GOP Bets on HMOs to Cut Medicare Costs

It may become Washington’s biggest political gamble in years: the bet by congressional Republicans that health maintenance organizations and other networks of doctors and hospitals can keep Medicare’s runaway costs in check without forcing America’s senior citizens to pay more for high-quality health care.

If the plan works, it could help balance the federal government’s budget even as it rescues Medicare from the brink of bankruptcy. If it does not, elderly Americans’ demand for health care would exceed their means to pay for the services.

Or, to put it differently, a new form of health-care rationing could be born. Millions of poor people would be driven into HMOs to avoid onerous new costs.

Even the affluent, who could afford to pay doctors more, might find their ability to choose their doctors under today’s fee-for-service system would disappear as virtually all physicians shifted into HMOs and other managed-care networks.

“I am not going into managed care unless there is nothing else,” vowed 75-year old Rep. Sam Gibbons (D-Fla.), who voted for Medicare when it was created in 1965 and now, as the top-ranking Democrat on the House Ways and Means Committee, is fighting an uphill battle to preserve it in its present form.

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Gibbons said he was pushing a shopping cart through a Tampa supermarket recently and “a number of seniors came up to me and said: ‘Thanks for fighting, Sam. I hope you can beat them. I don’t want to go into managed care. I want my doctor.’ ”

That hope may be futile: The Republicans envision that at least 20% of Medicare beneficiaries will be in HMOs by the year 2002, up from the current level of 9%. The projected figure is the estimate of the Congressional Budget Office; enthusiasts for managed care are confident the tally will be 40%, 50% or even more.

There are two Republican bills moving through the legislative mill, one approved by the House and the other by the Senate Finance Committee. The differences are in the details, but the two chambers figure to resolve them. The real threat is President Clinton, who vowed last week to veto the House bill.

At the heart of both Republican plans is the concept of managed care. Medicare has been overwhelmingly a fee-for-service proposition: Patients select any doctor or hospital and there is no total limit on health care spending. Costs have been soaring at a rate of 10% a year.

The GOP pledges to slow this growth to 6.5% annually, enough to curb future outlays by $270 billion over seven years. This is the biggest single chunk of the $900 billion needed to balance the federal budget.

Republicans would achieve the savings by capping the open-ended program for the first time. Outlays per beneficiary, which now average $4,800 a year, would rise to no more than $6,700 in 2002, compared with an estimated $8,500 if current policies remained unchanged.

Can HMOs and other networks deliver today’s quality of care for $6,700 in 2002? Or will beneficiaries have to pay more out of their own pockets to maintain quality?

“That’s the $64,000 question,” said Marilyn Moon, a Medicare expert with the Urban Institute, a Washington research organization.

She said she fears that Congress, while avoiding significant additional charges now, “will come back to beneficiaries and ask them to pay more. This is not the end of it.”

Not so, promised House Ways and Means Committee Chairman Bill Archer (R-Tex.), who played a key role in developing the GOP’s free-market approach. When HMOs are encouraged to compete for Medicare clients, Archer said, they will hold down costs and offer benefits not covered by Medicare, such as prescription drugs, eyeglasses and dental care.

“I am confident the flow of seniors [into managed care] will be far larger than the Congressional Budget Office estimates,” he said.

Archer pointed to a welter of new choices offered by the House-passed legislation. Instead of a selection limited to insurance companies and HMOs, the new range of Medicare vendors would include networks operated directly by doctors and hospitals, others created by trade, business or social organizations or labor unions, and some operated by joint labor-management funds.

Alternatively, seniors could use some Medicare benefits to buy insurance with deductibles running into the thousands of dollars--so-called catastrophic coverage. They could save the rest of their benefits in tax-favored accounts that they could apply to future medical costs.

The last remaining hospital in downtown Houston, St. Joseph’s, could find financial salvation by creating its own HMO to serve its Medicare patients, Archer said. The congressman was born in St. Joseph’s, as were his six children.

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All these choices, Archer said, demonstrate that “we are not just chipping around the edges. We will bring Medicare into the modern world of health care.”

Not all independent experts have been sold.

The basic intent of the GOP plans “is to push everyone into managed care, drying up the old fee-for-service system,” said Lawrence Atkins, spokesman for a coalition of major corporate employers involved in health benefits issues.

Compared with current growth rates, the GOP plans would trim future Medicare payments to doctors by more than $20 billion over the next seven years. The final cut could be larger.

Both versions of the legislation provide that if managed care and HMOs yielded inadequate savings, the government could make additional reductions in payments to doctors and hospitals.

The result would be severe, said a spokeswoman for the American Assn. of Physicians and Surgeons, a 3,000-member organization of doctors opposed to managed care. “Doctors won’t be able to afford to treat Medicare patients because the rates will be so low, and fee-for-service medicine will just disappear,” she said.

All that could happen years in the future, as HMOs and networks take an ever bigger share of the Medicare-age population.

One group, however, would have no choice but to move almost immediately into managed care. These are the poorest beneficiaries, the approximately 4 million enrolled in a special program under Medicaid, the federal-state health program for the poor. Medicaid pays their out-of-pocket Medicare costs: $716 for the first day of a hospital stay, $46.10 a month for insurance against doctor bills and 20% of additional doctor bills.

But both the House and Senate have moved to cut Medicaid and eliminate its guarantee of help, leaving it to the states to decide whether they want to continue aiding the elderly poor.

If the poorest have no help with their bills, they would have virtually no choice but to join HMOs, which have minimal co-payments or deductibles. The Urban Institute’s Moon predicted that this would commonly occur because states simply have fewer health care resources than the federal government.

The HMOs have expressed confidence that they can provide high-quality care at a reasonable price for all seniors: poor, rich and middle-class alike.

Humana Inc., one of the biggest HMO systems, enrolls 300,000 Medicare beneficiaries with an average age of 78.5, drawn particularly by the lure of free prescriptions, said David Jones, the firm’s chief executive. Just 4% of enrollees quit annually, he said, a demonstration of a high level of satisfaction.

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The typical Medicare enrollee spends $2,890 a year out of pocket for health care. This includes expenses for services excluded by Medicare and the cost of the supplemental health insurance that most seniors buy to cover the co-payments and deductibles. Seniors in HMOs would be able to drop their supplemental coverage.

“I think that the Republican plan will dramatically shift large numbers of people into prepaid” plans such as HMOs, predicted Dr. Jacque Sokolov, chief executive of Advanced Health Plans, a Los Angeles consulting firm.

But what about the older and sicker members of the Medicare population? Will HMOs want to insure them?

“There is a greater opportunity to exclude the sicker beneficiary,” Sokolov said.

If only the relatively young and healthy Medicare beneficiaries migrate to HMOs, that would leave the oldest and sickest in more expensive fee-for-service medicine. Medicare would once again face financial catastrophe.

Today’s war in Congress then would have to be fought all over again.