications while living on fixed incomes. Even with their Medicare Part D prescription drug plan they are paying substantial out-of-pocket costs. This means that they especially feel the pain of pharmaceutical companies’ relentless price increases while bills that would provide lower prices have not been passed by Congress.

• The 63 million seniors and people with disabilities who receive Social Security have been especially harmed by high drug prices. Since 1992, the growth in out-of-pocket healthcare costs, including prescription drugs, has outstripped Social Security’s cost-of-living adjustments by more than a third.

• MarketWatch reported on January 2, 2020 that more than 60 pharmaceutical companies started the new year by raising the price of hundreds of drugs by an average of 5.8%. Pfizer Inc. led the way, including increasing prices by over 9% on more than 40 products.

• The average inflation rate 2019 was 1,8% according to U.S. Labor Department data published on

January 14, 2020. The Kiplinger forecast on January 15, 2020 was the inflation rate is likely to run

about 2.2% through 2020. Why do drug prices need to be raised so much more that inflation rate?

NRLN’s Position on How to Reduce Prescription Drug Prices:

• Legislation should remove the prohibition on Medicare negotiating prescription drug prices and replace

it with a competitive bidding mandate (see attached proposal) to be applied wherever two or more FDA

approved generic drugs, or two or more brand drugs, or a generic and brand drugs (upon patent

expiration) treat the same medical condition. Passage of H.R. 275 and S. 62, Empowering Medicare

Seniors to Negotiate Drug Prices Act, or H.R. 448 and S.99, Medicare Drug Price Negotiation Act.

would direct the Secretary of Health and Human Services to negotiate lower Medicare Part D prices.

• Legislation should end pay-for-delay and other brand name drugmakers’ tactics that keep generic drugs

off the market. Passage of the Creating and Restoring Equal Access to Equivalent Samples (CREATES

Act) in the fiscal year 2020 appropriations bill was a step in the right direction. It will make it easier for

generic manufacturers to obtain samples of brand-name drugs necessary to develop generic versions.

Additional action should be taken to pass H.R. 2375 / S. 64, Preserve Access to Affordable Generics

and Biosimilars Act, or H.R. 1499, Protecting Consumer Access to Generic Drugs Act. Both bills

would prohibit brand-name drug companies from pay-for-delay and other tactics against generic drugs.

• Legislation should allow importation of safe and less expensive drugs from Canada. Passage of H.R.

478 and S. 61, Safe and Affordable Drugs from Canada Act, would allow the personal importation of

safe and lower priced drugs from approved pharmacies in Canada.

(Over)

It appears to the NRLN there are only two bills currently receiving significant attention in Congress:

• H.R. 3, Elijah E. Cummings Lower Drug Costs Now Act (also referred to as the Speaker Pelosi bill)

was introduced by Representative Frank Pallone (NJ-06) Chairman of the Energy and Commerce

Committee and passed by the House on December 12, 2019.

• S. 2543, Prescription Drug Pricing Reduction Act (also referred to as the Grassley-Wyden bill) was

introduced by Iowa Senator Chuck Grassley, Chairman, and Oregon Senator Ron Wyden, Ranking

Member, Senate Committee on Finance. The Finance Committee approved the bill on September 25,

2019. Senators Grassley and Wyden updated the bill on December 6, 2019.

• The NRLN urges Senate Majority Leader Mitch McConnell (Kentucky) to call up S. 2542 for a vote on

the Senate floor.

• The NRLN hopes S. 2542 will be passed and go to a conference committee with H.R. 3 and result in a

comprise bill that both the House and Senate will pass and the President will sign.

As the nation moves further into the 2020 election year for President, all Representatives and 35 Senators, it

remains very uncertain whether a comprehensive bill to reduce the price of prescription drugs will be enacted.

If no legislation is passed in 2020, the powerful pharmaceutical industry lobby in Washington wins again.

For more information on this subject, contact Alyson Parker at 813-545-6792 or executivedirector@nrln.org

Pension Plan De-risking: Fiduciary Protection of Retirees

2/24/2020

Talking Points:

Pension plan de-risking is when a defined benefit pension plan sponsor pays an insurance company to assume the monthly payments of pension benefits. Employees and retirees may be offered a one-time lump-sum payment in lieu of a monthly annuity benefit. Ever since General Motors and Verizon made headlines with their mega-billion-dollar annuitization deals in 2012, the movement for defined benefit plan sponsors to “de-risk” by transferring their pension obligations to commercial insurers has not let up.

The NRLN urges Congress to amend and extend DOL policy relating to the fiduciary standards under ERISA for selecting an annuity provider, as set forth in DOL Interpretive Bulletin 95-1, as follows:

• Congress should require that following a transfer of assets to settle liabilities for a subgroup of participants – whether by group annuity purchases or by lump sum buy-outs – the on-going plan must be as well funded as it was prior to a transaction.

• If the entire plan is not terminated pursuant to ERISA Section 4041, after review and approval by PBGC, the plan has a fiduciary duty to continue to hold the annuity contracts as a plan asset, so that retirees do not lose PBGC or other protections. The IRS should provide guidance that the distribution of a group annuity contract is a form of benefit distribution requiring consent.

• Alternatively, the plan sponsor can choose to permanently transfer its liability for individual retirees to a qualified annuity provider, as if the plan were terminated, but only if it complies with both of the following two safe harbor requirements:

➢ The plan seeks and obtains the affirmative consent of individual retirees. Retirees who do not consent must have the option to remain participants.

➢ The plan must purchase reinsurance from a separate and highly-rated insurer to guarantee the payment of benefits, in case of default. This should protect individual participants from the permanent loss of benefits that occurs to the extent the total value of their annuity exceeds state insurance guarantee funds, which can fall far short of PBGC maximum coverage levels and vary widely from state to state.

As part of either safe harbor, three additional protections should be required:

➢ the purchase of the annuity contract – and any reinsurance purchased to satisfy the safe harbor above – should be subject to DOL’s safe annuity rule standards.

➢ the plan sponsor must send formal notification to plan participants 90 days prior to the transaction, with specific disclosures about the impact on participants.

➢ If the agencies do not act, Congress should at a minimum require plan sponsors to maintain back-up insurance, either from the PBGC or a highly-rated reinsurance carrier.

With respect to any lump sum buy-outs offered to participants, DOL should clarify fiduciary responsibilities to make complete and plain English disclosures concerning the financial trade-offs, including tax implications and the higher cost of purchasing an individual annuity contract.

For more information on this subject, contact Alyson Parker at 813-545-6792 or executivedirector@nrln.org

Pension Plan Risks in Mergers, Acquisitions and Spin-offs

2/24/2020

Talking Points

• Certain corporate transactions – particularly mergers, acquisition and/or spin-off of under-performing subsidiaries – increase the risk of a distress termination of a pension plan and lost benefits for retirees.

• Congress needs to update a number of ERISA provisions to ensure that both pension spin-offs and the merger of pension plans following merger and/or acquisition activity do not unnecessarily increase the risk of a distress termination and permanent pension losses for plan participants.

• The stakes are high for workers and retirees when an under-funded pension plan is terminated. Most retirees in single employer pension plans continue to receive their monthly benefit from the PBGC. However, when an under-funded pension plan terminates it can impose an immediate and permanent loss of income on beneficiaries.

• As globalization and the acquisition of American companies by foreign firms and investors becomes increasingly common, there is a particular concern about the PBGC’s ability to deter plan terminations by, or recover assets from, foreign-owned or foreign-based plan sponsors and named fiduciaries.

• Unfortunately, the PBGC and other federal regulators lack the tools to protect retirees from unnecessary and severe terminations. ERISA’s outdated and narrow protections create a number of gaps that harm retirees and worsen the PBGC’s deficits.

• These tools are neither broad enough in scope nor flexible enough to deal with an under-funded plan. There are major gaps in the law that undermine efforts to prevent a pension plan from default.

The NRLN recommends six changes for legislation, regulatory reform and stepped-up enforcement:

1. Congress should give regulators broader and more flexible authority under Section 4042(a) to

negotiate or seek court approval for a more tailored remedy, short of plan termination, to address spin-

offs or other transactions that greatly increase the risk of future loss to the PBGC and participants.

2. Congress should further amend Section 4042(a) to authorize the PBGC to initiate proceedings to

terminate a plan, or seek an alternative remedy short of plan termination, if a spin-off, controlled group

break-up, takeover by a foreign entity or other corporate transaction transfers 20% or more of the

plan’s benefit liabilities without a commensurate and sufficient transfer of assets.

3. Congress needs to clarify that the PBGC has the authority to enforce a lien against all U.S.-based

assets of the parent company of a foreign-owned plan sponsor even if those other assets or subsidiaries

are not considered part of the controlled group sponsoring the plan.

4. The Department of Labor should revise its regulations to clarify that fiduciaries under ERISA – especially

contributing sponsors and “named fiduciaries” – must be subject to the jurisdiction of federal district

courts for the enforcement of judgments for potential breaches of fiduciary duty.

5. Congress should add the proposed transfer or spin-off of pension assets or liabilities to a foreign

controlled group or entity to the list of transactions requiring an Advance Notice of Reportable Events,

triggering special scrutiny under the PBGC’s Early Warning Program.

6. Congress should require that intra-firm plan mergers are reportable events, as ERISA originally

required, that require review and pre-approval of PBGC, particularly if any of the plans are in at-risk

status, as NRLN proposes in a separate white paper on Defined Benefit Pension Plan Mergers.

For more information on this subject, contact Alyson Parker at 813-545-6792 or executivedirector@nrln.org