How can Medicare be saved? A look at what's on the table
By Robert B. Doherty
One of the facts of life in the nation's capital is that Congress ignores problems until they reach crisis proportions. There is little or no political reward in tackling an issue that really won't bother people for another 10, 15 or 20 years—especially if it would require people to pay more today.
Avoiding painful realities may make good sense politically, but it results in bad public policy. By postponing reforms, Congress is assuring that the required sacrifices will be all that much greater when the day of reckoning arrives.
This is exactly the case with Medicare reform. Everyone knows that the current program can't be sustained. But members of Congress have been terrified of making changes in its benefits, eligibility and financing to put the program on a solid financial footing for the future.
As it often does when political realities stand in the way of reform, Congress delegated the issue to a "blue ribbon" committee. The Balanced Budget Act of 1997 established the Bipartisan Commission on the Future of Medicare. The Commission, which is made up of lawmakers from both parties and experts in health care financing, must provide its recommendations to Congress by March 1999.
The defined benefit alternative
One policy option that is getting serious consideration by the Commission is changing Medicare from a defined benefit to a defined contribution (or premium contribution) program.
As a defined benefit program, beneficiaries of the existing Medicare program have an open-ended entitlement to have Medicare pay for all covered benefits. There is no limit on how much of a financial contribution Medicare makes toward the care of any beneficiary. Under a defined contribution model, the federal government would issue a voucher to each beneficiary to purchase health insurance coverage through private sector plans.
Congress would determine the amount of the voucher based on the amount of funds available to Medicare rather than the projected cost of the benefits. If the voucher amount did not keep pace with the costs of coverage, beneficiaries would have to pay any difference themselves.
Not all voucher proposals would require that Medicare convert to a defined contribution model. The amount of the voucher could be set to the average price of benefits in each market area. As long as beneficiaries were guaranteed that the voucher amount would pay for basic Medicare benefits, a voucher program could still be considered a defined benefits plan.
Some voucher proposals also call for maintaining the traditional Medicare fee-for-service (FFS) program. Under these plans, beneficiaries could choose to remain in conventional Medicare or they could choose to purchase private coverage using a voucher. If such a companion voucher program did not pay for private sector coverage equivalent to standard Medicare benefits, the "defined benefit" would allow beneficiaries to enroll in the conventional FFS program.
Pros and cons of vouchers
One reason many of the Commission members seem enamored of a defined contribution program is that it offers the promise of restraining expenditure growth in Medicare without having to explicitly curtail benefits or eligibility. A recent analysis by The Lewin Group prepared for the National Coalition on Health Care suggests that a voucher program—if set up as a defined contribution model—would save enough money to eliminate the hospital trust fund deficit. (The trust fund is currently expected to be depleted by the year 2010.) As much as $3.6 trillion, or up to 27% of total program costs, could be saved between 2005 and 2030.
By comparison, The Lewin Group also found that implementing a defined benefit voucher program could reduce the annual rate of growth by 1.5% per year from 2005 to 2030, saving $2.8 trillion. But the group concluded that even with this level of savings, a defined benefit voucher program would likely require Congress to impose additional measures to restrain spending—such as delaying the age of eligibility or requiring higher income patients to pay more.
Voucher programs have additional problems, especially if they are set up as defined contribution programs. The Lewin Group concluded that a defined contribution voucher is unlikely to provide enough money for low-income beneficiaries to purchase adequate insurance. As the cost of private coverage rises—and the government limits its Medicare expenditures—lower-income seniors might be priced out of the market.
ACP-ASIM is currently in the process of developing a policy paper on the defined contribution model. The paper will be considered by the Health and Public Policy Committee this month and then by the Board of Regents in February.
College Governors and Regents have expressed concern that a defined contribution model would leave too many disabled and elderly Americans vulnerable to loss of coverage, inadequate benefits or excessive out-of-pocket costs. College leaders have also expressed concern about the ability of frail beneficiaries to "shop" for coverage in the private insurance market. But several Governors have also acknowledged that a voucher model may be an acceptable way to introduce market-based incentives into Medicare, provided that it allows beneficiaries to have access to an affordable plan with adequate benefits.
One clear role for ACP-ASIM is to ensure that policy-makers take into consideration the practical realities of how a voucher program would affect elderly and disabled patients—and their internists. The Commission has tended to look at things from the standpoint of economic theory, not from the perspective of how vouchers might affect the day-to-day interaction among physicians, patients and health plans.
The Bipartisan Commission may succeed where others have failed in getting Congress to address the need for fundamental reforms in the Medicare program. ACP-ASIM, representing the physicians who take care of more Medicare patients than anyone else, must and will be involved in this debate. The challenge for the College—and for Congress—will be to find ways to put Medicare on a sound financial footing for the future without destroying the guarantee of access to affordable care for all beneficiaries that has made the current program such a success.
Robert B. Doherty is ACP-ASIM's Senior Vice President for Governmental Affairs and Public Policy.
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