GOP Plans Deft Surgery on Medicare

In one of the most delicate feats of budget surgery imaginable, Republican legislators are preparing to cut substantial sums from future Medicare costs, perhaps by making its elderly beneficiaries pay more for coverage and moving many people into health maintenance organizations.

Many see Medicare as a pot of gold for balancing the federal budget. But only by cutting $160 billion out of its projected cost over the next five years--about 13%--can GOP leaders expect to approach a goal that has become a symbolic centerpiece of their mission to transform the national agenda.

However, unlike the budget paring done on welfare and many social programs, those Medicare changes would cut directly into the interests of the middle-class--a much more formidable political challenge than any confronted by this Congress so far.

Fearful of the potential changes, senior citizens’ organizations, hospital groups and the medical profession are already girding for war on Capitol Hill, warning of impending disaster weeks before Senate and House committees work out any details of the cuts.

“The numbers we hear are bad and keep getting worse,” said Max Richtman, executive vice president of the 5-million-member National Committee to Preserve Social Security and Medicare. “It’s the same old story--they want to take more money out of seniors’ pockets and provide lower-quality health care.”

Possible cuts in the government’s reimbursements to hospitals could be “brutal,” said Thomas Scully, president of the Federation of American Health Systems, which represents investor-owned hospitals. “I’ve been talking to Republicans and telling them: ‘If you go too far, you will have the American Assn. of Retired Persons-doctors-hospitals avalanche moving against you.’ ”

Medicare would be in big financial trouble anyway, even if the Republicans had not pledged to balance the budget with a large infusion of Medicare savings. The program, which helps pay medical bills for 32 million Americans older than 65 and 4 million disabled persons, spent $165 billion last year. Only three federal government functions cost more: Social Security, national defense and interest payments on the national debt.

The part of Medicare that pays hospital bills, drawn from payroll taxes, is projected to face bankruptcy in the year 2002. When the massive baby boom generation begins drawing benefits in the year 2011, the program will be deluged, picking up another 3 million recipients every year for two decades.

As the budget showdown approaches in Congress, the Clinton Administration is remaining conspicuously silent, refusing to offer any detailed outline of its own ideas. Last year, the White House offered a plan for slowing Medicare spending using many of the same ideas that the Republicans are now considering. But the Clinton plan died with the Administration’s ill-fated health care reform initiative. Republicans charged that the proposed system would have robbed people of their right to choose their own doctors.

The political tables are turned this year. And the Democrats are gleefully preparing to savage the upcoming Republican proposal as an attack on the elderly.

“The President will attack our plan as mean-spirited cuts aimed as destroying the Medicare program,” said one key Republican. “Will the public see it his way? Or will they agree with us that the program has had unsustainable growth and that--in terms of the budget--we have to put our books in order?”

Republicans emphasized that they are talking about slowing Medicare’s growth, not actually reducing its spending. Medicare spent $884 billion in the last seven years. At current growth rates, nearly 10% annually, spending would soar to approximately $1.7 trillion over the next seven years.

The GOP effort hopes to slow spending to 7% next year and 5% thereafter, keeping total outlays to $1.4 trillion. But $300 billion in savings does not come easy.

Here are some of the changes that Republicans in the House and Senate will take up in coming weeks. If they are to find the needed savings, they will have little choice but to include some version of all of them:

* An increase in the monthly premium for recipients, now $46.10 a month, for the Part B coverage that pays doctor bills. The premiums now finance 25% of the total cost of this benefit, with the rest coming from general tax revenues.

* An increase in the annual Part B deductible, now $100.

* A new co-payment for home health care. Home-bound persons who need nursing care or physical therapy typically get 60 visits a year without charge. Recipient payments ranging from 10% to 20% are likely to be considered, along with co-payments of 20% for laboratory tests.

* Reductions in Medicare’s payments to teaching hospitals and university medical centers for training doctors.

* Reductions in the annual inflation adjustment given to hospitals for treating Medicare patients.

* A higher premium for upper-income beneficiaries for Part B coverage.

The plan “is going to be an amalgam of things, 10 or 15 different levers you can play with to get savings,” said one Republican source close to the process.

But even if all these particular changes are pushed through Congress, they would still probably fall billions short of the goal needed for the budget-balancing effort.

Thus, the rest would have to come from what the Republicans see as their ace in the hole: managed care, the private-sector solution now successfully restraining medical inflation for many corporations.

To escape some of the higher co-payments and increases, recipients would have to agree to use a limited network of doctors and hospitals and go through a pre-screening referral process for treatment. Recipients also might be required to pay a fixed annual sum for health care, regardless of services used.

If a member went outside the network for a doctor or hospital, he or she would pay substantial additional costs.

“We should spend most of our energy over the next few months looking for the best means to transform Medicare coverage and bring to it the advantages of the experience of the private market,” Rep. Bill Thomas (R-Bakersfield), chairman of the House Ways and Means health subcommittee, said at a recent hearing. The theme in the private market is “cost-conscious purchasing of quality care.”

The move to managed care would be a massive change for Medicare. It is the last bastion of traditional fee-for-service medicine, with beneficiaries free to choose any doctor or specialist.

Fewer than 9% of Medicare enrollees are now in managed-care plans, the health maintenance organizations with a selected panel of doctors and hospitals. In managed care, a referral from a primary care “gatekeeper” doctor is needed to get permission to see a specialist.

But the Republican belief is that managed care is the way to get big savings in Medicare, and that recipients can be lured or prodded into accepting it through increased fees for the alternatives.

Their vision, expected in some form in the upcoming proposal, is for an open enrollment season in which Medicare beneficiaries would be asked to consider choosing among a plethora of health maintenance organizations, some offering prescription drugs, eyeglasses and dental care--items that are not now covered under Medicare.

By the millions, the GOP leaders believe, the Medicare population gradually would move into these networks, where tighter cost controls and effective management would slow the growth of costs.

However, so far this is a belief--not a guarantee. Voluntarism is the key. No one would be forced to switch, GOP strategists insist.

“We don’t want to instill fear in people,” said Rep. Nancy L. Johnson (R-Conn.), an influential member of the health subcommittee. “We are dealing with a population that has a lot of anxiety.”

And a population with a lot of clout. Americans over age 65, who have a higher voter turnout than any other group, are fiercely protective of Medicare. And their advocacy organizations, along with those of the hospitals and doctors, have successfully blocked many more modest changes in the past.

Right now, these organizations are preparing an all-out fight to prevent any significant changes, particularly involving significantly higher costs to beneficiaries. And they will fight hard against any limits on choosing a doctor. It is not clear whether they can prevail or will have to negotiate some compromise with the GOP majority.

GOP congressional forces are counting on growing acceptance in the country that major changes in Medicare are necessary. They are gambling an important part of their budget-balancing agenda on a belief in a new mood in the country.

Even after the 1995 budget battle is done, “we must return Medicare to sound financial footing,” cautioned Deborah Steelman, a Washington health care lawyer who was associate budget director dealing with Medicare in the Ronald Reagan Administration. “If someone who is 65 today is to have the security of the Medicare program when they reach 72, 82, and 92,” the system must be solvent, she said.