First, Do Less HarmBy Paul Krugman
The New York Times
Universal health care, much as we need it, won’t happen until there’s a change of management in the White House. In the meantime, however, Congress can take an important step toward making our health care system less wasteful, by fixing the Medicare Middleman Multiplication Act of 2003.
Officially, of course, it was the Medicare Modernization Act. But as we learned during the debate over Social Security, in Bushspeak “modernize” is a synonym for “privatize.” And one of the main features of the legislation was an effort to bring private-sector fragmentation and inefficiency to one of America’s most important public programs.
The process actually started in the 1990s, when Medicare began allowing recipients to replace traditional Medicare — in which the government pays doctors and hospitals — with private managed-care plans, in which the government pays a fee to an H.M.O. The magic of the marketplace was supposed to cut Medicare’s costs.
The plan backfired. H.M.O.’s received fees reflecting the medical costs of the average Medicare recipient, but to maximize profits they selectively enrolled only healthier seniors, leaving sicker, more expensive people in traditional Medicare. Once Medicare became aware of this cream-skimming and started adjusting payments to reflect beneficiaries’ health, the H.M.O.’s began dropping out: their extra layer of bureaucracy meant that they had higher costs than traditional Medicare and couldn’t compete on a financially fair basis.
That should have been the end of the story. But for the Bush administration and its Congressional allies, privatization isn’t a way to deliver better government services — it’s an end in itself. So the 2003 legislation increased payments to Medicare-supported H.M.O.’s, which were renamed Medicare Advantage plans. These plans are now heavily subsidized.
According to the Medicare Payment Advisory Commission, an independent federal body that advises Congress on Medicare issues, Medicare Advantage now costs 11 percent more per beneficiary than traditional Medicare. According to the Commonwealth Fund, which has a similar estimate of the excess cost, the subsidy to private H.M.O.’s cost Medicare $5.4 billion in 2005.
The inability of private middlemen to win a fair competition against traditional Medicare was embarrassing to those who sing the praises of privatization. Maybe that’s why the Bush administration made sure that there is no competition at all in Part D, the drug program. There’s no traditional Medicare version of Part D, in which the government pays drug costs directly. Instead, the elderly must get coverage from a private insurance company, which then receives a government subsidy.
As a result, Part D is highly confusing. It’s also needlessly expensive, for two reasons: the insurance companies add an extra layer of bureaucracy, and they have limited ability to bargain with drug companies for lower prices (and Medicare is prohibited from bargaining on their behalf). One indicator of how much Medicare is overspending is the sharp rise in prices paid by millions of low-income seniors whose drug coverage has been switched from Medicaid, which doesn’t rely on middlemen and does bargain over prices, to the new Medicare program.
The costs imposed on Medicare by gratuitous privatization are almost certainly higher than the cost of providing health insurance to the eight million children in the United States who lack coverage. But recent news analyses have suggested that Democrats may not be able to guarantee coverage to all children because this would conflict with their pledge to be fiscally responsible. Isn’t it strange how fiscal responsibility is a big concern when Congress is trying to help children, but a nonissue when Congress is subsidizing drug and insurance companies?
What should Congress do? The new Democratic majority is poised to reduce drug prices by allowing — and, probably, requiring — Medicare to negotiate prices on behalf of the private drug plans. But it should go further, and force Medicare to offer direct drug coverage that competes on a financially fair basis with the private plans. And it should end the subsidy to Medicare Advantage, forcing H.M.O.’s to engage in fair competition with traditional Medicare.
Conservatives will fight fiercely against these moves. They say they believe in competition — but they’re against competition that might show the public sector doing a better job than the private sector. Progressives should support these moves for the same reason. Ending the subsidies to middlemen, in addition to saving a lot of money, would point the way to broader health care reform.
Photo Credit: Paul Krugman. (The New York Times)
Technorati tags: Paul Krugman, New York Times, Health Insurance and Managed Care, Health Care, Medicine and Health, Drugs, Medicaid, Medicare, Prescription Drugs, politics, news, commentary, op ed
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Much attention has focused on how Medicare Part D has upset, confused, and even endangered seniors and disabled, by disrupting their access to medicines, making them buy drugs from private companies with inadequate and confusing information, and making the poor pay more than before, while giving the drug companies some $139 billion in additional profits.
But the 2003 Medicare Modernization Act (2003 MMA) threatens Medicare recipients and Medicare itself in ways that are unrelated to the Medicare Drug Program. These issues are explained more fully in a Center on Budget and Policy analysis. (See http://www.cbpp.org/11-18-03health2.htm)
* The Carrot: Before 2010, the MMA gives direct subsidies to HMOs to encourage privatization of doctor visits and other outpatient care. The 2003 Medicare Modernization Act provides some $14 billion in direct subsidies to HMOs to encourage them to develop Medicare Advantage Plans which will fill in the holes left by the Medicare Drug Plan. These are simple gifts to the HMOs. Before the 2003 MMA, HMOs were paid an average of 19% more than traditional Medicare for equivalent medical care; after the 2003 MMA, HMOs are now paid 25% more. These subsidies are expected to increase Medicare HMO enrollment from 15% to 40% by 2010, drawing healthier people out of traditional Medicare.
* The Stick: After 2010, plans for “Premium support” and “Direct Competition” will economically coerce Medicare recipients into private HMOs, endangering Medicare’s long-term financial survival: Starting in 2010, in 6 urban and 4 rural test markets, Medicare recipients will no longer be reimbursed for the health care they use. Instead, they will be issued vouchers and forced to shop for their own Medicare health care, either traditional Medicare or an HMO. HMOs will have lower premiums because they can market themselves to healthy people at gyms, marathons etc, while traditional Medicare will have higher premiums because it must accept both healthy and sick. Healthy people will move to HMOs for lower premiums, while sicker, poorer people who cannot use managed care will stay in traditional Medicare, paying higher premiums. Sicker patients remaining in traditional Medicare will pay the premium increase out-of-pocket since the dollar value of the vouchers will be largely based on HMO premiums, driving people out of traditional Medicare. Higher premiums for higher-income seniors will provide still more incentive for those people to leave Medicare, which over time would leave Medicare as a politically vulnerable program for low-income people. Medicare could go into a death spiral, with fewer and sicker patients paying higher premiums, and receiving less funding as its patient base decreases.
* Capping of federal financing of Medicare services in the future: Medicare outpatient care and drugs are paid by Federal General Funds, whereas hospitalization is paid by employees’ payroll deductions. According to the 2003 MMA, if Medicare actuary’s project two years in a row that seven years later, 45% of Medicare expenses will be paid from Federal General Funds, Congress must immediately freeze Federal General Fund Medicare spending, either by raising premiums or by reducing benefits. This freeze will inevitably be triggered in a few years, because costs for outpatient care and drugs are rising faster than costs for hospitalization. The freeze will almost certainly hit as large numbers of baby boomers are entering Medicare.
* Health Savings Accounts, which will provide tax breaks for the rich and healthy, while providing only catastrophic healthcare for the poor who are forced onto these plans. Health Savings Accounts are issued in conjunction with very high deductible health insurance. Both deposits and withdrawals for medical purposes are tax free, but users cannot have real health insurance. Like “Premium Support,” Health Savings Accounts would draw healthier people out of traditional employer-paid health insurance, and raise its premiums significantly, as much as 100%, according to one study.
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