This is the fifth in a series of UPI articles giving context and background as Congress debates expansion and reform of the U.S. Medicare program.
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WASHINGTON (UPI) -- House and Senate bills that would bring a prescription drug benefit to Medicare also contain measures that would link the government-run senior health insurance program more closely to private health plans.
There is wide bipartisan support for adding an outpatient prescription drug benefit to Medicare, but the idea of further "privatization" in the Senate and House bills has opened a political rift between Republicans who support it and Democrats who insist it will destroy the 38-year-old social insurance program.
"It's a cold-hearted Republican attempt to kill Medicare without getting any blood on their hands or suits," said Rep. John Dingell, D-Mich., who in 1965 successfully fought for passage of the original Medicare program.
"The Republicans ... they are a fine congregation of snake oil salesmen ... but this is a wonderful example of shoddy merchandising," Dingell said.
"If we don't make some changes to the current Medicare program, it will go bankrupt," said Pat Morrissey, deputy staff director of the House Energy and Commerce committee, which helped push through the House Medicare bill.
"(It's) very modest reform," he told reporters at a Medicare update sponsored by the Alliance for Health Reform.
Traditional Medicare remains a separate entity in both versions, and the Senate and House each have revamped Medicare+Choice and renamed it Medicare Advantage.
The Senate bill, which holds the support of at least some Democrats, would allow preferred provider organizations -- more loosely structured managed care networks -- into Medicare Advantage to provide the health package and drug coverage.
PPO plans, just like stand-alone drug plans in the prescription drug coverage proposal, would have to submit bids to cover all seniors within a region. Medicare would select the three lowest bidders.
The House plan allows PPOs but also sets up a new feature, called enhanced fee-for-service, using private health plans to provide the traditional Medicare benefit. The bill also has a three-plan limit.
The payment structure for PPOs is very complex. It is a combination of plan bids and government subsidy, modified and backed up by risk adjustment, which is determining payments based on the health of beneficiaries because sicker seniors use up more and more costly medical services.
The government would set a benchmark payment for each service area. In the Senate bill, plans that bid higher than the benchmark would recoup the extra money via higher premiums from beneficiaries. Plans bidding below the benchmark would have to make up the difference by lowering cost sharing or deductibles -- or providing seniors additional benefits. The House bill is similar but plans bidding less would have to make up only 75 percent of the difference to beneficiaries.
If this were the extent of the privatization, many more Democrats likely would vote for either the House or Senate bill. In early negotiations, Democrats insisted Medicare reform preserve the traditional program. Republicans agreed but in the House bill added "premium support," an attempt to rein in future program spending when the 76 million baby boomers begin reaching age 65 in 2011.
"I think the idea behind premium support is to have a more rational outcome," said Joseph Antos, a scholar at the American Enterprise Institute in Washington. "The basic idea is to let beneficiaries choose from among competing health plans in the Medicare program. Let plans have some flexibility to tailor specific packages of benefits, set the premiums and so on.
"The idea is to have plans actually act like other companies and other industries and recognize that their job is to try to provide a product or a service that is attractive to beneficiaries," he added.
This is the big sticking point. It is contained only in the House bill and Democrats have called premium support a "deal breaker" in conference committee negotiations.
Beginning in 2010, the House bill would make traditional fee-for-service Medicare compete with Medicare Advantage and private fee-for-service plans. The bill also would establish which U.S. service regions were "competitive," defined as at least two Medicare Advantage or enhanced fee-for-service plans having at least 20 percent penetration or the national penetration rate.
In competitive areas, the program would set a benchmark for covering average costs, taking into consideration both fee-for-service Medicare and managed care plans. Beneficiary premiums would be determined by comparing plan bids and traditional Medicare rates to the benchmark.
Traditional fee-for-service Medicare beneficiaries would pay more for their Part B premium -- which now covers physician care and other healthcare services apart from inpatient care -- if the benchmark was lower. Beneficiaries would receive 75 percent of the difference if the benchmark came in higher.
Uwe Reinhardt, a Medicare expert and professor at Princeton University in New Jersey, told United Press International the GOP has long wanted to turn Medicare from a defined benefit program to a defined contribution program. That is what would happen if the government's subsidy was limited and tied to private plans, he said, adding the idea is to shift financial exposure from the wider base of all taxpayers, who pay for Medicare through payroll and general fund taxes, to the elderly who pay premiums.
Reinhardt said that type of change would "whittle away at the traditional Medicare program." He characterized the argument as being over "generational burden sharing."
Sen. Edward Kennedy, D-Mass., who voted for the Senate bill, told ABC's "This Week With George Stephanopoulos" on Sept. 7 he will not support the House version.
"If the Republicans insist on dismantling Medicare by their premium support provision that is included in the House bill, I will fight with every bit of energy that I have against that particular proposal because that will be the dismantling of the Medicare system, which Republicans have traditionally and historically wanted to undertake," Kennedy said.
There are threats of a Senate filibuster occurring if the final bill contains the House privatization language. Kennedy said the only way a bill will pass this year is if President Bush becomes actively involved in the negotiations.
Supporters contend premium support does not spell ruin for the traditional program. Rather, they argue, it could help keep costs down.
"That doesn't mean the government is cut out of this," Antos said. "The government would continue to have a major role. You can't take the government out of the Medicare program for a couple of reasons. One is there will continue to be very large subsidies from tax payers to beneficiaries. There's the government role, the government at a minimum must serve as a good fiduciary and make sure that fraud isn't being committed in the program, but beyond that the federal government really has a very strong obligation to provide consumer protection."
Morrissey said the House bill would not lead to an uneven playing field for traditional fee-for-service beneficiaries because payments would be adjusted for sicker beneficiaries.
A letter issued by Senate Democrats this summer said the House bill would allow the "wealthiest and healthiest" seniors to join the PPOs, leaving the sick and the poor to traditional Medicare. It said the final bill must not give seniors "false choices that coerce them into leaving conventional Medicare to enroll in HMOs and private plans."
If it is true, as critics say, that traditional fee-for-service Medicare is more efficient than managed care, Morrissey noted, then seniors in that program have nothing to worry about because the benchmarks will come in higher than the costs and their premiums will be reduced. If not, the structure for beneficiaries to pay higher premiums based on benchmarks would be phased in over five years so it did not hit all at once.
Robert Hayes, president of the Medicare Rights Center in New York City, told UPI the risk of tying Medicare fee-for-service to such a benchmark is it could raise premiums substantially and jeopardize the ability of many low-income or fixed-income seniors to afford Medicare.
"There will be winners and losers, but the winners will inevitably be the comparatively younger and healthier," Hayes said. "The losers will be the older and sicker folks who will be squeezed out."
On the other hand, there is no evidence that privatizing Medicare will save money for the $242 billion a year program, which experts predict will be insolvent by 2026 even without a prescription drug benefit.
Private plan premium increases annually have been in the 12 percent range. The Federal Employee Health Benefits Program spending per participant is expected to increase by 15 percent in 2003 compared to Medicare per beneficiary spending, which is targeted to rise by just 4 percent, according to studies by The Commonwealth Fund in New York City.
Traditional Medicare also runs at about 3 percent overhead -- compared to double-digit overhead figures for private health plans.
Another controversial part of the privatization measures in the House bill: health savings accounts, which essentially are medical savings accounts. The accounts -- to which beneficiaries would contribute -- offer tax advantages and would be combined with high-deductible healthcare plans. Seniors would pay less for the insurance and draw from the account to pay for healthcare services not covered by the insurance plan. Their estimated cost is $173.6 billion over 10 years. Critics say, however, if that much money exists in the budget it should be included to provide or enhance the prescription drug benefit.
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Next: Medicare is likely to follow one of two scenarios in the upcoming decades, experts say. Either it will remain a defined benefit program and a growing part of the national budget or it will evolve into a defined contribution program -- in which the government limits its financial contribution.
