SUSAN DENTZER: By day, Richard Thoreson works as an economist for the federal Department of Health and Human Services. By night, he's a husband and father of two - and like millions of Americans, he values his health insurance.
RICHARD THORESON: That's one of the key benefits of working in the federal government as far as I always thought -- and basically it was pretty good, always has been pretty good health coverage --health care coverage.
SUSAN DENTZER: And like many others, Richard and his wife Lucy Brown find their health needs changing as they grow older and their children grow up. So once a year, they sort through a booklet featuring roughly 18 health insurance plans available to them to find one that suits them best.
RICHARD THORESON: They have a whole range of kinds of services, which they summarize such as hospital, doctor, hospital inpatient, hospital outpatient, the catastrophic limit, something I guess I've always, you know, that's the worst case and you want to just see what the number is.
SUSAN DENTZER: During the annual enrollment period last fall, Richard and Lucy settled on a comprehensive health insurance plan offered by Blue Cross. They pay $1,620 this year for the coverage, while the federal government pays the $4170 balance. Lucy says their teenagers have special needs that make the broad choice of doctors and hospitals in the Blue Cross plan important.
LUCY BROWN: One of the most challenging things for us is our son, who's 12, has chronic headache problems. We've -- actually we've had a lot of diagnoses and we've had a lot of treatments, but we still have a problem; he misses a lot of school, and he's -- and he is in a lot of pain. So we're looking for a program that's going to give us options. I think we're fortunate, and I would assume that most families will want the same thing for themselves.
SUSAN DENTZER: Now a growing number of policy makers want the same flexibility and choice for Medicare, the federal health insurance program for the elderly and disabled.
SEN. JOHN BREAUX: I as a senator, or any member of Congress, or the other 10 million federal employees have a much better system than Medicare.
SUSAN DENTZER: Senator John Breaux, a Louisiana Democrat, chairs a government commission charged with reviewing the shaky long-term health of Medicare. The Congressional Budget Office now projects that federal spending on the program could double as a share of the economy, rising to 5 1/2 percent of the Gross Domestic Product between now and 2030. In the decades that follow, the program could face a gargantuan financial shortfall several times as large as the one facing Social Security.
SEN. JOHN BREAUX: And the President has said save Social Security first. But that was not intended to mean save Medicare second. I mean, Medicare is a much more serious problem. Medicare is about redesigning an entire health care system for 40 million Americans, soon to be 77 million more Americans, and in addition to that, the timing of it is much more critical.
SUSAN DENTZER: Not only is Medicare's future cost growth likely to be prohibitive, but, says Breaux --
SEN. JOHN BREAUX: The truth is that Medicare is not that good of a program for the 40 million Americans who are on it. And it doesn't cover prescription drugs, it doesn't cover eyeglasses, it doesn't cover long-term health care. In fact, the evidence says that it only covers about 53 percent of the average beneficiary's health needs. The average Medicare beneficiary pays over $2,000 a year in out-of-pocket costs for things that Medicare does not cover.
SUSAN DENTZER: The search for broader health coverage for Medicare beneficiaries, at a price that won't break the bank, has led Breaux and other commissioners to the federal employees' system. Here's how that system works.
SEN. JOHN BREAUX: For instance, the federal employee plan, which I am covered under as well as 10 million other federal employees, basically sets a package of benefits and asks companies to come in and bid for the right to serve the 10 million federal employees. We have an Office of Personnel Management that can negotiate with all of those companies on the price that they sell that package for, and also the number of benefits that are covered in that package.
SUSAN DENTZER: Then, once a year, federal workers have the right to pick from at least several, and as many as 26, health insurance plans depending on where they live. Based on how many workers enroll in various plans, the government then computes the average premium for the plans nationwide. It then pays 75 percent of that average on behalf of each federal worker, and the worker pays the rest. Walton Francis, a former federal worker, who now writes an annual consumer's guide about the system, says the result is a win-win for both the government and the federal worker.
WALTON FRANCIS: He can decide, for example, just how good he wants his prescription drug coverage to be because maybe that's more important to him than some other coverage, whereas the Medicare enrollee basically has in Medicare itself no prescription drug coverage -- acupuncture, chiropractor, just how the mental health benefit is covered, how many visits you get, and so on. In the federal employee system, there is some plan that will give you what you want.
SUSAN DENTZER: And that's extremely popular with federal workers like Richard Thoreson.
RICHARD THORESON: I'm a bureaucrat, but I don't trust bureaucrats largely in terms of a lot of decisions that might be made. It's better to have choices. It's better to have different people trying to figure out how to best serve that many people.
SUSAN DENTZER: And since the health plans are competing with each other to enroll federal workers, the forces of competition hold down costs. By contrast, says Breaux --
SEN. JOHN BREAUX: What we have in Medicare right now is no negotiation. We just fix prices. And there's no competition because prices are already fixed and predetermined. So you don't get the benefit of the marketplace and competition and the good things that can be brought about as a result of that.
SUSAN DENTZER: And meanwhile, Medicare enrollees don't get many of the benefits they'd like to have -- like coverage for hearing aids, or dental and vision care. So Breaux and others on the panel have proposed to move Medicare into a new system known as "premium support" modeled on the federal employees' plan. Many details of the plan are still under discussion. But in general, a new Medicare Board would be created to devise a new core package of benefits. Health plans, including HMO's and even the traditional Medicare program, would be invited to bid on offering that coverage to enrollees. After enrollees pick their plans, the Medicare Board would compute the average nationwide premium and then pay 88 percent of that. If beneficiaries selected a health plan that cost less than this amount, they might have to pay little or nothing out of pocket. If they picked a health plan that cost the average premium or more, they would have to pay more. Republican Representative Bill Thomas of California is helping Breaux run the commission.
REP. BILL THOMAS: That's the positive aspect of choice. Pick a program that fits your needs and your finances, rather than, once again, in essence, one size fits all.
SUSAN DENTZER: Finally, high-income beneficiaries would have to pay an even higher share of the costs -- perhaps as much as 25 percent of the average premium. As a result, the theory goes, millions of beneficiaries would start shopping around for the best deal on health insurance -- and Medicare's costs would rise more slowly. In fact, some preliminary estimates suggest that the new system could save the government several hundred billion dollars in Medicare outlays over the next decade -- and up to several hundred billion dollars a year by 2030. But not everyone on the commission agrees that the premium support plan could achieve such spectacular cost savings.
BRUCE VLADECK: The premium support is a theory which takes different forms every time someone challenges one part of it, or every time a different person advocates it.
SUSAN DENTZER: Commission member Bruce Vladeck formerly ran the Medicare program for the government. He doubts that a new system modeled after the federal employees plan would save any money. That's in part because he and a number of other commission members also want to improve the core Medicare benefits package by adding coverage for prescription drugs. But those additional benefits could cost another $20 billion a year.
BRUCE VLADECK: We ought to include prescription drugs. We ought to reduce out-of-pocket liabilities. But the notion that you can improve the Medicare benefit package and not have it cost any more money is again relying on the premium support fairy to make contradictory things come true.
SUSAN DENTZER: Vladeck and other commission members also fear that a system of premium support could shift too much financial risk to beneficiaries. Since nearly two-thirds of those on Medicare have annual incomes below $25,000 a year, many could ill afford to pay more to maintain the benefits they already have. Democratic Senator Jay Rockefeller of West Virginia voiced those concerns at a commission meeting yesterday. He noted that in his state, the average Medicare enrollee earns just over $10,000 a year.
SEN. JAY ROCKEFELLER: I am genuinely frightened on behalf of folks that I represent in my state. I don't have that margin with my people. And you heard me said ad nauseum - their total non-health care income -- $8,500 a year - I don't have room to make a mistake in terms of my people. I do not have that room. So if you're staying the market might work, it depends what you think on it, we can't do that in something called Medicare and make decisions.
SUSAN DENTZER: And even panel members who favor premium support express misgivings about the many unsettled details. Brandeis University Professor Stuart Altman, who was appointed to the panel by President Clinton, worried aloud yesterday about finalizing the panel's recommendations in time to meet the commission's statutory March 1 deadline.
PROFESSOR STUART ALTMAN: My head is swimming about the number of issues and questions I have, and I'm - maybe I'm missing something, but we're talking about the Medicare program for the next 30-50 years. I'm really interested - personally - this is one person -- in this kind of a plan; I would hope we would have the time to do this right?
SUSAN DENTZER: The panel's deadline is now likely to be extended at least several more weeks. Meanwhile, Breaux is struggling to broker disagreements over his plan -- and to devise some affordable way to offer prescription drugs to all Medicare beneficiaries.
SEN. JOHN BREAUX: We have a commission with eight Republican appointees and eight Democratic appointees. And I sort of jokingly suggested that perhaps the next commission should be a group of smart, intelligent people who know absolutely nothing about the subject matter. I mean, I have some real experts, but they have strong opinions about what the solution is to the problem.
SUSAN DENTZER: Even if Breaux doesn't obtain the 11 necessary votes to pass the premium support plan through his panel, he plans to introduce it as legislation in Congress later this year.