A HEALTHY BUDGET?
AUGUST 7, 1997
Signed earlier this week, the budget bill is expected to carve $115 million from federal health care spending. Under such cuts, what's the prognosis for Medicare? Elizabeth Farnsworth leads a discussion.
ELIZABETH FARNSWORTH: The $200 billion a year Medicare program provides health care benefits to 38 million elderly and disabled Americans. Medicare has two parts: Part A, more commonly known as the Trust Fund, is supported by a payroll tax and covers hospital and home care. Part B is financed by patient premiums and general tax revenues and pays for doctors' bills and outpatient care.
A RealAudio version of this NewsHour segment is available.
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Until the balanced budget bill was signed by the President this week, the government projected Part A, the Trust Fund, would go bankrupt in the year 2001. Medicare costs are increasing by more than eight percent a year, well above the overall rate of inflation. And many analysts say the program's costs will balloon further as baby boomers retire and the ranks of the elderly grow.
Still, efforts to rein in costs have proved politically difficult. In 1995, for example, a Republican-sponsored bill providing for $270 billion in Medicare savings ran into strong opposition from the elderly and was vetoed by the President. There were some cost-cutting changes that year but not nearly as much as the Republicans had proposed. This year, the bipartisan budget deal made Medicare changes that are expected to save $115 billion over the next five years, more than in any other social program.
ELIZABETH FARNSWORTH: To explain those new Medicare changes we turn to Marilyn Moon, a health economist at the Urban Institute and also a member of the board of trustees of the Medicare Trust Fund, and Julie Rovner, who covers the subject for Congress Daily and The Lancet, a British medical journal.
Thank you both for being with us. We are now going to go through some of these changes that were aimed at producing the $115 billion in savings. Let's begin with first payments to hospitals, doctors, and health plans will be reduced. Julie Rovner, let's get more specific. Specifically, who gets cut and how much?
The biggest hits: hospitals and health plans.
JULIE ROVNER, Congress Daily: Well, the two biggest hits in this bill go to hospitals and health plans, and not coincidentally, those are the two sets of providers who have been doing the best under Medicare. So, in fact, while they're there taking the lion's share of the payment reductions here, both the industries that represent these providers have said that they think they'll be okay. Now, something else that Congress has done in the process of taking this $115 billion in savings, they are restructuring some of the way they pay some different providers. We restructured hospital payments in 1983. We restructured physician payments in 1989. This bill would order a restructuring of payments for home health care, for nursing home care, and for hospital outpatient care, which is getting to be a larger and larger portion of the Medicare program.
ELIZABETH FARNSWORTH: What do you mean, restructuring? How does that affect me if I'm a Medicare recipient and I'm ill?
JULIE ROVNER: Well, in the past, we used to pay all health care providers based on what they charged, and it was found that if you give the money based on what they charged, they'll keep increasing their charges. We no longer do that for hospitals and for doctors. We will now no longer do that for these home health care agencies, or for the nursing homes, or for the hospital outpatient costs. In the case of hospital outpatient costs beneficiaries will actually see a benefit from this change. They will have lower co-payments for the portion of the bill that they're required to pay also, but basically we're going to hold down these costs.
ELIZABETH FARNSWORTH: Marilyn Moon, the payments to doctors and hospitals that are cut, how is that going to affect the average health care recipient?
MARILYN MOON, Health Economist: For hospitals and doctors, the average Medicare recipient won't see much difference. The difference that they may see will be in the home health and nursing services that Julie was just mentioning. There...
ELIZABETH FARNSWORTH: So--just let me interrupt you one minute--so they're not going to get worse medical care from a doctor, or they're not going to have their doctor refuse to treat them because of this?
MARILYN MOON: The cuts on doctors are not very large. And so most people don't think they're going to be very much affected. Some specialists may feel a bigger pension. You may see some change in behavior there a little bit. Hospitals for the most part take a big hit but they're also a big part of the health care system, so they're where the dollars are. And most people think there's not going to be much change there in terms of what happens to patients.
A push towards managed care.
ELIZABETH FARNSWORTH: Okay. Let's go on now. There's also in this bill a push towards managed care. Seniors will have more options to enroll in managed care plans, though they can also stick with the old way, which is called fee for service, if they want to. Is this part of the savings, or is this about something else? In other words, is this helping get to the $115 billion in savings?
JULIE ROVNER: Yes and no. There is a payment reduction overall for managed care, but I think this is the most important part of this bill. There is a major restructuring in terms of setting Medicare on a course where it could survive the onslaught of the baby boomers. Basically, they're doing two things to encourage more managed care in Medicare. They're giving beneficiaries, the seniors, more choices. Right now they're basically limited to the most restrictive type of managed care. And in this bill they're saying we'll let you try other types of managed care where you don't necessarily have to stay with the doctors or the hospitals in the network; you might be able to go out in certain cases. Or you might not have to get permission from a primary care doctor to go see a specialist. So they're giving beneficiaries more choices. They're also restructuring the payments to try and encourage managed care where it isn't now. In 12 states there is no Medicare managed care. The payments have been too low. So they're going to increase payments in those areas, and they're going to encourage doctors and hospitals to band together and contract directly with the government to provide service to Medicare patients without an insurance company.
ELIZABETH FARNSWORTH: Marilyn Moon, is this something that people wanted? Is this something people have been crying for? Is this a top-down deal?
MARILYN MOON: I think this is more a philosophy on the part of people who would like to see Medicare change; that they'd like to see more choice. I'm not sure that we're seeing enormous clamoring from beneficiaries from this. The down side of the choice is going to be--it's going to be confusing. There are going to be a whole array of things to choose from. And some beneficiaries will do very well. They'll be very savvy about working their way through the system. Other beneficiaries may be very confused and stick with traditional Medicare.
ELIZABETH FARNSWORTH: So it could actually lead to kind of two classes of beneficiaries: those who really know how to make it work for them and those who don't?
MARILYN MOON: I think that's a possibility, and I think that's something that needs to be carefully monitored as these changes go into place.
ELIZABETH FARNSWORTH: Okay. And Marilyn Moon also another source of savings is premiums, monthly premiums of Medicare recipients will grow from $43.80 a month to $67 a month in 2002. Explain that, please.
MARILYN MOON: Well, the Medicare premium that people pay is just on one part of the program, the physician services side of the program. And that means that over time these folks are going to be asked to pay a larger share of the costs of the program for two reasons. One, we're freezing in place the share that we have to pay, and secondly, some of the benefits that used to be in Part A are being shifted into Part B. They enlarged that part of the program, therefore, the premiums rise. Those increases aren't going to be very great until about the turn of the century. Then they began to rise very rapidly. And actually by the year 2007 the number will be $105 a month. So people won't feel very much of a change right away. But they'll see some real changes in three or four years in terms of how fast their premiums will rise.
ELIZABETH FARNSWORTH: So, Julie, if you made--if you were a Medicare recipient and you were living on an income of say $12,000 a year, this could really cut into your income.
JULIE ROVNER: It could. And, in fact, President Clinton in negotiating the budget deal got the Republicans to spend another billion and a half dollars with the Medicaid program to help the low-income Medicare beneficiaries offset the cost--some of these new premium costs. But I think people don't realize that of the $115 billion in savings, a significant portion is coming from the beneficiaries, themselves. They did not get off scot free.
MARILYN MOON: They certainly didn't. I think another issue about that too is that those new protections don't rise very far up the income scale, so a woman, for example, who has an income of about $15,000, will see her premiums as a share of her income nearly double by the year 2007. So this is not going to be an insignificant change for these people.
ELIZABETH FARNSWORTH: Julie Rovner, the bill contains more than cuts or savings. There are also prevention benefits entailing an increase in spending of $4 billion over five years. Like what?
A philosophical change: prevention rather than cure.
JULIE ROVNER: Well, there are a lot of cancer screening benefits. They now will have annual mammograms. Before we paid for them every two years; cervical cancer screening; prostate cancer screening. There's also something called a diabetes self-management program, which are basically education programs for diabetics to help them better cope with their disease. I think this is another philosophical change. Medicare used to be what we called the sickness model. It paid for you when you got sick. The health care system, in general, is changing, with more of an emphasis on prevention, and Medicare has really not kept up. So this is an effort to start Medicare along the road of being a more comprehensive benefit package.
ELIZABETH FARNSWORTH: Marilyn Moon, certain changes were not included in the bill but may be on the table in the future, especially if a bipartisan commission recommends them. Those are: should wealthier seniors pay more? These are the ones that weren't included, but these are the questions that were debated. Should the age of eligibility be raised? Are these really on the table now for the future? These were so controversial before. Is this now--has the whole debate changed because these are now before us?
MARILYN MOON: Well, I think they'll stay very controversial, but we are facing a period of time where the number of people who are turning 65 is growing rapidly, and there's concern about trying to find ways to share the costs of this program equitably. I think that some people were concerned about having them on the table as part of a deficit reduction package, which is really what was driving a lot of what was going on this year. And I think they'll come back legitimately when we look at the whole range of things and say what should taxpayers pay, what should beneficiaries pay, what's going to be the future of the program? I think they will still be very controversial though.
ELIZABETH FARNSWORTH: And as a trustee of the plan that was supposed to go bankrupt if something wasn't done, are you encouraged by what's happened?
Buying time to look at the tougher questions...
MARILYN MOON: I think people should be very encouraged by this change. I think in general there are a number of good policy changes in this legislation, and I think that by buying the time to look at other tougher questions in a more reasonable way, that's a good idea. I think buying the time also means that we have the ability to see what's going to happen in the health care system, which is changing all around us so rapidly. It's very hard to say what health care is going to look like in 15 years.
ELIZABETH FARNSWORTH: Julie Rovner, do you think there's been a dramatic shift in the debate because these issues that weren't dealt with at least got on the table?
JULIE ROVNER: I think there has been a shift in the debate. And, of course, this commission is going to have to report in the spring of 1999. It's unclear. Remember, when we really changed Social Security, we were facing an immediate crisis. This was back in 1983, and that's not going to be the case in 1999. We've now extended the trust fund out for--until 2007. We really aren't looking at a crisis here until 2010. The difficult thing is that if you make these big important changes sooner, they will be less disruptive, but it's very hard politically to get people to do that.
ELIZABETH FARNSWORTH: Well, thank you both very much.