The Model for Real Medicare Reform: State of The Union Response

Report Health Care Reform

The Model for Real Medicare Reform: State of The Union Response

January 28, 2003 4 min read
Senior Fellow
Robert E. Moffit is a senior fellow in The Heritage Foundation's Center for Health Policy Studies.

The Model for Real Medicare Reform
In his January 28th State of the Union address, President George W. Bush is advocating a major reform of the troubled Medicare program. He has proposed $400 billion over ten years to accomplish that ambitious goal.

The President has also settled on a specific model for reform. The best model for Medicare reform is not conventional, private employer-based health insurance, where personal choice of plans and benefits is either restricted or non-existent. It is not an updated version of the 1993 Clinton Administration proposal to enroll millions of senior citizens in large, federally regulated and controlled managed care networks. It is not another variation of the flawed "Medicare+Choice" program, burdened by Congressionally engineered and inefficient administrative pricing as well as reams of costly and incomprehensible red tape.


The President's preferred model for Medicare reform is the Federal Employees Health Benefits Program (FEHBP), the consumer driven system of competing private insurance plans that cover Members of Congress, the White House staff, the federal judiciary, the US Postal Service, and approximately 9 million federal workers, retirees, and their dependents. In his State of the Union Address, the President stated, " …Just like you, the members of Congress, members of your staffs, and other federal employees, all seniors should have the choice of a heath plan that provides prescription drugs." White House officials have further clarified the substance of the President's agenda, stating that," All seniors will be given choices of a variety of health plans-similar to those enjoyed by Members of Congress." As Members of Congress know, there are indeed a variety of health plan options available to them and their staff, including health plans offered by traditional insurance companies, union and employees plans, Preferred Provider Organizations (PPOs), managed care plans, and recently, a health plan combining Health reimbursement accounts with traditional insurance, and managed care plans. 

The President previously outlined this model for reform in July 2001. This model is also broadly based on the recommendations of the majority of the National Bipartisan Commission on The Future of Medicare. The Bipartisan Commission majority stated that the best option to provide high quality health care, particularly for the baby boom generation, is to transform Medicare into a new program that looks very much like the FEHBP. The FEHBP is older than Medicare and Medicaid, and older than managed care networks in employer based health insurance. It is a public-private partnership, with a historically solid record of cost control and patient satisfaction.

Building on The Work of The Bipartisan Commission
The 17 member Bipartisan Commission, created in the Balanced Budget Act of 1997 to address the long-term problems of the Medicare program, was tasked with making formal Medicare reform recommendations to the White House and the Congress. In 1999, after 18 months of hearings, meetings, and working group sessions, the Bipartisan Commission adopted a reform proposal to create a "premium support" program for Medicare, replicating the premium support system of the FEHBP, by a vote 17 to 10, one vote short of the statutorily required number to make a formal recommendation.

While the Bipartisan Commission was unable to muster the one extra vote for a formal recommendation in 1999, the new Congress can work with President Bush and build upon its formidable accomplishments. One key accomplishment is that a bipartisan majority of public officials, serving on that panel, have already agreed on a major plan for structural reform to improve Medicare on the basis of patient choice and market competition. Just as importantly, the Bipartisan Commission's extensive policy work, including the expert testimony, the data collection and financial analyses of the Medicare program-offered by professionals from the Congressional Budget Office, the General Accounting Office and private organizations like the Lewin Group-remains a veritable treasure trove of detailed policy provisions. This reservoir of research an analysis is an excellent resource for the new Congress in the drafting of comprehensive Medicare reform legislation.

Next Step: Drafting Medicare Reform
While current retirees should not be excluded from Medicare reform, major structural changes in the Medicare program should be put in place for the next generation of retirees. Medicare reform is for the future. Specifically, real Medicare reform would accomplish three major objectives:

  • A Massive Reduction in Bureaucracy and Red Tape. It would create an administrative structure that guarantees a minimum of regulation and bureaucracy, guarantees a core benefits package, including catastrophic coverage and prescription drug coverage, available to every Medicare beneficiary. This would replicate the successful experience of the FEHBP.

  • A Flexible, Solid and Competitive Benefits Package. Every new retiree or Medicare beneficiary who wants to enter a reformed program should be legally guaranteed a core benefits package. Benefits, medical treatments and procedures or therapies- beyond the core package- should be subject to consumer demand and market based supply; in other words, what patients want and what doctors and other medical professionals can deliver. The Medicare reform proposal should also maximize health plan flexibility in the setting of benefits, premiums and co-payments. This, too, would replicate the successful experience of the FEHBP.
  • Personal Freedom for Patients and Professional Independence for Doctors. Most importantly, Medicare reform would advance the professional independence and integrity of physicians and enhance the personal freedom of patients in the choice of medical services and benefit packages. Medicare reform would also allow retirees to carry any unused funds from Health Reimbursement Arrangements (HRAs) with them into retirement, and would also allow retirees to choose a medical savings account option is they wanted it. The true test of Medicare reform is that it would allow patients to spend their own money on legal medical services of their choice without bureaucratic interference. In no other government program, except today's Medicare program, do such statutory restrictions exist.

Dr. Robert Moffit, is director of Domestic & Economic Policy at The Heritage Foundation.


Robert Moffit

Senior Fellow