Don’t Give HMOs a Bigger Welcome

Since Medicare was established in 1965, it has guaranteed the elderly a specific set of health benefits protected by law. That may soon be a thing of the past.

A year ago, Congress and President Clinton appointed the Bipartisan Commission on the Future of Medicare to ensure the program’s solvency when aging baby boomers need it in the coming decades. Its chairman, Sen. John Breaux (D-La.), pressed the commission to back his “premium support” plan. He failed, but now he’s vowing to take it to Congress, where a coalition of Republicans and centrist Democrats might give it the votes it needs.

Premium support would end Medicare as we know it. It would replace guaranteed health benefits with a different guarantee--a voucher or contribution to pay part of each senior’s health insurance cost. Breaux asserts that under premium support, commercial health plans would compete for Medicare enrollees, and that competition would drive down costs and boost efficiency. Medicare would contribute 88% of the average cost of a basic health plan, with seniors paying the rest. Low-income seniors would be eligible for additional help, and seniors who chose costlier-than-average plans would pay more. Most of the plans would be HMOs (health maintenance organizations), a major shift since currently only one out of eight seniors is signed up with an HMO.

Seniors who don’t want to change to managed care could use their premium support to pay part of the cost of the fee-for-service coverage, but there was silence when Rep. Jim McDermott (D-Wash.) pointedly asked at a recent commission meeting, “Are you prepared to guarantee in law” that fee for service will require no more than 12% from seniors?

“Infatuated” is the word to describe Washington’s reaction to premium support. The notion of converting Medicare to a voucher plan with competing HMOs was first unveiled at the Brookings Institution in 1995 and is now in vogue on both sides of the aisle. But a few politicians recognize how bruised people are from their hassles with HMOs. Rep. John Dingell (D-Mich.) told his fellow commissioners, “If anybody here saw ‘As Good As It Gets,’ they saw that the biggest applause line in the whole movie was a denunciation, and a fully justified denunciation, of HMOs.”

It’s another tall order for the commission to show that premium support would save money. “Theory is on one side, but all the facts are on the other side,” said Bruce Vladeck, who ran the Health Care Financing Agency, which administers Medicare, and Medicare from 1993 to 1997. He warned that depending on competition among HMOs to reduce Medicare costs is “sheer fantasy.”

Over the last 30 years, private insurance premiums have grown just as fast as per-capita Medicare costs, according to data presented by two commission members, Dr. Laura Tyson, dean of UC Berkeley’s Haas School of Business, and Karen Davis, president of the Commonwealth Fund. Although HMOs have produced substantial savings for employers, they have not outperformed Medicare in containing cost increases. One reason is that Medicare’s nonmedical costs are a minuscule 2% of budget, while for-profit insurers allocate 14% or more to advertising, sales and profits. In the mid-’90s, HMOs held down premium increases more effectively, but this year, in New York, California and other states, HMOs are hiking premiums by as much as 10%.

Here’s another serious problem: Premium support is based on the advantages of competition. Yet no other industry is consolidating and eliminating competition as fast as managed care. The surviving giants already are calling the shots with the Health Care Financing Agency.

HMOs have been fair-weather friends to Medicare, cherry-picking healthy seniors, charging high premiums and leaving subscribers in the lurch as soon as profits dip. In fact, according to studies for the Henry J. Kaiser Family Foundation and Mathematical Policy Research, Medicare wound up spending 6% more to have HMOs provide the same service it was providing to seniors.

Some HMOs found Medicare to be their most profitable business. But when Congress finally acted to stop the gravy train by adding benefit requirements and capping premiums, many HMOs, including industry giants Oxford, Aetna and United Healthcare, pulled out. Recently, they sent letters to 440,000 seniors dropping their coverage as of New Year’s Day. HMOs are “merging, dropping coverage and raising fees,” said Rep. Dingell. That makes premium support “smoke and mirrors.”

Experience shows that HMOs would not deliver the health benefits seniors are entitled to under Medicare at lower cost. Either premium support will cost as much as traditional Medicare, and thus do nothing to protect its solvency, or private health plans will be allowed to lower standards and cut costs in order to keep down premiums.

Sparks flew at the latest commission meeting when Breaux was asked what the standards of care would be under premium support. He answered that insurers would compete to provide a core benefit package but, to avoid government “micro-management,” standards would not be too specific. “Some plans will have more days in the hospital, some will have less,” he said.

But talking about guaranteed benefits is “meaningless in the absence of specificity,” Vladeck retorted. HMO plans all include hospital benefits, but some HMOs ordered breast cancer patients to be discharged from the hospital just hours after a mastectomy in order to cut hospital costs. Under Medicare, it’s your physician. Without specific standards of care, Vladeck warned, “You have disentitled a generation of workers” who paid into the Medicare system.

The commission has seen an overwhelming amount of evidence that premium support would not deliver the current standard of Medicare health benefits for less money. Nevertheless, Sen. Breaux and his supporters are moving ahead.

Vladeck pushed, at least, for honesty. “If you say we can’t afford to pay for this entitlement as a society, then say it.” Other commissioners accused him of being “inflammatory.” But the facts speak for themselves.