So instead of comparing what may be meaningless clauses, you might want to reflect on the candidates’ very different views of Medicare, and how they want the program run in the years ahead.
As a country, we’re going to have to pay more for medical care than we do today. The population is aging and people want more help (today it’s drugs; tomorrow it will be long-term care). What’s the most cost-effective way to make this work?
For 35 years the answer has been the government’s Medicare program. It operates efficiently, with standard forms, one schedule of benefits, super-low overhead and, mostly, a doctor of your choice.
Touch-up: Vice President Gore thinks that, at present, Medicare just needs touching up. He’d keep the program pretty much unchanged, except for adding the option of prescription drugs. To save money, he talks about reducing waste and fraud (the government has actually made some progress here, in recent years). He’d also encourage lower-cost competition from Medicare HMOs. It should be more profitable to operate an HMO, with a government-subsidized drug benefit attached.
Governor Bush, by contrast, dreams of a new kind of Medicare. He wants two Medicare packages–one with drugs and one without. Private insurers would offer competing plans. They’d all have the same, core medical benefits. But the plans could add options, to appeal to different types of people.
The government would still pay the bulk of the program’s cost, as it does today. But the health-care market would set the price. Each year, the plans–including original Medicare–would vie for members, by touting their benefits and premium costs. You’d take the most attractive offer. The government would subsidize your chosen plan at some fraction of the average private-market price. If the plan costs more than the subsidy, you’d pay the extra amount yourself. There might also be low-cost plans you could enter free.
Bush’s plan raises questions that the public hasn’t begun to think about. Would it drive up the price of original, fee-for-service Medicare, forcing even unwilling seniors into HMOs? What about the high cost of insuring people who switch to drug coverage only after learning they’ll need a lot of pills? Will Medicare HMOs–private plans that deliver Medicare services–become a more dependable business than they are today, or are the potential profits too thin (since 1998, nearly 1.7 million seniors have been temporarily stressed and stranded when their HMOs left the field)? Will insurers demand higher subsidies to cover the Medicare population? How much medical choice do seniors really want to pay for?
As a way of delivering benefits, Medicare HMOs are more costly to run than original Medicare. That’s because the traditional system has such huge economies of scale–with no marketing costs, automatic sign-ups, and premiums paid electronically. The “bureaucRATS” that conservatives love to hate spend less than 2 cents out of every dollar on overhead.
By contrast, Medicare HMOs spend an average of 15 percent on administration, according to June Gibbs Brown, inspector general for the Department of Health and Human Services. The actual range is huge–anywhere from 3 percent to 32 percent. Costs include marketing, billing (still done substantially by snail mail), debt collection and close evaluation of medical treatments, not to mention salaries and profits. Brown is suspicious of overhead higher than 15 percent.
An HMO’s overhead can be justified, if it covers its costs with intelligent health-care savings. In most cases, the plans probably do. HMOs have forced more accountability on doctors and hospitals, created better information systems to track patients’ health, encouraged more uniform medical practices, improved the efficiency of the health-delivery system and helped slow the increase in medical costs. (Where they’ve overdone it, I should add, they’ve made bitter enemies among doctors and patients.)
In the Medicare market, HMOs have offered seniors lower costs and better coverage (including drugs) than they could get from straight Medicare plus a private Medigap policy. HMOs work their magic two ways. First, they negotiate lower prices from health providers. Second, they may get higher government subsidies than are justified. The government has been trying to cut the subsidies to the “right” amount, but that’s hard to do. HMOs quit the program when their subsidies declined too much.
“There’s not a lot of evidence that insurers can make money on seniors,” says Patricia Neuman of the Kaiser Family Foundation in Washington, D.C. Unlike working families, most of whom are healthy, high percentages of seniors are chronically or acutely ill. Without a government subsidy, this population couldn’t be insured.
But a government program can’t deal realistically with cost. That’s where private competition has a role, says Paul Ginsburg, head of the Center for Studying Health System Change in Washington, D.C. Instead of setting subsidies for Medicare HMOs, he says, Congress should let the plans set their own premiums for a given benefit package, and let the public choose. In other words, a touch of Bush. John Rother, a public policy expert for the AARP, believes that such a system would keep Medicare HMOs in business, give older people more confidence in them and promote lower-cost plans.
But, Ginsburg adds, you can’t expect original Medicare to compete with HMOs on price today. There you have a touch of Gore. Medicare can’t turn down the sick, so only government can afford the price. But competition can help tell the government what the price should be.
