MEDICARE MANIA

March 1999
		How should the federal government reform Medicare before it becomes unaffordable? Answering your questions are Karen Davis, president of the Commonwealth Fund; Robert Reischauer, a senior fellow at the Brookings Institution; and Stuart Butler, vice president for domestic and economic policy studies at the Heritage Foundation.

The pros and cons of Sen. Breaux's plan. Should the age of eligibility be raised? Would prescription drugs be covered? Federal Employee Health Benefits and Medicare Predicting Medicare's future. Medicare and the budget surplus.     February 25, 1999: Reforming Medicare. The NewsHour's Health Spotlight. Browse the NewsHour's coverage of Medicare The National Bipartisan Commission on the Future of Medicare The Heritage Foundation The Commonwealth Fund supports health issue research The Brookings Institution.	Christine Michaels of Great Falls, Virginia asks: What are the pros and cons of Sen. John Breaux's plan? Karen Davis of the Commonwealth Fund responds: Pros Would achieve significant Medicare savings: The Office of the Actuary at the Health Care Financing Administration estimates that it would save $40 billion 2006, 11 percent of what Medicare expenditures would otherwise have been. Between now and 2030, the plan would save about 11.5 percent of what Medicare otherwise would cost Would encourage more managed care and private insurance plans to participate in Medicare by permitting them greater freedom to set premiums and specify benefits offered Cons Would increase costs to beneficiaries: Marilyn Moon at the Urban Institute (Commonwealth Fund, March 1999) estimates Medicare beneficiaries would spend $5000 per person in 2025 (in 1998 dollars) under a similar premium support proposal; while Medicare beneficiaries will be paying substantial amounts even under current law, attention should be on improving benefits not shifting costs to beneficiaries Medicare beneficiaries would spend on average 30 percent of their incomes on health care in 2025 Low-income and chronically ill beneficiaries would face even higher costs Most of the savings to the federal budget are simply costs shifted to beneficiaries The Part A deductible (now $768) and the Part B deductible ($100) would be replaced with a combined deductible of $350; MediGap plans would not be permitted, as they are now, to fill in this deductible; beneficiaries – whether hospitalized or not – would thus face higher out-of-pocket costs Home health beneficiaries would be charged a 10 percent coinsurance rate – greatly increasing costs on seriously ill beneficiaries who already bear heavy financial burdens for non-covered Medicare costs A 20 percent coinsurance rate would be charged for all other services except hospital and preventive care The proposal does not improve benefits such as prescription drugs There is little evidence to support the theory that a premium support proposal would save health spending by causing managed care plans to charge lower premiums In fact managed care premiums could increase if Medicare no longer set the payment that plans are paid for Medicare-covered services; currently plans can not charge Medicare beneficiaries more than the government pays for covered services; this restriction would be ended under premium support In most states 4 managed care plans now account for over 75 percent of Medicare managed care enrollment – this is unlikely to be sufficient to generate genuine price competition The Balanced Budget Act of 1997 expanded the kinds of private plans that can participate in Medicare under a new program called Medicare+Choice We do not yet know if the private market will work even under this program To date few new plans have participated, some managed care plans have pulled out of selected geographic cares The first genuine open enrollment period will not take place until the fall of 1999 – many Medicare beneficiaries are unlikely to understand the choices available and pick plans that work for them Managed care plans have a strong incentive to skimp on services for the chronically ill – new methods of paying managed care plans on a "risk adjusted" basis will not be implemented until the year 2000, and there remains significant doubt whether they will work to prevent discrimination against those with serious health problems New quality standards for managed care plans have not yet been tested; moving more rapidly toward "privatizing" Medicare until these safeguards are in place is not prudent Robert Reischauer of the Brookings Institution responds: The approach to Medicare reform advocated by Sen. Breaux is called "premium support." Advocates of this approach believe that it would lower the costs of providing care to the elderly and disabled because it would give participants an incentive to choose efficient, any yet high quality, health plans and providers an incentive to provide care in a cost-effective manner. They also argue that this approach would give participants a wider choice of plans through which to obtain their coverage, allowing them to select the one that best meets their needs and their budgets. Opponents of the "premium support" approach point out that it is untested. Cost savings could prove illusory. Many are also concerned that, under this approach, traditional unmanaged fee-for-service care could become relatively expensive. In other words, those wishing to have an unlimited choice of providers and no management of their use of services could have to pay higher premiums than would be the case if the current system were left unchanged. Stuart Butler of the Heritage Foundation responds: The biggest "pro" of Senator Breaux's plan is that it actually tries to make Medicare operate more efficiently, so that financial problems do not overwhelm it and threaten benefits for future generations of seniors. He would do that by incorporating into Medicare many of the features of the program that covers members of Congress and federal workers - the Federal Employees Health Benefits Program (FEHBP). The key feature of this approach is that it would enable seniors, if they wished, to pick an approved private health plan, whereupon the government would pay a certain percentage of the premium (called "premium support" by Breaux). The government would negotiate with these plans to make sure they covered at least certain set of benefits. With this structure in place, three good things would happen. First, Seniors choosing this option (they could always stay in the traditional program) would have a strong incentive to pick plans offering the best value for the money, just like federal workers in the FEHBP. Second, plans would have to satisfy the customer to be chosen, and so they would be under constant pressure to figure out ways to provide better benefits at good prices. And third, these incentives for plans and seniors would help get total Medicare more under control. The main "con" is that it will not solve all the long-term insolvency problems facing Medicare, though it helps a lot. But nobody's plan fixes Medicare permanently, including the President's. That will require tough decisions that few people seem willing to face right now.