Copyright 1999 Globe Newspaper Company
The Boston
Globe
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February 28, 1999, Sunday ,City Edition
SECTION: NATIONAL/FOREIGN; Pg. A1
LENGTH: 2005 words
HEADLINE:
Sweeping Medicare overhaul is planned;
Free-market solution touted to cut
costs
BYLINE: By Ale Pham, Globe Staff
BODY:
Medicare, increasingly seen
by health-care specialists as expensive and out of touch with modern medical
realities, is facing the most sweeping changes since its creation in 1965.
With the program expected to outstrip its funding as soon as 2008,
creating pressure for an overhaul within the next decade, an advisory commission
is on the verge of recommending reforms to Congress.
"What we have today
doesn't cover serious needs of senior citizens," said Senator John Breaux, a
conservative Democrat from Louisiana and chairman of the advisory commission.
"In addition, the program's going broke." The panel's recommendations, initially
due to be released tomorrow, are now expected within the next few weeks. Among
the key changes being contemplated:
- Injecting market competition into
the process to bring greater cost controls and flexibility into the
government-run program.
- Asking seniors, particularly wealthier ones,
to pay more out of their own pockets for treatment.
- Raising the age of
eligibility to 67 from 65.
The stakes are massive, politically and
economically.
Medicare is one the nation's most popular and sacred
programs, insuring more than 39 million senior citizens and disabled Americans.
It funnels $210 billion a year to the nation's hospitals,
nursing homes, doctors, and other providers. Many of them rely on Medicare for a
significant portion of their business, and would be hit with lower Medicare
payments under the Breaux plan.
"Does this have political risk to it?
Absolutely," Breaux acknowledged recently in an interview. "But the alternative
is no change. If that happens, the program will go broke."
To be sure,
it's not the first time Medicare has been revamped. Most recently, the program
underwent fiscal surgery in 1997 with the federal Balanced Budget Act, which
sliced $112 billion from projected Medicare spending over five
years.
But Medicare specialists say those measures were a mere Band-Aid.
What's needed to rescue Medicare, they say, is radical restructuring, the
details of which are being hotly debated on Capitol Hill.
"The Balanced
Budget Act is child's play compared to what we're discussing now," said Stuart
Altman, a professor of health policy at Brandeis University in Waltham and a
member of the Medicare advisory panel, formally called the Bipartisan Commission
on the Future of Medicare. "Even with the Balanced Budget Act, Medicare is
scheduled to go bankrupt by 2008 and could reach a deficit of up to
$2.6 trillion by the year 2030."
Of course, much of the
rhetoric in Washington may not lead to actual change. But the pressure to act
now to prevent Medicare's predicted bankruptcy is one that politicians say they
cannot ignore. The group with potentially the most clout in Washington is the
Medicare commission, whose report will set the stage for a Herculean struggle in
Congress this year.
To avert financial disaster, Breaux has forwarded a
proposal to the Medicare commission. The only broad plan being considered, it
attempts to harness the power of market competition to lower cost and improve
quality of care.
The plan preserves traditional fee-for-service
Medicare, which reimburses doctors and hospitals for their services. But seniors
also would be able to choose among competing private managed-care plans that
provide benefits identical to the traditional Medicare program. Elements of
competition would be introduced in both the traditional program and the private
plans.
"It won't be just your grandfather's old Medicare," said Altman.
"It could change substantially and be less open than what we have today."
For example, Medicare would have the power to selectively contract with
hospitals and doctors and engage in bidding for contracts. Patients undergoing
complex medical procedures could be funneled into specific "centers of
excellence," rather than have the broad range of hospitals available today, said
Altman.
Beneficiaries of both traditional Medicare and private plans
would be required to pay a fixed percentage of the overall premiums, say 12
percent, while the government would pick up the rest. Seniors currently pay no
premium for hospital bills, but pay 25 percent of the premium for Medicare
coverage of doctors' bills, home health care, and other outpatient services.
Seniors would also be given incentives to choose lower-cost plans.
Private insurers would be paid according to a national weighted average
of the cost of traditional Medicare, plus the average price of all bids
submitted by private plans. This payment mechanism sets this apart from the way
Medicare currently pays health maintenance organizations, which get 95 percent
of average costs incurred by Medicare fee-for-service. In addition, payments
would be adjusted for geographic differences in the cost of doing business.
Wealthier seniors would pay a higher premium - up to 15 percent more -
than moderate-income beneficiaries, while most low-income seniors would pay
nothing.
The proposal also calls for the eligibility age to be gradually
raised from 65 years to 67, the same age increase scheduled for Social Security
benefits.
Payments to hospitals and doctors would take a hit, going down
by at least $57 billion over 10 years, according to estimates
released last week by the US Health Care Financing Administration, the agency
that runs Medicare. And subsidies to teaching hospitals, currently
$3 billion a year, would be taken out of the Medicare program
and become a separate item in the national budget.
The controversial
package is having difficulty winning the support of liberal Democrats on the
Medicare commission. Critics point to what they say are three basic flaws in the
Breaux plan. The first is that market forces cannot guarantee savings.
"Just because somebody says there's competition doesn't mean it's going
to produce any savings," said Representative John Dingell, a Michigan Democrat
and member of the Medicare commission.
Meanwhile, the plan is likely to
result in higher cost for seniors who remain in the traditional fee-for-service
plan, a second major criticism of the Breaux proposal.
"My major concern
is that this could make traditional Medicare unaffordable for seniors," said
Bruce Vladeck, a commission member who until 1997 ran Medicare under the Clinton
administration. "Premiums are already a stretch for some seniors, and under this
plan, they would go up much more."
When compared with a scenario without
any reform, premiums for traditional Medicare could be 18 percent to 30 percent
higher under the Breaux plan, according to estimates of the Health Care
Financing Administration.
Finally, the Breaux plan does not make a
prescription drug benefit available to all beneficiaries. The lack of drug
coverage is seen by many as Medicare's biggest shortcoming.
Drug
coverage has become a key topic in the commission's debate, one that could make
or break the commission's fragile coalition. To produce a report, Breaux needs
the approval of 11 out of 17 commission members. He has 10. To get the last
vote, Breaux has to persuade swing voters Altman and Laura D'Andrea Tyson, dean
of the Haas School of Business at the University of California at Berkeley. Both
Tyson and Altman have insisted that a final proposal contain prescription drug
coverage.
While Republicans say they want drug coverage, they are
fearful that a broad benefit would be too costly. In an effort to appease both
parties, Breaux last week proposed to require all "medigap" supplemental plans,
purchased by seniors to pay for what Medicare does not, to cover a limited
amount of drugs.
In addition, he offered to expand eligibility for
Medicaid, which covers drugs, to seniors who are at or below 135 percent of
federal poverty guidelines, up from 100 percent.
Breaux's offering did
not satisfy Tyson and Altman, who continue to insist that all beneficiaries
should have drug coverage, not just those who buy medigap policies or are poor.
"I don't think [ the Breaux drug proposal] is adequate," said Tyson.
"You want everybody to have access" to drug benefits.
Meanwhile, the
White House has proposed its own answer to Medicare's fiscal woes. President
Clinton, in his State of the Union address last month suggested using 15 percent
of the federal budget surplus to shore up Medicare and help pay for a
prescription drug benefit.
While Clinton has refrained from commenting
on the Breaux proposal, Senator Edward M. Kennedy has openly criticized it.
"These regressive proposals are unacceptable," said the Massachusetts
Democrat. "They'll add billions of dollars in health costs for senior citizens
already hard pressed to make ends meet. They'll jeopardize the survival of
teaching hospitals. The scheme will force millions of elderly Americans out of
Medicare and into HMOs."
Still, Representative Bill Thomas, a Republican
from California and a commission member, expressed hope that the group can agree
on a set of reforms that would shape any effort in Washington to change
Medicare.
"We've moved a very long way," Thomas said. "You have
Democrats offering a market structure. You have Republicans talking about
prescription drugs and a subsidy for low-income beneficiaries. I think that's
pretty good."
Breaux reform plan envisions big savings
A
commission is considering a proposal by Senator John Breaux, the commission's
chairman and a Democrat from Louisiana. The proposal, which requires the
approval of 11 of the 17 commission members to be forwarded to Congress, has
eight major changes that Breaux believes would reduce Medicare spending and
avert the program's projected insolvency. The total savings, spread over 10
years, are nominal estimates from the US Health Care Financing Administration.
In addition, last week Breaux called for enhancing prescription drug coverage.
Premium Support: The centerpiece of the Breaux proposal would create a
market for competing managed-care insurers to bid for seniors. Beneficiaries
would pay a fixed percentage of premiums, say 12 percent, for coverage that is
at least identical to traditional Medicare. Insurers would be paid based on a
formula that includes the national weighted average of the cost of traditional
Medicare. Savings: $74.9 billion to $102
billion.
Sliding scale premiums: Wealthier seniors would pay a higher
premium based on their incomes, while low-income seniors with incomes at 135
percent of the poverty level or less would pay nothing. Savings:
$95.3 billion to $95.9 billion.
Continued cuts to providers: Cuts in growth of payments to health-care
providers would be extended. Some of the cuts, set to expire in 2002, would be
extended to 2007. Savings: $57.1 billion.
Increased
age: Eligibility for Medicare would be raised gradually from 65 years to 67
years to match Social Security. Savings: $25.2 billion.
Medical Education: Subsidy for graduate medical
education would be detached from the Medicare program. Subsidy would
become a separate, independent item in the federal budget. Savings:
$46.1 billion.
Higher copayment and deductible: All
beneficiaries would pay a $350 deductible for both hospital and
physician services. They would also have a 10 percent copayment for home
health-care services. Savings: $19.5 billion.
Revamping
Medicare contracting: Managed-care methods would be introduced to the
traditional Medicare program. Possible changes include selective contracting and
steering complex procedures to select hospitals that in turn would offer volume
discounts. Savings: $21.8 billion.
Medigap reform:
Medigap coverage of the deductible would be dropped, discouraging seniors from
seeking unnecessary health care. Savings: $11.3 billion.
Prescription drugs: Require all medigap plans to cover a limited amount
of prescription drugs. Expand eligibility for Medicaid, which covers drugs, to
135 percent of the federal poverty level, up from 100 percent. Cost: unknown.
LOAD-DATE: March 02, 1999 
