Medicare Debate Focuses on Merits of Private Plans

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Medicare Debate Focuses on Merits of Private Plans

By ROBERT PEAR, New York Times

June 9, 2003

WASHINGTON - As Congress begins a politically polarizing debate over prescription drug benefits for the elderly this week, a central issue is whether private health plans can deliver better care, at lower cost, than the traditional Medicare program created 38 years ago.

Much of the debate will focus on the merits of private plans: Will they be acceptable to Medicare beneficiaries? Will they work? Will they save money? Will they improve the quality of care?

If Congress wanted just to add drug benefits to Medicare, it could do so by adding a few words to Section 1832 of the Social Security Act, which defines the "scope of benefits."

But Congress is beginning a much more fundamental debate about the future of Medicare and the role of government, an issue that defines the philosophical differences between Republicans and Democrats.

President Bush, most Republicans in Congress and some Democrats are determined that Medicare must not pay for prescription drugs the way it pays doctors, hospitals and other health care providers: with a rigid, complex statutory formula that often bears little relation to the realities of local health care markets.

Mr. Bush plans to speak to doctors in Illinois on Wednesday and visit a center for the elderly in Connecticut on Thursday, just as the Senate Finance Committee is scheduled to vote on legislation adding drug benefits to Medicare. The full Senate and House are expected to vote on the legislation later this month.

Republicans maintain, in the words of Newt Gingrich, the former speaker of the House, that Medicare is obsolete and antiquated, because it does not cover drugs and because it relies on "a command-and-control structure to control costs."

Testifying last week before a Senate committee, Mr. Gingrich said, "We are at the dawn of an explosion of knowledge that will change everything we know about science and the human body." Breakthroughs in biology and technology in the next 20 years, he said, will equal all those of the 20th century, and the best way to exploit the discoveries is to transform Medicare from a government monopoly into a marketplace of competing insurance plans, so the elderly will have more options.

"Choice creates competition, and competition drives down price," Mr. Gingrich said, in a pithy statement of the philosophy that inspires most of the Republican proposals.

Senator Bill Frist of Tennessee, the majority leader, said the goal was to revamp Medicare so the elderly "can choose the type of coverage that best meets their individual needs."

Liberal Democrats say Republicans are trying to privatize the program. "This is an effort by those who never supported Medicare in the first place to unravel the one piece of universal health insurance we have in this country," said Senator Debbie Stabenow, Democrat of Michigan.

But the political dynamic may be different this year. Some Democrats, including Senator Edward M. Kennedy of Massachusetts, have made clear that they will work with Republicans to pass legislation, even while fighting over the details.

The future of Medicare is sure to be an issue in next year's elections. Mr. Bush and the Republican-controlled Congress have agreed to spend $400 billion on drug coverage and other Medicare changes in the next decade. With big budget deficits looming, lawmakers say, it will be more difficult to expand Medicare in future years than it is today.

Hundreds of medicines are in the pipeline for diseases affecting older Americans. The number of Americans 65 and older is expected to double in less than three decades, reaching 70 million in 2030.

The Medicare bills being drafted in the Senate and the House envision two huge but distinct roles for the private sector. Insurance companies would establish government-subsidized "prescription drug plans," to cover drug costs of the elderly and nothing else. The insurers could hire pharmacy benefit managers like Express Scripts and AdvancePCS to review and pay claims.

In addition, the Senate and House bills would encourage Medicare patients to get all their health care, including prescription drugs, from private plans known as preferred provider organizations.

These plans, hybrids of managed care and fee-for-service medicine, steer patients to certain providers. Patients can use other doctors and hospitals, but must pay more, sometimes much more, when they do so.

No one knows how many people will enroll in the private plans. Whether these plans will save money for Medicare is a hotly contested issue. The White House says they will. But many economists, including some at the Congressional Budget Office, say they could increase Medicare costs.

The private plans negotiate fees with doctors and hospitals. These fees are often higher than what the government pays under Medicare fee schedules. The government can set rates by fiat, by statute and by regulation. Health care providers see these rates as inadequate but usually accept them because Medicare's fee-for-service program still accounts for a large share of their business.

Preferred provider plans would offer benefits not available through traditional Medicare, including extra preventive services and protection against catastrophic medical costs.

The Senate Democratic leader, Tom Daschle of South Dakota, said Democrats did not intend to wage a filibuster on Medicare legislation. But Democrats do intend to offer amendments to cure what they see as flaws in the Republican plan.

A document prepared by Senate Democrats, outlining their strategy, describes the flaws this way:

"No defined benefit or premium. Insurance companies decide."

"Inadequate investment of $400 billion will require high premiums and deductibles."

"Large coverage gap."

Under the Republican proposals, private insurers signing contracts with Medicare could charge different premiums and offer different drug benefits, so long as they met federal standards.

In addition, the proposals would leave a big gap for some people. Under the Senate bill, for example, Medicare would share drug costs up to $3,450 a year, but would not provide further coverage until a beneficiary's annual drug costs reached about $5,300.

Robert D. Reischauer, former director of the Congressional Budget Office, said such a gap "defies rational policy analysis" and is not found in commercial insurance. But lawmakers said closing the gap could increase the cost of the package by $200 billion over 10 years.

Under the Republican proposals, the government would offer subsidies and other financial incentives for insurance companies to enter the Medicare market. Even the staunchest advocates of private health plans say they cannot be sure how companies will respond.

The history of Medicare is full of efforts to expand the role of the private sector.

Congress has authorized the creation of medical savings accounts, increased payments to health maintenance organizations and encouraged doctors and hospitals to form health plans, known as provider-sponsored organizations.

The results of these experiments have often disappointed their supporters, who blame heavy-handed government regulation.

But Democrats say health insurance for the elderly, especially drug coverage, is one of those public goods that can be supplied more efficiently and reliably by the government than by the market.