Suddenly, Ailing Medicare Owns the Voters’ Hearts

When enacted in 1965 by Congress, Medicare was widely opposed by many politicians and physicians as a dreaded experiment in “socialized medicine.” In 1996, that may be hard for most Americans to believe, for Medicare has emerged in polls as one of the public’s favorite programs. In a July 30 study conducted for the Kaiser Family Foundation, respondents ranked Medicare support next to taxes and the deficit as the issue on which they would base their votes in November.

The problem is, with its costs surging and the baby-boom generation aging, the Medicare program is due for a major financial overhaul. Both political parties have come to proffer essentially the same remedy for controlling Medicare costs: Bring it under managed care--a health plan that controls who provides and who receives medical services.

This bipartisan prescription is a wise one, for managed care has progressed from serving a fraction of Americans in 1980 to more than half of them today, largely because of its unassailable success at controlling prices without appreciably reducing benefits. But before racing to embrace managed care for Medicare, business and governmental leaders must first confront two escalating dangers.

% Monopolization. The Health Care Financing Administration, the federal agency that administers Medicare, has suggested that the program might best economize not by paying set yearly fees to managed care companies, as it does now, but by letting the companies bid against one another for Medicare business instead.

While this is, of course, a smart way of using the free market to control costs, implementing it grew more difficult with Monday’s merger of PacifiCare and FHP International, companies that rank first and third, respectively, in the nation in terms of Medicare enrollment. Since both companies base their headquarters and do much of their business in Southern California, competitive pressures in this region are bound to decline.

% Fraud. When the U.S. attorney general’s office indicted 40 health care workers for defrauding Medicare through overbilling, kickbacks and false claims last week, a government spokesman called the indictments only the latest reflection of a trend that has come to drain Medicare of an estimated $100 billion each year.

An Aug. 1 report by the Institute of Medicine, a division of the National Academy of Sciences, suggests one solution to fraud: the creation of a federal agency to offer phone counseling, legal advice and other help to seniors who find themselves lost in the managed care maze.

Medicare’s soaring costs and managed care’s increasing market dominance, however, demand bolder solutions. These could include some tough choices: Rep. Phil English (R-Pa.) has suggested that the government not pay for, say, heart surgery for people over the age of 90.

Cutbacks probably will prove to be politically unpopular. But they are one way that managed care--a system that has previously cut costs largely by “cherry-picking,” choosing to cover only the most healthy customers--can serve a much older population with efficiency. The challenge for Washington will be to remember that efficiency, while necessary, is not the key reason that an aging America holds Medicare in such high esteem.