Head of Medicare Reform Panel Urges Major Overhaul

The chairman of the government’s influential Medicare reform commission called Friday for a radical overhaul of the nation’s health insurance system for the elderly, including a cap on the government’s contribution to the cost of the program.

Medicare “needs fundamental reform,” declared Sen. John B. Breaux (D-La.), chairman of the Bipartisan Commission on the Future of Medicare.

His approach would give incentives to the elderly to buy private insurance with government financial assistance. By potentially making the elderly shoulder more of the burden of expensive health care coverage, his plan would seek to encourage enrollment in health maintenance organizations and other forms of managed care. It also would gradually raise the eligibility age from 65 to 67.

The commission, which meets Tuesday to consider Breaux’s plan, is taking the lead in formulating Congress’ response to one of the thorniest issues that will be before it during President Clinton’s last two years in office. Its members were appointed by Clinton and the congressional leadership, and more than half are members of Congress.

But many Democrats believe that under the framework outlined by Breaux, the elderly would ultimately have to pay more for fewer benefits.

“It throws the Medicare recipients on the tender mercies of HMOs, and I’m not satisfied that I want to be placed in that position or that beneficiaries want to be placed in that position,” said Rep. John D. Dingell (D-Mich.), an influential member of the commission.

About 85% of Medicare’s 38 million elderly and disabled beneficiaries are in traditional fee-for-service Medicare, allowed to select any doctor or hospital participating in the program.

Under Breaux’s approach, the elderly would have a choice between the traditional fee-for-service program and a selection of HMOs and other managed care plans. Policy analysts believe that the managed care plans would be significantly cheaper than traditional Medicare, saving money for the government but perhaps offering less-plush benefits.

For each Medicare recipient, the government would offer to pay a percentage of the cost of an average health plan. In the federal employees health plan, which is a model admired by Breaux, the government pays between 72% and 75% of the cost of an average plan.

Because the elderly would have to pay the rest themselves, they would face a strong incentive to choose a relatively cheap plan.

At its present rate of spending growth, the Medicare program--which is financed by 2.9 percentage points of the payroll tax--is projected to go bankrupt in 2008.

Clinton, in his State of the Union address on Tuesday, proposed a very different way of prolonging the program’s life. He would enrich the program with up to $750 billion of the federal budget surpluses expected in the next 15 years.

At the same time, he would include prescription drugs under Medicare for the first time--a potentially very costly change.

Interviews with several commission members Friday found little agreement with Breaux’s framework. A number of the key decisions necessary to gather support for the plan have yet to be made--such as how much of the average insurance plan the government would pay for and whether prescription drugs would be covered.

“There are a number of issues he’s left vague or open, and ultimately they are the most important issues and they will determine whether his proposal can be supported by me and supported by the group,” said Stuart Altman, a commission member who is a prominent health economist at Brandeis University.

“It begs many questions. . . . I can’t imagine voting on this,” said Deborah Steelman, a Republican commission member and a Washington lawyer and lobbyist.

His plan would make Medicare look much more like the federal employees health care system or the program operated for state and local employees in California by the California Public Employees Retirement System.

Under those programs, the government pays a percentage of an average health plan’s cost and the worker pays the balance.

In Medicare’s fee-for service world, by contrast, there is no fixed limit on what the government will spend.

Undetermined by Breaux is whether all plans available to the Medicare population would offer the same benefits. Republicans typically favor a variety of benefit packages; most Democrats want a standard package so recipients could easily compare prices.

But prescription drug coverage is probably the knottiest issue.

Steelman argued against making prescription drugs available in all available plans. Altman, a Democrat, disagreed: “We cannot have this plan without a drug benefit.”

Breaux’s plan would also establish competitive bidding by companies wanting to provide Medicare coverage and create a board to negotiate the terms of contracts with insurance providers.

“The concept of negotiating and bidding all make CalPERS efficient and effective,” said Breaux, a fan of California’s system.

The plan now offered “doesn’t reflect anybody else but me,” Breaux said. “I hope ultimately it will reflect everybody.”