Budget bill moves Medicare toward privatization
More choices in managed plans mean more flexibility—and risks—for seniors and internists
From the October 1997 ACP Observer, copyright © 1997 by the American College of Physicians.
By Kathleen Haddad
This year's budget bill, enacted into law in August, brings some of the most significant health care changes in decades. Of particular note, the bill leads Medicare toward privatization through a new slate of "Medicare Choice" plans as part of the largest expansion of federal health programs since the inception of Medicare and Medicaid in the mid-1960s.
Effective Jan. 1, 1999, Medicare recipients will be able to choose from an array of managed care plans and two kinds of fee-for-service plans. It's a marked departure from the current choice of highly regulated risk plans (HMOs) or fee-for-service. It also means the health care landscape for Medicare will begin to look more and more like the under-65 private sector marketplace, with health information fairs and annual open enrollment periods forcing choices and year-long commitments.
It's a scenario that not only brings flexibility to both seniors and physicians, but also risks. Some are concerned that seniors may not understand the implications of their choices (e.g., specific benefits, higher premiums, restricted choice). For internists, the new choices could mean increased control from working with more flexible managed care options rather than just traditional managed ones. On the other hand, the possibility of increased enrollment by seniors in large commercial plans could produce more of the same complaints physicians now have with these plans.
To choose managed care, Medicare recipients will file an enrollment form with a particular plan, and HCFA will contribute a Medicare Choice capitation amount directly to that plan. To default would place seniors into the original fee-for-service program.
Here are some of the new Medicare Choice options:
- Medical savings accounts (MSAs). In a demonstration program, as many as 390,000 seniors may elect MSAs in conjunction with catastrophic insurance plans. The maximum deductible is $6,000.
- Private fee-for-service. In addition to "original" fee-for-service, the budget act allows insurers to sell a private indemnity option for seniors offering unrestricted use of participating physicians. Participating doctors may charge 15% more than the fee schedule. Presumably, premiums would be higher than original fee-for-service in return for unrestricted use of providers; reimbursement rates also would be higher to attract providers.
- Medicare managed care. Currently, HMOs are available to seniors but preferred provider organizations and point-of-service plans will be new. Furthermore, certain HMO rules were relaxed. For example, the rule requiring that half of enrollment must be under 65 will be waived, and HMOs will be able to enroll only Medicare patients. HMOs may enroll as few as 5,000 beneficiaries, and even fewer in rural areas.
- Provider-sponsored organizations (PSOs). The budget act also allows PSOs to serve Medicare beneficiaries for the first time. But the PSOs will have to meet what are expected to be fairly strict regulatory standards, similar to those governing insurance companies.
While not part of Medicare Choice, the budget act allows two other options. First, physicians and patients may arrange their own terms of payment apart from Medicare. Physicians who choose this may not participate in Medicare for two years. Second, the provision for back-ended IRAs—in which contributions are made after tax, and withdrawals are tax-free—may be used for health expenses.
Eventually, this movement between managed care and fee-for-service—and between managed care plans—will be restricted. From 1998 through 2001, seniors will be able to continue movement in and out of plans at will. The first open enrollment period, with only one election allowed, will take place during the first six months of 2002. By 2003 and thereafter, open enrollment will take place in November.
Congress hopes this new market-oriented approach, modeled after the Federal Employees Health Benefits Program, will contain prices and expand choice—salvaging Medicare for the future.
The risks of the new options are similar to those in the non-Medicare managed care market, perhaps exacerbated by the increased morbidity of the elderly: adverse risk selection, in which the really sick high-cost patients gravitate to one plan, probably Medicare fee for service. With MSAs and private fee-for-service available and attractive to wealthier persons, Medicare fee-for-service could become the stepchild of elderly care, with fewer choices of providers and decreased tax support.
Only time—and the marketplace—will tell.
Kathleen Haddad is Senior Associate for Policy and Communications in ACP's Washington, D.C., office.
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