With President Bush's State of the Union address, calls to reform Medicare -- the federal health-insurance program for older and some disabled Americans -- are once again back on the national agenda.
The Bush administration is expected to soon propose a so-called premium-support reform. Under such a measure, private insurance plans would compete to offer a basic package of Medicare benefits. A bipartisan presidential commission in the late 1990s discussed -- but did not formally recommend -- a proposal of this kind. Sen. Bill Frist (R-Tenn.), now the Senate majority leader, served as the co-chairman of that commission.
On paper, it's not a bad idea. The underlying concept is the same as the one that informed Bill Clinton's 1994 health-care proposal. Moreover, it's the same concept that underlies the current insurance program for federal employees and their dependents. The only catch is that problems seem likely to arise when Bush's plan is put into practice.
Proponents of premium support argue that it would improve Medicare's outdated benefit package and save money for the program. But it is worth recalling that exactly the same claims were once made for Medicare+Choice, an intended expansion of Medicare's managed-care program that was part of the 1997 Balanced Budget Act.
The thinking behind that plan was straightforward: Seniors would flood the program, laying the groundwork for more sweeping competitive reforms to Medicare. The government bullishly estimated that 34 percent of Medicare beneficiaries would be enrolled in Medicare+Choice plans by 2005.
In real life, however, that figure is now 13 percent and dropping. Seniors who still have access to these plans are paying much more for the prescription drugs and other benefits that induced many of them to join in the first place. Far from being a model of competitive reform, Medicare+Choice is in jeopardy of extinction.
Of course, premium support differs from Medicare+Choice in some important ways. But the lessons of the currently troubled managed-care program should nevertheless raise a number of red flags for those who would support the Bush plan.
For one thing, there is the key question of whether competition among private plans would save money for Medicare. The record of Medicare+Choice reveals little or no evidence that this would happen.
Medicare managed-care plans were profitable as long as they attracted healthier beneficiaries than the average. But as a more typical cross section of seniors joined up, costs rose rapidly. In theory, the government increasing payments to health plans that enroll sicker beneficiaries could overcome this problem of "risk selection." However, in practice, such an adjustment would face perhaps insurmountable hurdles.
Then there is the question of whether seniors would shop around for the best deal on health care in terms of price and quality. A 2001 government study rated the chances of this happening as "unknown." For such shopping around to take place, reliable information comparing health plans would have to be available. It is not. Moreover, premium support further assumes that seniors would be able to choose among competing plans. But the history of insurer withdrawals from Medicare+Choice throws this assumption into doubt.
Even if the Bush administration's goal of saving money were realized, all forms of competition in Medicare raise troubling issues of fairness. For instance, under premium support, seniors and the disabled would receive a payment related to the premium for an average plan. In theory, beneficiaries would be rewarded -- in the form of lower premiums and extra benefits -- for choosing less expensive and more efficient health plans; they would be penalized -- in the form of higher premiums and out-of-pocket payments -- if they select more expensive plans.
Older, poorer, sicker beneficiaries would be more likely to stay in their current plan -- most likely the traditional fee-for-service model. Such individuals value a relationship with their present doctors and tend to be more risk-averse. Over time, the premium for this plan would probably rise relative to other plans, resulting in a larger burden on those who can afford it least.
A premium-support approach would also make it very easy -- and some contend that this is the real goal of the reforms -- for the government over time to reduce its contribution well below the rate of medical inflation. This would make the government's bottom line look better by shifting costs onto seniors.
The uninspiring track record of Medicare managed care ought to raise a healthy skepticism, at the very least, toward proposals that rely on the market to reform Medicare. The Bush proposal on Medicare may be déjà vu all over again. And those who, like the president, argue that Medicare privatization is a form of progress bring to mind another of Yogi Berra's maxims: We're lost but we're making good time.
Leif Wellington Haase is a fellow at The Century Foundation and the staff director of its Task Force on Medicare Reform. For more information, analysis and commentary, visit The Century Foundation's Medicare Web site at www.medicarewatch.org.
