HEALTH : Republicans Devise Plan to Cap Open-Ended Medicare Outlays : House GOP members want to limit annual expenditures for each recipient. It’s a radical approach to the government’s fastest-growing program.

Medicare, the government’s fastest-growing program at 10% a year, is also the one where Republicans are looking for the greatest single contribution toward balancing the federal budget by 2002.

Their goal is not to shrink the program but to limit its annual growth rate to 6.4%. Even that would cause major changes in the way the nation’s 35 million Medicare recipients--persons over 65 and the disabled of all ages--receive their health care.

Although GOP plans remain far from complete, many House Republicans are leaning toward a radical concept: limiting the money that the government would spend annually for each Medicare recipient.

Total spending is now open-ended: It depends on how often people enrolled in Medicare visit their doctors, what kinds of illnesses they have and what treatments they receive. Medicare beneficiaries are free to select any doctor and visit any specialist.

The key to achieving the savings under the GOP plan is coaxing millions of beneficiaries out of that system and into private health plans with tight spending controls.

Even then, Republicans say, their plan would make about $6,700 available for each Medicare beneficiary in 2002. That’s a hefty 40% more than current spending levels--enough, they contend, to buy effective insurance coverage.

Drastic action is necessary, Republicans say, because Medicare’s hospital fund is on a path toward bankruptcy in 2002. Medicare threatens to “expand to the point where the country cannot afford it,” Rep. Brian P. Bilbray (R-San Diego) said Tuesday at a hearing of the health subcommittee of the House Commerce Committee.

Democrats denounced the plan, arguing that the Republicans’ target of $270 billion in savings cannot be achieved without serious cutbacks in government-provided health care. “It would be fiscal coercion,” Judith Feder, a top planner at the Department of Health and Human Services, told the same hearing.

The Clinton Administration has proposed much milder trims--$127 billion over 10 years--using many traditional cost-cutting methods, such as trimming reimbursements to hospitals and doctors.

The President’s proposal is estimated to delay the Medicare trust fund’s bankruptcy by three years. Republicans say their plan, by contrast, would gain at least a decade of breathing room for the system, enough for Congress to devise a permanent fix to deal with the flood of baby boomers who will become eligible for Medicare starting in the year 2011.

If Republicans in the House get their way, the elderly and the disabled will get a choice of four ways to receive their health care. The government would directly run only the first, while private insurers and health companies would manage care under the other three.

1. Traditional fee-for-service medicine. Beneficiaries could go to any hospital, select any doctor and see any specialist, as they do today. But it would cost more money, perhaps significantly more.

Many variations are being considered by Republican planners. For example, the annual deductible for doctor bills, now $100, would rise. The 20% co-payment for doctor bills could be increased to 25%. The monthly premium paid by beneficiaries, now $46.10, would increase substantially. Home health care and laboratory fees might have a co-payment of perhaps 20% imposed for the first time.

These changes would probably not be imposed until three or four years into the Republicans’ seven-year budget plan, to avoid political fallout from anxious senior voters.

Currently, 90% of the Medicare recipients are in the traditional, pick-your-own-doctor care. Nobody can predict how many people will insist on maintaining their current health care arrangements.

Even with Medicare, the average person 65 and older now spends $2,519 out of pocket on health care each year because Medicare doesn’t cover such things as prescription drugs, dental care and the first day of hospitalization.

2. Health care at work. Employees now switch to Medicare when they turn 65. The GOP approach would enable workers to continue with their corporate health plans even after retirement, with the government paying the cost up to the average amount spent by Medicare on a beneficiary of the same age and in the same location.

3. Managed care. Beneficiaries could select from a menu of health maintenance organizations, preferred provider organizations and insurance plans.

The government’s share would be adjusted by age and location. For example, suppose it would cost Medicare an average of $7,000 under the fee-for-service program to provide care for an 80-year-old living in Los Angeles. Those individuals would have $7,000 to spend.

If they bought a $7,000 health insurance policy, the government would pay the full premium. If they bought a more extensive policy costing $7,500, they would have to pay the $500 difference. If the policy was cheaper, they could pocket the difference.

Advocates of managed care are confident the competition for Medicare dollars will produce a wide range of attractive policies.

Some Medicare HMOs now offer prescription drug coverage, dental care and eyeglasses, among the benefits unavailable under Medicare now. The Medicare HMOs are particularly popular in California, where more than 25% of the Medicare population is enrolled in HMOs. Republicans hope their plan will encourage the rapid growth of HMOs elsewhere in the country.

Skeptics say it is not clear whether today’s HMOs and managed care programs actually save money or simply attract younger, healthier Medicare enrollees while the oldest and sickest remain in the ordinary fee-for-service system.

4. Medical savings accounts. This idea aims to give beneficiaries direct discretion over how much they spend on health care, and a financial incentive to control spending. As with an individual retirement account, money saved would be tax deductible, and earnings would accumulate tax-free. Even withdrawals--as long as they were used to pay medical bills--would be untaxed.

It might work this way for those with $7,000 available annually from Medicare. Those recipients could put $2,000 into a medical savings account and buy a health insurance policy for the remaining $5,000--relatively cheap because the patient would be responsible for the first $2,000 in medical bills each year.

The beneficiaries would decide whether to withdraw money from medical savings accounts to pay health care bills.

Advocates believe that persons with medical savings accounts would avoid the marginal, unnecessary use of health care. When individuals spend their own money, the advocates say, they carefully consider whether to go to the doctor or merely to take a couple of aspirins and stay in bed.

Opponents say medical savings accounts would be practically useless for the heaviest users of Medicare, those persons over 80 years of age with serious health problems.

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The Four Choices

House Republicans propose to let Medicare beneficiaries choose among four ways of paying for their health care:

1. Traditional fee-for-service medicine. The recipients’ share of costs would rise, to encourage them to choose another option.

2. Employer-based insurance. For employers that kept retired workers in their insurance plans, the government would contribute the average cost of Medicare per beneficiary, adjusted by age and location.

3. Managed care. Medicare recipients could enroll in a health maintenance organization or a network of doctors and hospitals that agreed to limit their rates. Again, the government would contribute the average cost of Medicare.

4. Medical savings accounts. Recipients could use some of their annual Medicare stipend to buy insurance with very large deductible and put the rest into a tax-sheltered medical savings account, for use when paying medical bills.

STEMMING THE GROWTH

Medicare outlays projected seven years ahead under current practices and under the growth restraints approved by Congress in the fiscal year 1996 budget (in billions of dollars):

Source: Senate Budget Committee