Senators Propose Rebates to Soften Medicare Reform : Congress: Beneficiaries would get a cash incentive to choose low-cost insurance under Republicans’ plan.

Senate Republicans on Friday proposed giving cash rebates to Medicare beneficiaries who select low-cost insurance plans to replace traditional, more costly Medicare coverage.

The Senate Finance Committee proposal to reform Medicare would use the promise of cash rebates as a sweetener to draw millions of people into health maintenance organizations and other forms of managed care that are less expensive than existing fee-for-service coverage.

The 37 million Medicare beneficiaries “will be more thoughtful purchasers of medical care” if they have the chance to get cash rebates, said Sen. Judd Gregg (R-N.H.), one of the principal authors of the proposal.

The Senate plan, departing significantly from the Medicare approach in the House, also called for an increase in the Part B deductible, under which beneficiaries pay the first $100 of doctor bills each year. The Senate would boost it to $150 in 1997, and add another $10 each year through 2002 to a total of $200.

By contrast, House GOP leaders, perhaps more wary of political opposition from seniors, avoided any change in the deductible. And the House leaders also disdain the idea of cash rebates to beneficiaries, fearing they could weaken the quality of medical care.

But Senate Finance Committee members, led by Chairman William V. Roth Jr. (R-Del.), are confident that competition for Medicare dollars will produce high-quality service along with bargains. Choice for beneficiaries “is the critical aspect of the reform,” Roth said.

His program is based on the federal employee health system, which offers a choice of HMOs and other health networks. In the Medicare version proposed by Roth and his colleagues, the government would have a specific dollar amount available for each beneficiary to select a program.

If the total is $5,000, for example, and the person selects an insurance policy costing $4,000, the savings would be shared, with the beneficiary getting $750 in cash and the other $250 going to the government.

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All policies would have to be government-approved and provide standard Medicare services. Thus, some insurers might decide to offer extras, such as annual physicals or free prescription drugs--or health club memberships--to attract people to select a policy for which the government pays $5,000. Other insurers might offer the cash rebate instead of the extras.

The legislative goal is savings of $270 billion from the growth of Medicare spending over the next seven years. That represents the biggest single portion of the savings needed in the GOP plan to balance the federal budget. The other goal is to add several years of solvency to Medicare’s hospital trust fund, which is scheduled to go bankrupt in 2002.

Medicare, which covers those older than 65 and the disabled of all ages, is the fourth most costly activity of the federal government, ranking behind Social Security, defense and interest on the national debt.

On the House side Friday, witnesses at a Ways and Means Committee hearing on the Republican proposal were cautiously supportive of the House plan, but some expressed doubt that savings will reach $270 billion.

But committee Democrats ridiculed the Republican majority for holding a hearing on a complex proposal whose details were still unavailable.

For weeks now, Democrats have sought to portray Republicans as callously determined to squeeze $270 billion in savings out of Medicare to pay for a $245-billion tax cut, and they have accused the GOP of withholding details of their plan so as to leave virtually no time to analyze and debate it.

“You may pass this bill, but you will regret what you have done forever,” fumed Rep. Sam Gibbons (D-Fla.), ranking Democrat on the Ways and Means panel. He said he and many other Democrats were outraged that the Republicans would allow only a one-day hearing “on a matter involving life and death for our nation’s seniors.”

An hour into the hearing, about 20 seniors--their mouths taped shut--stood up in a brief protest before they were ushered out of the room by Capitol police. “We have no voice,” read one placard.

Outside, on a soggy patch of grass just off the East Front of the Capitol Plaza, Democrats convened an “alternative” Medicare hearing to emphasize their demand for four weeks of hearings on the GOP proposal.

“Speaker [Newt] Gingrich and [Senate Majority Leader] Bob Dole have decided when it comes to the future of Medicare, the details should be hidden,” said House Minority Leader Richard A. Gephardt (D-Mo.). “No wonder people are so cynical about this Republican Congress.”

Among those who testified was Labor Secretary Robert B. Reich, who warned that seniors may become even more dependent on Medicare because a declining number are getting health benefits from former employers.

Eugene I. Lehrmann, president of the American Assn. of Retired Persons, warned: “Reform will be a step backward if it costs less but diminishes access, quality and affordability.”

Mary Nell Lehnhard, senior vice president of the Blue Cross-Blue Shield Assn., expressed the group’s strong support for the direction taken by the GOP plan. But she said her organization, the largest processor of Medicare claims, is wary of a proposal that would allow formation of new health care provider networks without the same standards and licensing requirements that regulate today’s market.

If such new entities are subject to different standards from other health plans, Lehnhard said, “it will be impossible to ensure the same quality assurance, financial stability and consumer protections are available to all seniors.”

Another cautionary note came from the American Hospital Assn. “Although the proposed reductions have been referred to as a slowdown in the rate of growth of Medicare spending--from 10% annually to 6.4% annually--the fact is that for hospitals and health systems, they could translate into real cuts if payments don’t keep up with general inflation,” said Gail Warden, chairwoman of the group.

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The proposed reductions could mean an $11-million revenue loss between 1996 and 2002 for a typical 150-bed hospital, and a $49-million loss for a hospital with 300 or more beds, Warden said.

Such losses would “increase substantially” if the proposed cuts in Medicaid are enacted, she said.

Also Friday, the House Commerce Committee approved a bill that would end Medicaid as an entitlement program and cut $182 billion over seven years from the federal-state health program for 36 million indigent Americans.

The proposal, approved 27 to 18, would replace the $156-billion-a-year Medicaid program with direct federal block grants to states, giving them broad and unprecedented authority to dictate who is eligible and what health coverage they will receive.

The committee voted after spending three days working on the bill--but without holding a hearing on the legislation.