By Patricia Barry
October 2001

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Everyone agrees that Medicare is out of date. President Bush has compared it to the 1965 Mustang—an excellent car, but no longer state of the art. "We need to bring Medicare into the 21st century," he said.

Medicare is missing essential elements of today's best private health care coverage, Bush said. It lacks not only prescription drugs, the most glaring gap, but also eye and dental care and a cap on out-of-pocket expenses.

But all "loaded" vehicles, whether cars or health care delivery systems, carry steep price tags. Neither Bush nor anyone else proposes just to add such benefits to the basic Medicare package at no extra cost to beneficiaries.

When Congress can finally make a serious effort to pass a prescription drug benefit, it will also debate "reform" of the program as a whole.

What Does "Reform" Mean?
It depends on whom you ask. To most beneficiaries, it means better benefits and less expense. To most providers, it means higher federal payments and less red tape. To lawmakers, it is a political minefield pitted with health care inflation, an aging population, a slowing economy and differing ideologies in Congress.

There is certainly greater consensus on Capitol Hill than there used to be, but divisions remain. "The sharpest distinction is that most Democrats would move forward with a drug benefit first and deal with larger issues of Medicare reform later," says Robert D. Reischauer, president of the Urban Institute, a Washington think tank. "The Republican approach is that drug coverage should be part and parcel of a larger reform effort. That's a huge difference."

The other divider is the role of the private sector in a reshaped Medicare. "There's no question that core Republicans would prefer to see, 10 years from now, a program that resembles the variety of private plans available to federal workers, with the government's role drastically reduced," says Robert Blendon, a health policy expert at Harvard University. "Core Democrats prefer government's role to remain central."

Most Republicans and some moderate Democrats believe that providing more choices through competitive private insurance plans and creating an enhanced fee-for-service option, while retaining the traditional program, is the best way to modernize Medicare and keep it solvent.

The three main GOP proposals now in play—Bush's "reform principles," a House bill already passed and a Senate plan crafted by Iowa Sen. Chuck Grassley, senior Republican on the key Senate Finance Committee—all go in that direction.

One argument in favor: The private sector can respond faster to change than Medicare, which must often await acts of Congress.

But a crucial question, critics say, is why we should opt for more privatization when the only experience of that approach to date—Medicare+Choice (M+C), a program of managed-care alternatives to fee for service offered since 1997—has largely failed. It hasn't contained costs, as intended, nor attracted the expected volume of customers.

Only 14 percent of Medicare's 40 million beneficiaries are in M+C. The lucky ones live in large urban centers in California, Florida and New York and have a choice of several health plans, thus reaping the advantages of real competition: good benefits and low costs. Elsewhere, many plans have pulled out of Medicare or have substantially reduced benefits and raised cost sharing.

Half of Florida's 67 counties, for example, now have no M+C plans, and a further 25 percent offer only one. Only 16 counties have real competition, offering two to 10 plans.

One company, the only Medicare HMO operating in a rural Florida county that is home to 25,000 beneficiaries, offers a plan with limited drug coverage for a monthly premium of $98. In urban Miami-Dade, competing with nine other plans for a potential 300,000 beneficiaries, the same company offers more generous drug benefits for a zero premium.

Insurers say that Medicare's complex formula for reimbursing them is responsible for these inequalities. To enrollees, they just seem unfair.

No one has yet figured out how to persuade more private insurers to enter, or stay in, less lucrative Medicare markets, especially in rural areas. Some experts believe that these areas cannot support HMOs.