Uncertain Future for Medicare

Clinton's plan to leave program intact may yield political gain - and economic pain

BY proposing some cuts in Medicare without changing its essential structure, the Clinton administration has managed to retain the backing of a key constituency - the elderly. But in appeasing them in the short term, some analysts worry, the administration may inadvertently undermine its own reform efforts and leave Medicare as little more than a hollow shell.

Medicare, the public insurance program for the nation's elderly, currently accounts for 17 percent of all health-care spending. At an annual cost of $134 billion, the popular program covers 35 million elderly Americans.

The Clinton administration proposes to leave the program operating under the traditional fee-for-service model, as it moves the rest of the nation's health-care system toward a managed-care arrangement.

``Something has to be done, but who's going to tell your mother she has got to join an HMO [health-maintenance organization]?'' asks Cathie Jo Martin, a political scientist at Boston University.

Some analysts believe that leaving Medicare intact is a prudent policy decision that will provide stability while the rest of the system is in transition. Others contend that it could turn Medicare into a poor, isolated program that could destabilize the whole reform effort.

``Simply to leave a fee-for-service system in place doesn't provide very much opportunity for more effective and efficient management,'' says Peter Wilson, vice president for policy development at the American Hospital Association (AHA).

In Medicare's traditional fee-for-service model, doctors and hospitals are reimbursed for each procedure performed. The more they do, the more money they make. Under a managed care system, health-care providers are given a set amount for each patient. The fewer procedures performed, the more money the hospitals and doctors get to keep. The incentive then becomes to manage more efficiently and to keep people healthier.

Both the administration plan and the chief Republican alternative depend on anticipated savings from the shift to managed care to help pay for the nation's 37 million uninsured and to expand the Medicare program to include coverage for prescription drugs. The plans aim to save more than $124 billion from Medicare over five years by cutting paperwork and increasing efficiency.

But many analysts question how quickly those savings can be accomplished.

``There's tremendous skepticism given how long it has taken managed care to reach 20 percent of the market,'' says Mark Peterson, a professor at the University of Pittsburgh, noting the first managed-care systems were developed 50 years ago.

The AHA is particularly concerned about the Clinton plan's dependence on anticipated savings. Medicare accounts for 40 percent of all hospital revenues. If projected health-care savings don't materialize in the private sector, the government may be forced to cut Medicare reimbursements to meet its health-care budget. That could lay the groundwork for reform to fail on two fronts.

First, it could create an incentive for hospitals to move costs not covered by Medicare onto patients in the private sector. Cost-shifting is a primary culprit fueling today's spiraling health-care costs.

Second, inadequate Medicare reimbursements could leave hospitals with a high percentage of Medicare patients at a disadvantage in the competitive managed-competition system.

In this proposed system, hospitals will be expected to join with other providers to create a network that would contract with insurance companies to give cradle-to-grave coverage for a set fee. If a hospital has a high volume of costly, elderly patients, it may not be able to be a competitive partner and could find itself left out of the system.

``Those deep cuts [of $124 billion] not only threaten the viability of Medicare, but they also threaten to destabilize the system that health reform promises,'' Mr. Wilson says.

But other analysts believe that Medicare is working well now and could provide much needed stability as the country moves into the untested world of reform.

``It's a very successful program, elderly people like it, physicians are used to it, and it has a good record in the past year of keeping costs down,'' says Karen Davis, executive vice president of the Commonwealth Fund, a New York-based think tank.

Ms. Davis says hospitals with large numbers of Medicare patients will be more secure than those who will have to compete for patients through the new system of health alliances. ``With Medicare patients, hospitals will know exactly how much they will be reimbursed,'' she says, while under managed competition, reimbursement levels could be set differently each year based on market forces.

The Clinton proposal has built-in incentives to encourage the elderly to shift into managed care, a move many analysts say will eventually be necessary for overall reform to succeed. After the age of 65, people will be able to choose between remaining in their managed-care program with the package of national benefits or shifting to Medicare. The package of national health benefits will be more comprehensive and will require a lower co-payment than Medicare.

``A lot of doctors will also be changing their practices to fit into the systematic reform, so they may also become more accessible through managed-care programs,'' Dr. Peterson says.

The American Association of Retired Persons, the elderly's powerful lobby in Washington, says the Clinton plan has enough flexibility to allow elderly people to choose whichever medical system they are most comfortable with.

But the AARP is also watching the debate very carefully.

``We have many, many opportunities for direct member input, and we are leaning over backwards to be sure our members get a chance to understand the reform proposals before Congress gets involved,'' says John Rother, the AARP's chief lobbyist.

Just how the elderly lobby reacts will be critical. Most analysts agree that no healthcare reform, however well- intentioned, can succeed without their blessings.

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