Put Medicare Into Managed Care
We are careening toward a terrible crisis in Medicare funding. If we don’t act soon, our choices in a few years’ time will be to either burden working people with intolerable taxes or tear away the very foundation of health security for our retired population. Yet managed care, our best hope for avoiding this terrible dilemma, is under relentless assault. That many managed care plans have brought this on themselves is no comfort.
Business has a vital stake in this battle. Managed care has yielded tremendous results for employed groups over the past five years, reducing inflation without appreciably reducing benefits or quality. These results were possible because of waste and inefficiency in America’s health care system. Almost without exception, every study of variations in medical practice has come to the same conclusion: Overutilization and excess capacity have been endemic.
The driving force in achieving productivity gains so far has been a change in financial incentives for medical providers. The shift from “cost plus” insurance reimbursement to budgeted financing has changed provider behavior and increased value to consumers.
We need to put this change into effect for Medicare. There already is proof that it works. Whereas most of the country has only limited Medicare HMO penetration, enrollment is about 40% on the West Coast. The benefit package is richer for HMO members, typically including coverage for prescription drugs. And the costs are lower; no “medigap” insurance is necessary.
Additional measures such as a gradual increase in the retirement age may be necessary to save Medicare. But without managed care, nothing else will be successful. The structural incentives would stay perverse. Why, then, the tremendous hostility to this reform? In no small part, it is because the managed care industry has been politically stupid. With rare exceptions, HMOs resist releasing enough information about provider performance to enable consumers to make informed choices. Many managed care plans are more focused on negotiating discounted fees than on managing care. And even the best HMOs lag behind other service industries in removing the “hassle factor.” They spend millions of dollars micromanaging occasional health encounters, with insufficient focus on chronic utilization. They are vulnerable politically because, having angered consumers and providers alike, they are largely without allies.
The business community should step up its legislative support for managed care, but insist on measures that empower consumers to manage their own care. It is impossible to have an efficient market if users cannot make decisions based on comparative data. If the HMO industry wants business support, it needs to support business.
But in the end, business must fight to save HMOs from those who want to cripple their effectiveness. Without the productivity gains that managed care makes possible, a cost shift from Medicare to employer-sponsored plans is inevitable. Employers who have provided health benefits for their retirees may expect tremendous political pressure to fill in the gaps as Medicare’s financing crumbles. There will be a rush to avoid responsibility wherever possible. Many businesses will opt out of retiree health benefits altogether. Responsible companies will be competitively disadvantaged.
As Medicare drains the budget, the competitiveness of our economy will be at risk and the health of the nation in jeopardy.
