Consumer Group Attacks Commission Plans for Medicare

Feb. 5, 1999

Consumer Group Attacks Commission Plans for Medicare

Consumer advocacy group Public Citizen today denounced a draft report from the chair of the Bipartisan Commission on the Future of Medicare, Sen. John Breaux (D-La.), saying it would benefit the healthy and wealthy at the expense of those who can afford it least.

The Commission is due to deliver its report at the end of the month, but Sen. Breaux presented a skeletal draft of a possible majority Commission report January 26, 1999.

“The Breaux proposal is too silent on many tough issues for it to find common ground among 11 of the 17 Commissioners – the supermajority needed to report to Congress,” said Public Citizen President Joan Claybrook. “But even in its skeletal form, the proposal is sufficiently clear to be opposed.”

The consumer advocacy group outlined the reasons it opposed the proposal:

1. Eliminates the Medicare entitlement. Right now, Medicare guarantees beneficiaries access to a defined set of health benefits with an established cost-sharing ratio between the government and beneficiaries. If healthcare costs go up, so does what the government pays. Under the Breaux plan beneficiaries would be entitled to a defined contribution only. The trial balloon is “soft” on the question of how specific the benefits package for private plans would be – Breaux is looking for a compromise that brings in both the Commission’s “leave it completely up to the market” and “define the benefits” wings. But even if a benefit package were specified, it would be difficult if not impossible to force profit-motivated managed care providers to comply with it.

2. Turns Medicare into a voucher program. Under the Breaux plan there would be two delivery systems: fee-for-service (“traditional Medicare”), with HCFA granted some additional authority to control costs, and the “premium support” or “voucher” system. The government would make a defined contribution toward the cost of an individual’s healthcare. It could be used as a voucher to pay part of the premium of a private health plan. But “traditional Medicare” spending per person would also be capped at the private voucher amount. If health care costs per person exceeded what the voucher would buy – e.g., because sicker individuals with more costly healthcare needs enrolled in “traditional Medicare” in disproportionate numbers – those individuals would be liable for a larger and larger share of cost than is now the case.

3. Turns Medicare over to the market. However the details of the Breaux plan are filled in, its fundamental philosophy is to turn Medicare into a healthcare delivery system in which market competition among largely for-profit managed care plans determines cost, quality and access to care. The market has a track record in Medicare, and it is not good:

– 100 HMOs, 87% of them for-profit, dumped over 400,000 Medicare beneficiaries at the end of last year because they decided the business was not profitable. This may be fully acceptable market behavior, but is it what we want for Medicare?

– The Medicare population is sharply skewed: 5% of beneficiaries account for 50% of expenditures; 10% account for over 75% of the program’s cost. Although HCFA has recently proposed adjusting the rates paid private plans to account for higher risk patients this type of regulation is strongly opposed by many private market advocates. With such a strong incentive to attract and keep only the healthier, lower cost beneficiaries, for-profit managed care firms will engage in significant cherry picking. Traditional Medicare would be left with the sickest patients – who would now also be required to pay a greater share of their healthcare costs as the “voucher”rate caps what the government pays.

4. Raises the eligibility age from 65 to 67. This would throw several million more people into the ranks of the uninsured – and save very little money, since under current law working people between the ages of 65 and 70 who have employer-paid insurance get their primary coverage from their employer anyway.

The Breaux plan does not address the main problems facing Medicare:

* Failure to cover prescription drugs. Both the Medicare program and Medicare beneficiaries who lack outpatient prescription drug coverage pay full sticker price for prescription drugs – twice as much as the Departments of Defense and Veterans Affairs, and about twice as much as the same drugs cost in Canada and Mexico. The pharmaceutical industry has long blocked adding a drug benefit to Medicare because it opposes government price controls, which are crucial to such a benefit. The Breaux proposal punts: it mentions drugs only under “Areas that Need Resolution.” Co-chair Bill Thomas (R-Calif.) and other pro-drug industry Commissioners have stated publicly that they will block any effort to make prescription drugs a covered benefit in the “traditional Medicare” program – they would be available only through private HMOs.

* Failure to reduce beneficiary out of pocket expenditures. The average Medicare beneficiary pays over $2,000 a year – about 20% of average beneficiary income – for out of pocket healthcare expenses. The Breaux proposal would probably increase these amounts:

– by ending “first dollar coverage” for co-payments through Medigap or employer-paid supplemental insurance;

– by combining the Parts A & B deductibles to create one annual deductible – pegged at “perhaps $350” in the Breaux proposal – a dollar amount high enough to constitute a barrier to care for some.

* Failure to address the financial challenges facing Medicare. President Clinton’s proposal to use 16% of the surplus, $650 billion over 15 years, to keep the Part A trust fund solvent until 2020, is a positive proposal. But a number of Commissioners, including the co-chairs, have criticized the President’s action – they have called it an “obstacle” to their efforts to use “Medicare is going broke” as a rationale for destroying the program in order to save it. The Department of Health and Human Services Inspector General estimates that waste, fraud and abuse costs the Medicare program more than $20 billion a year. The Commission has no proposals on curtailing fraud and abuse.

The Breaux proposal undermines Medicare as a social insurance program. Medicare is based on a social compact between the young and the old, between the sick and the healthy, and between the less well off economically and those with higher incomes. The Breaux proposal would erode this social compact and individualize risks and benefits. The healthier and wealthier would do well; those with greater medical needs and lower incomes would not.