GOP to Detail Its Plans for Leaner Medicare System

Will the nation’s Medicare beneficiaries still enjoy solid, comprehensive health care seven years from now if the government spends 20% less than current trends would dictate?

Or will millions of people be forced to pay big sums out of their own pockets to get benefits as good as those they enjoy today?

These questions will dominate the debate that will begin as early as this week, when House Republicans unveil their specific plans for trimming Medicare enough to both pull the program back from the brink of bankruptcy and balance the federal budget by the year 2002.

Since its creation in 1965, Medicare has always been open-ended; there have been no limits to how much the government would spend to pay the hospital and doctor bills covered by the program for the elderly and disabled.

Republicans appear ready to end that. In both the House and the Senate, they have already agreed in principle to cap annual spending growth at 6.5%--well below the current rate of 10%--for each of the next seven years. Their goal: to slice $270 billion out of projected Medicare spending growth in that seven-year period.

They have not yet settled on all the details of their plan, and House Speaker Newt Gingrich (R-Ga.) hopes to disclose their proposal as soon as Friday. But discussions with Republican legislators, staff members and experts reveal a general portrait of the GOP’s slimmed-down Medicare program.

At its heart is a system of carrots and sticks designed to nudge the nation’s 37 million Medicare recipients into health maintenance organizations and other forms of managed health care.

Nobody would be forced out of Medicare as it works today, with the government paying most of recipients’ hospital and doctor bills. But the Republicans would make the elderly and disabled pay more for the privilege than they do now. At the same time, they would hold out the promise of reimbursement for medical services not now covered by Medicare for recipients who chose managed care.

Medicare already limits what it pays hospitals to treat each of 470 separate categories of illness. It also caps its payments to doctors.

Despite that, spending keeps rising at double-digit rates, driven both by advances in medical technology and by the growing elderly population. Coronary bypass surgery, for example, hadn’t been devised when Medicare was created; today the procedure costs the program more than $5 billion a year, the biggest single category of Medicare spending.

Medicare now spends an average of $4,900 a year for each beneficiary, a figure that would rise to $9,500 in 2002 if the current growth rate continues. The Republicans’ spending-growth cap would leave spending that year at $6,700.

GOP planners are optimistic that millions of beneficiaries can be induced to move into some form of managed care, where spending is closely controlled. At the same time, they believe that market competition will allow for first-rate care to be delivered for that $6,700.

If the House Republicans’ plan becomes law, Medicare recipients would receive a pamphlet in the mail once a year, offering a choice of 10 or 12 government-approved health plans. “If you do nothing, you remain in Medicare as we know it,” said Rep. Jim Greenwood (R-Pa.), one of the key GOP health care planners.

The other entries in the enrollment brochure might include:

* Health maintenance organizations. Patients would be restricted to using the cost-conscious doctors and hospitals that are part of the HMO. But the HMOs could offer benefits that Medicare now does not, such as prescription drugs, eyeglasses and dental care. Currently, just 9% of Medicare beneficiaries are enrolled in HMOs, but Republicans are confident there will be vast growth in this market.

* Preferred provider organizations. These are broad lists of doctors and hospitals--one network includes 80,000 physicians--offering more choice than HMOs. Beneficiaries could go outside the networks to select other doctors--but they would have to spend more to do so.

* Medical savings accounts. For those who chose this approach, the federal government, as of 2002, might pay $5,000 for a health insurance policy with a high deductible--$2,000, for example. Another $1,700--the rest of the government’s total $6,700 contribution--would go into a tax-sheltered savings account that recipients could use to pay current medical bills or save to meet future medical expenses.

* Employers’ health plans. Beneficiaries could continue in the health insurance plans at the place they worked before retirement, with the government picking up the first $6,700 of the cost.

In all cases, Medicare recipients could enroll only in those health plans certified by the federal government for quality care and financial solvency. Government Medicare payments would go directly to the plans.

“You put the form back in the mail and you are assigned to that program,” Greenwood said.

Sources said the Republican plan would reach the savings goal of $270 billion by slicing $110 billion from payments to doctors and hospitals, increasing beneficiaries’ share of their medical expenses by $70 billion and reaping a $90-billion windfall from the rush to HMOs.

The immediate added burden on beneficiaries is most likely to include higher payments for Part B insurance coverage, now $46.10 a month, for doctors’ services.

All beneficiaries would pay more, but the additional burden could be made heavier on the wealthy. Republicans remain undecided about the exact size of the special added premium and the income level where it would kick in, although sources said it was likely to be imposed on individuals in the $60,000-and-up annual-income bracket.

GOP planners expect that such penalties for remaining in fee-for-service Medicare would help drive up the share of recipients enrolled in HMOs and other managed-care systems, from 9% now to 45% over the next seven years. They also believe that unfettered competition would bring forth eager insurance companies and other providers willing to deliver first-rate managed care for the $6,700 that would be available for each Medicare recipient in 2002.

President Clinton and congressional Democrats denounce this as a pipe dream. They warn that beneficiaries would have to spend heavily for home health care and other services now delivered at minimal cost under Medicare.

What about those who like the current system? Medicare beneficiaries are the last big group of Americans with freedom to select doctors and hospitals of their choice and to refer themselves to specialists.

Half of all full-time workers, by contrast, are in managed-care plans in which “gatekeeper” doctors must approve visits to specialists. And many of the rest need advance approval from their insurer before undergoing elective surgery.

Without disclosing any details, Republicans privately acknowledge that Medicare beneficiaries who stay with the traditional fee-for-service system will have to pay more. For example, the current 20% co-payment for doctor visits could be raised to 25% or even 30%. Medicare recipients are now charged nothing for home health care visits; GOP staff option papers discuss a 20% co-payment imposed on home health visits and laboratory fees.

Added financial pressures of this type could propel even the most unwilling beneficiaries into managed care. The Clinton Administration claims that the GOP spending ceiling could raise out-of-pocket costs over the next seven years by $2,825 for an individual and $5,650 for a married couple.

Responding to the GOP pledge to balance the federal budget, the Administration offered its own blueprint to restrain federal spending, including reductions of $125 billion from Medicare over 10 years. The Clinton plan would trim reimbursements to doctors and hospitals without having any direct impact on beneficiaries, according to the Administration.

Under both the Clinton and GOP plans, big reductions are likely in payments to hospitals for training doctors, and to hospitals that treat large numbers of poor people without health insurance.

The Medicare trust fund, which is fed by a payroll tax and covers hospital payments for the elderly and disabled, is expected to run out of money in 2002. The Administration says its plan would avoid any new financial pressures on beneficiaries and assure solvency of the fund through the year 2006.

This approach would provide enough time to work out a long-range rescue for Medicare, which will be swamped by the tide of baby boomers who will start becoming eligible in 2011.

The White House accuses the Republicans of seeking a much larger amount of Medicare savings, $270 billion, simply to help pay for a major tax cut for the wealthy.

The Republican response is simple and direct: Now is the time to deal with the Medicare crisis by making drastic reforms. The program, they say, is growing out of control; with spending of $178 billion this year, it is the fourth biggest expense of the federal government, ranking behind Social Security, defense and interest payments on the national debt.

“The new Congress has boldly reached out and grasped the third rail of politics, messing with senior citizens programs,” Greenwood said. “We are not afraid to go to them and tell them the truth.”