To enact real
Medicare reform Congress should:
-
Ensure a maximum
number of choices and competing plans instead of limiting the
number of potential plans through a competitive bidding
process;
-
Not displace
existing prescription drug plans that currently provide
prescription coverage to 78 percent of seniors;
-
Avoid importing
existing Medicare price controls into a new system through
"deeming".
President Bush
declared in his State of the Union that he wishes to create a
Medicare program that would give senior citizens the choices now
available to Members of Congress and federal workers. He
subsequently outlined reform that would introduce into Medicare the
elements of consumer choice and market competition that are the
hallmarks of the Federal Employees Health Benefits Program
(FEHBP).
For real Medicare
reform to take hold and be effective, reformers will have to
include several specific provisions to change the structure of
Medicare from a rigid system of central planning to a flexible one
that encourages change, improvements and innovation in the
financing and delivery of medical services.
Because this is a
complex task, misunderstandings are possible, and congressional
members and staff may mistakenly design provisions that differ from
the FEHBP model and violate the crucial free market principles of
consumer choice and competition. Three important areas to watch
are:
1) The
Limitation of Plans and Restriction of Choice through a process of
Competitive Bidding. In the FEHBP, the government contributes a
set amount to private plans chosen by federal workers and retirees.
That amount represents the weighted average of the premiums of the
competing health plans, and includes a dollar cap. The government
does not get into the business of picking "winners or losers" among
competing plans, nor does it limit the geographic areas where these
plans may compete for business. All plans that satisfy the
government's basic preconditions - standards relating to solvency,
consumer protection, and coverage - may participate. In short, the
government does not block otherwise qualified health plans from
offering their services to federal workers or retirees. Through
their collective decisions, consumers, not government bureaucrats,
select the "winners and losers."
"Competitive bidding" has emerged as a possible key element of
Medicare reform. This approach is very different from, and
incompatible with, the FEHBP model. Under competitive bidding, the
government accepts what it considers the best bids, and allows only
a limited number of providers or suppliers to participate. This may
suffice for the purchase of desks, paper clips, or stationary. But
it would interfere with a system of open competition and consumer
choice, and lower the overall quality of care for Medicare
beneficiaries.
Consider the assessment of Lois E. Quam, CEO of Ovations, a
United Health Group Company in her April 3, 2003, testimony before
the Senate Finance Committee:
"Our experience has shown that competition that focuses on
'competitive bidding' tends to be process oriented, rather than
results focused. Often, it serves to reduce competition and limit
consumer choice. It tends to reflect the preferences of the
contracting organization, which often are not aligned with those of
consumers. Competition that places great emphasis on low cost most
likely would result in more restrictive health care options, not
unlike a staff-model HMO with limited networks, rigid medical
management practices (denial of care) and fewer beneficiary
options. In our estimation competitive bidding that relies on low
bids or a 'winner take all' approach provides high risk for both
beneficiaries and the government."
This is a correct assessment of the negative consequences that
would flow from a "competitive bidding" model of reform.
2) A Prescription Drug Provision that Would Displace Existing
Private Drug Coverage. In the area of drug coverage, the
legislative objective should be a transition into a system in which
drug coverage is fully integrated into private health insurance
plans (i.e., integrated into the coverage for physician and
hospital services) and those plans must be part of a competitive
system of private health plans, just like the FEHBP is today. For
low-income seniors, drafters should provide subsidies to offset
their drug costs.
Those who draft a new Medicare drug benefit should recognize
that, to be successful, it should not displace the drug coverage
Medicare beneficiaries already have. The provisions should not
create perverse incentives that would cause former employers to
dump retirees out of private coverage into a new federal
entitlement. As the Joint Economic Committee (JEC) warned in a
recent study:
"Be careful not to overly disrupt the existing market and the
current means for delivering prescription drugs, and thereby
threaten the drug coverage many seniors currently enjoy."
The JEC found that 78 percent of Medicare beneficiaries already
have drug coverage, though the generosity of that coverage varies.
Based on 2000 data, 90 percent of Medicare beneficiaries with
Medicare +Choice, employer coverage or other insurance enjoyed some
type of prescription drug coverage.
Short of a fully integrated system, the next best option for
current Medicare beneficiaries is to target direct assistance to
low income seniors who lack access to drug coverage through former
employers, or who cannot afford private health coverage, or who are
ineligible for Medicaid coverage. As David Walker, Comptroller
General of the United States, recently advised Congress
"…[T]he addition of a benefit that has the potential to
be extremely expensive - such as prescription drug coverage -
should be focused on meeting the needs deemed to be of highest
priority."
Significantly, Walker said a Medicare prescription drug benefit
should "to the extent possible, [avoid] the substitution of
public for private insurance coverage.
The best proposal yet unveiled to accomplish this transition is
the proposed prescription drug discount card tied to a generous
federal subsidy and private sector catastrophic coverage. These
funds could be deposited in a Medicare drug account. Such a
proposal has been developed by health policy analysts at the
American Enterprise Institute and the Galen Institute, and
PricewaterhouseCoopers
estimates it would increase Medicare expenditures by $302 billion
over the next 10 years.
3) The Importation of Medicare Price Controls into a new
System of Private Health Plans. Historically, and
unfortunately, the Federal budget process has determined the course
of Medicare policy. Recent reports indicate that the Congressional
Budget Office (CBO) will conclude that Medicare reform allowing
seniors to choose from among competing private health plans would
be "more expensive" than traditional Medicare. In an effort to lower
the projected "cost" of their Medicare reform proposal, some
reformers may be tempted to require private sector plans that want
to compete for the business of seniors to "deem" Medicare price
regulations into their products.
This would be a mistake. The "aggressive pricing" system
Medicare uses to control costs results in the rationing or denial
of medical services, bureaucratic delays, and disincentives for
physicians to accept new Medicare patients. For example:
- According to a February 3, 2003, report piece in American
Medical News, 22 percent of doctors in San Diego, California,
say they will leave Medicare within one to three years.
- Reuters News Service reported on September 5, 2002, that more
than 40 percent of Medicare patients in 2001 had to wait a week or
more to see a doctor, up from 34 percent in 1997.
Importing these pricing systems - known as "deemed pricing" --
into a new Medicare system of competing health plans will
inevitably import these shortcomings into any reformed system as
well.
Robert
E. Moffit Ph. D., is director of the Center for Health
Policy Studies, The Heritage Foundation.
[1]See
Joseph R. Antos Ph.D. et al, " Time for A Sensible Medicare Drug
Benefit," Heritage Foundation
Backgrounder No.1573, July 23,
2002.
However, as Joe Antos
and Al Goyburu demonstrate in a recent paper, the value of coverage
in private health plans exceeds that available in traditional
Medicare. See Joe Antos and with Alfredo Goyburu, "
Comparing Medicare with
Private Health Insurance Spending," Heritage Foundation Web
Memo #250, April 8, 2003.