Medicare, the huge and financially
troubled health program that covers almost 40 million elderly and
disabled citizens, is in desperate need of reform. A growing number
of Members of Congress agree with recommendations put forth by a
majority of the members of the National Bipartisan Commission on
the Future of Medicare. These recommendations--which include a
"premium support" mechanism to enable Medicare patients to select
from a variety of superior private plans--provide a good starting
point for serious Medicare reform.
Legislators should realize, however, that
if they do not draft their reform proposals correctly, or if they
shift too much of the responsibility for getting the crucial
details right to the Health Care Financing Administration (HCFA),
the powerful regulatory agency that runs Medicare, their efforts to
create a new system with real patient choice and genuine market
competition could be undone. An excellent example of how a reform
initiative could be thwarted is the existing "Medicare+Choice"
program (Medicare Part C), which today is drowning in a
congressionally created sea of red tape and bureaucratic
Medicare+Choice, the health policy
centerpiece of the Balanced Budget Act (BBA) of 1997, was touted
originally as a major reform of Medicare that would increase
options for beneficiaries. Instead, it expanded HCFA's regulatory
power and reduced the number of options available to
Medicare beneficiaries. Since the inception of the program, over
100 health maintenance organizations (HMOs) serving more than half
a million voluntarily enrolled Medicare patients either have left
the areas they served or have retreated from parts of those
Democrats and Republicans hailed the BBA as proof of Congress's
fiscal responsibility. Its sponsors projected that its Medicare
"reforms" would save $116 billion between 1998 and 2002, with the
bulk of these "savings" to be generated by reductions in payments
to health plans for medical services. Plans participating in
Medicare's HMO program were expected to provide a greater array of
services at increasingly lower prices. Today, the HMOs expect $33
billion of the projected $116 billion in "savings" to come from
their programs by 2003 as a result of the complicated new and lower
general, the effects of the BBA on Medicare beneficiaries
Fewer HMO choices.
According to the U.S. General Accounting Office, HMO plans were
more likely to vacate areas they had served since 1992. Some plans
left even though the per capita reimbursement would be high.
Fewer participating health
Twenty other health plans did not renew their HCFA contracts.
Nearly 500,000 Medicare patients in 29 states found themselves with
fewer options. According to the Medicare Payment Advisory
Commission, senior citizens in 71 percent of all counties now have
no Medicare managed care option, compared with 68 percent in
More seniors need Medigap
About 50,000 Medicare HMO patients reportedly had to return to the
traditional Medicare plan and find affordable Medigap
Fewer applications from provider
sponsored organizations (PSOs).
Although it anticipated 50 applications from PSOs, HCFA received
only four by October 1998 and approved one.
No private fee-for-service plans or
medical savings accounts (MSAs).
There were no takers for medical savings account plans or
other fee-for-service insurance.
Faced with rate cuts and the cost of complying with HCFA
regulations, the remaining HMOs dropped important benefits. For
example, 21 percent of Medicare enrollees lost coverage for
glasses, and 12 percent lost coverage for hearing aids.
a million seniors who thought they had solid private health care
coverage were surprised by this turn of events at the end of 1998.
The combination of HCFA micromanagement and unwise congressional
mandates demonstrated once again that Washington was "out of sync"
with the best practices of private-sector health care delivery.
the bad news continues. HCFA recently announced that, in 2000, 99
Medicare contracts are not being renewed by the companies or else
the companies are reducing their service areas. According to a
recent report in American Medical News, over a quarter of a
million more Medicare patients will lose their health plan coverage
in 2000 because of the plan withdrawals, and almost all other
enrollees will experience a reduction in benefits, an increase in
payments, or both.
Real Medicare Reform.
Real Medicare reform should not be based on outdated regulatory
policy that achieves such poor results. Congress should ensure that
senior citizens and the disabled have access to solid
private-sector health plans and, at the very least, have the same
range of superior health care options Members themselves enjoy in
the Federal Employees Health Benefits Program (FEHBP). That
exemplary "premium support" program--which offers federal
employees, maintenance workers at the White House, federal
retirees, congressional staff, and their families a variety of
affordable choices--is governed by a minimum of regulation.
considering how to improve the Medicare system, Members of Congress
should learn three lessons from the Medicare+Choice fiasco:
Don't tinker with Medicare; reform it.
Base Medicare reform on real patient
choice and market competition.
Don't expand HCFA's regulatory powers;
Sandra Mahkorn, M.D.,
M.P.H., M.S., is Visiting Fellow in Health Policy at The Heritage