Administration Promotes Private Health Plans as Money Saver

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Administration Promotes Private Health Plans

As Money Saver

By Robert Pear, New York Times

June 3, 2003

WASHINGTON - The Bush administration said today that greater use of private health plans to provide prescription drug benefits and medical services would save money for Medicare.

Thomas A. Scully, administrator of the federal Centers for Medicare and Medicaid Services, said private plans would provide "better benefits and lower costs" than the traditional fee-for-service Medicare program.

Many economists disagree, and Mr. Scully himself said that the Congressional Budget Office disagreed.

In an apparent pre-emptive strike, intended to answer the skeptics, Mr. Scully praised the value of private health plans as Congress reconvened today for a month of intense debate on Medicare, the federal health program for 40 million people who are elderly or disabled.

President Bush and many of his allies on Capitol Hill say they want to use drug benefits as an incentive to encourage older Americans to enroll in private health plans. People who stay with the traditional, government-run Medicare program would receive modest drug benefits, while those who join private plans would get much more extensive coverage.

The Senate majority leader, Bill Frist, Republican of Tennessee, said, "The political environment is right, the legislative stars are aligned" for passage of legislation adding drug benefits to Medicare this year.

But Senator Tom Daschle of South Dakota, the Democratic leader, mocked Republicans who argue that private health plans would be more efficient than the fee-for-service Medicare program.

Mr. Daschle said administrative costs accounted for 2 percent to 3 percent of spending in the traditional Medicare program, but could consume up to 15 percent of spending by private insurers.

About 88 percent of Medicare beneficiaries are in the fee-for-service program, which allows patients to go to any doctor or hospital. The Bush administration would encourage people to join networks of doctors and hospitals known as preferred provider organizations, or P.P.O.'s. Most people under 65 with private insurance are in such preferred provider plans. They typically pay more if they go to doctors or hospitals outside the network.

Medicare officials said that 66,000 Medicare beneficiaries had joined P.P.O.'s under a demonstration project begun this year.

Mr. Scully said competition among private health plans, as envisioned by the president, would save Medicare $22 billion over 10 years. Under current law, the program is expected to spend $3.8 trillion in those years.

The budget office "will say that P.P.O.'s cost 10 percent to 12 percent more" than the fee-for-service Medicare program, Mr. Scully said. He asserted that the analysis by the budget office was "fundamentally flawed," but such estimates are normally binding on members of Congress. The budget office refused to comment on Mr. Scully's remarks, saying its estimates were preliminary and confidential.

New evidence compiled by several economists shows that private health plans pay doctors and hospitals more than Medicare pays. So, the economists say, the private plans would probably not save money for Medicare any time soon.

The Bush administration acknowledged that private plans had higher administrative costs than the fee-for-service Medicare program. But it said the private plans could do a better job of managing care, and could thus eliminate much wasteful or unnecessary spending.

Mr. Scully said the administration still believed that Medicare should provide less extensive drug coverage to people in the fee-for-service program than to those in private health plans.

If the drug benefits are equal, he said, 31 percent of Medicare beneficiaries will join private plans, and the remainder will stay in the traditional Medicare program. But if the private plans offer superior drug benefits, as Mr. Bush proposed, 51 percent of Medicare patients will join such plans, Mr. Scully said.

In recent years, many health maintenance organizations have pulled out of Medicare, saying the government did not pay enough to cover their costs. But Mr. Scully said he was "fairly confident" that private insurers would want to participate in the Medicare marketplace proposed by the president.

Among the insurers that have expressed interest, Mr. Scully said, are Aetna, Humana, Cigna, WellPoint Health Networks, the UnitedHealth Group and many Blue Cross and Blue Shield plans.

Under the president's proposal, Medicare would sign contracts with three P.P.O.'s in each of 10 regions.