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The new Medicare: not your grandmother's program

From the December ACP Observer, copyright © 2003 by the American College of Physicians.

By Robert B. Doherty

Politics often creates delicious ironies and coincidences, but the new Medicare prescription drug reform legislation really takes the cake.

In 1965, President Lyndon Baines Johnson from Texas and a Democratic Congress created the Medicare program, the largest government entitlement program since F.D.R. signed social security into law 30 years earlier. Now, with another Texan in the White House, a Republican Congress has enacted the largest expansion of a government entitlement program in 38 years, adding $400 billion in new spending on Medicare over the next 10 years to provide prescription drug coverage.

Of course, when the Johnson administration prevailed upon Congress to create Medicare, it was doing what Democrats are expected to do: Use the power and economic resources of government to create programs to help Americans overcome the perceived inequities created by a pure market economy.

The irony is that a Republican administration and Congress led this latest expansion of government benefits and spending, even though Republicans have traditionally been viewed as the party of free markets and less government.

Combining new spending with market reforms

Republicans dealt with this apparent inconsistency by linking new spending to market-based reforms.

Earlier this year, the House and Senate passed very different versions of the prescription drug legislation. The House version combined the new spending and benefits with a proposed "premium support" program that reflected the views of its more conservative membership.

Under that plan, the government would give beneficiaries the same dollar amount to spend on either the traditional government-administered Medicare program or coverage from a private health insurance plan. If the plan selected by beneficiaries cost more than the government allowance, they would pay the difference in the form of higher premiums; if the plan cost less, they would share in the savings.

Many House conservatives insisted they could not vote for expanded spending and benefits without such market reforms.

The Senate added new benefits and gave a larger role to private insurance, but it did not include the "premium support" program. Most Senate Democrats and many moderate Republicans insisted that they would oppose any final bill that included the premium support program, arguing that market competition would ultimately lead to the demise of traditional Medicare.

Negotiators for the House and Senate decided on a compromise that would try the premium support program as a demonstration project in six metropolitan areas only. The bill would also include protections for low-income beneficiaries from any increased costs and limit how much premiums in traditional Medicare could be increased as a result of market competition.

That compromise, however, failed to satisfy conservatives who felt it didn't go far enough in introducing competition. Liberals, meanwhile, felt the bill went too far toward market reforms.

At one point during an all-night voting session on Nov. 21, it looked as if the bill would be voted down in the House of Representatives, as Republican conservatives joined with liberal Democrats in voting against the measure. The House leadership kept the vote open for an unprecedented three hours, finally convincing a handful of lawmakers to switch sides. In the end, the bill achieved victory by a mere five votes.

The Senate vote was also close, but splits in Democratic ranks and support from all but a handful of Republicans gave Majority Leader Bill Frist (R-Tenn.) and the White House the victory it needed. In the end, 11 Senate Democrats joined 42 Republican Senators in favor of the legislation. The White House had the legislative victory it needed to sign the bill into law.

Impact of the law

For internists and their patients, the immediate impact of the new law will be overwhelmingly favorable. In fact, the new law achieves every one of the College's top policy objectives.

The law, for example, halts the scheduled 4.5% cut in Medicare payments to physicians on Jan. 1, 2004, as well as anticipated cuts in 2005. Both sets of cuts will be replaced with annual updates of at least 1.5%. This two-year hiatus will give us time to work with Congress on a permanent fix to prevent more cuts after 2005.

Payments to internists and hospitals in rural communities will be substantially increased. The law encourages the voluntary use of electronic prescribing systems, but ultimately rejected a proposed electronic prescribing mandate.

The law also includes provisions to improve Medicare carrier performance, eliminate unfair and coercive practices used by Medicare auditors, and require pilot-testing of alternatives to onerous documentation requirements for office visits. It also eliminates a new proposed unfunded mandate on doctors that would have replaced the Current Procedural Terminology (CPT) system with an entirely new coding system.

And the law scales back cuts in indirect medical education payments and in payments for drugs administered in physician offices.

In fact, the overall redesign of the new Medicare program is remarkably consistent with College policy. ACP advocated that premium support be tested in a demonstration project, a compromise that Congress eventually reached.

Congress also agreed with our position that the prescription drug benefit should provide for lower cost-sharing and premiums for lower-income patients. For the first time, premiums for Medicare Part B will be based on income, with higher-income beneficiaries paying more—another reform strongly supported by the College.

Consistent with College policy, new preventive and screening benefits have been added, and Medicare will be given new authority to experiment with paying physicians more to manage care of chronically ill patients. (A detailed comparison of key provisions in the new law to relevant ACP policy is online.)

A new era for Medicare

No one should underestimate the risks that Congress has taken in enacting this new law. Adding an expensive new drug benefit—just nine years before the massive baby-boom generation begins to become Medicare-eligible—places enormous new financial obligations on taxpayers at a time when the demographic changes will place new demands on the program.

The new Medicare is not our grandmother's Medicare. The experiments with private-sector competition and income-based premiums represent fundamental departures, the effects of which are unpredictable.

Politically, the law's narrow margin of victory shows that the debate over Medicare's future is far from settled. Already, both Democrats and Republicans are saying that the new law will be a major issue of debate in the 2004 elections, with each party betting that they are on the winning side with voters.

If voters—and particularly the elderly—decide they like new benefits and choices available to them, the program will move forward as planned. If they don't, the political backlash that may result will inevitably force Congress to make changes, even before the new reforms are fully phased in.

For now, we can take pride in the fact that the College's ideas on reforming Medicare were accepted, and that we achieved all of our immediate policy objectives for internists and their patients.

Robert B. Doherty is ACP's Senior Vice President for Governmental Affairs and Public Policy.

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