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Study Blasts Medicare Commission’s Pro-HMO Recommendations Calls for Universal System to Include Young and Old

San Francisco — Seniors, beware. That’s the conclusion of an advance study of the National Medicare Commission’s recommendations due out next month. The Commission is expected to propose raising the eligibility age for seniors to 67 and replacing the existing program with a voucher program.

“This is absolutely the wrong prescription for Medicare,” said the study’s lead author, Dr. Thomas Bodenheimer, a Professor of Family Medicine at UC San Francisco and a founder of the California Physicians Alliance (CaPA). “Giving seniors coupons to try to buy private insurance is a prescription for massive confusion, fraud and abuse. Just a few months ago over 400,000 seniors were dumped from private insurers. This is a proposal to funnel billions of taxpayer dollars into the coffers of HMOs, not protect health care for seniors.”

The voucher proposal, or “premium support” plan as it is referred to by the commission, would increase out-of-pocket costs for the elderly, who already spend more than 20% of their incomes on health care, according to the study. The explanation is that the value of the vouchers falls over time, as health care costs rise faster than the value of the coupons.

“Vouchers don’t control costs, they shift them to sick people,” noted senior health economist Dr. Edie Rasell, who is also a family practitioner.

Among the study’s other findings:

HMOs have raised, not lowered, Medicare’s costs as HMOs selectively recruit healthier seniors who have lower medical expenses. HMOs also have much higher administrative costs, CEO salaries, etc.

In 1998, Medicare’s costs increased 1.5%, a rate lower than private insurance, and Medicare costs are expected to rise more slowly than private insurance through 2007.

There are quality problems with HMOs for the chronically ill and poor

Seniors’ health is more likely to decline in an HMO than in traditional Medicare
HMOs limit seniors’ choice of physician and hospital

Raising the eligibility age to 67 would create more than 1,750,000 newly uninsured

“The only way to genuinely control costs is to do the same thing other industrialized countries do (e.g. Sweden and Denmark) — put young and old together into a universal health program with a global budget,” said Rasell, an economist with the Economic Policy Institute. “Their populations are aging faster than ours and yet they have controlled their overall health spending, while ours continues to skyrocket.”

Rasell also noted that Medicare should cover prescription drugs. “Medication costs are a major burden for seniors. 79% of seniors have incomes under $25,000 a year and can’t afford expensive medications. Medicare could get them at a big discount.”

Raising the eligibility age for Medicare to 67 is a “cruel trick,” according to Dr. Olveen Carrasquillo, an internist and health services researcher at New York’s Columbia Presbyterian. “It would add millions to the ranks of the uninsured at a time in people’s lives when they are starting to face age-related illnesses and unemployment. In the long run, it would just add to health costs as people try to put off pressing health needs until they are insured.” Carrasquillo is the author of “Going Bare,” a recent study of the growing epidemic of uninsurance that appeared in the January issue of the American Journal of Public Health.

“Our number one goal in any Medicare reform must be to improve the quality of health care for seniors,” said Dr. Christine Cassel, Chair of the Department of Geriatrics at Mt. Sinai Medicial Center in New York. “It turns out that the best way to improve quality for seniors is also the best way to improve quality for the 45 million Americans who are uninsured and the over 200 million Americans who are underinsured –by creating a genuine national health system with coverage for long-term care.”

“This study will be, I hope, the nail in the coffin of pushing seniors into HMOs in the guise of “saving Medicare,” said Dr. Quentin Young, Past President of the American Public Health Association and National Coordinator of Physicians for a National Health Program. The best solution to the Medicare crisis is a not-for-profit, single payer national health program for all Americans.”

Copies of “Rebuilding Medicare for the 21st Century: A Challenge for the Medicare Commission and the Congress” (February, 1999, 36 pages with references) are available from the California Physicians Alliance at (510) 832-7134 or Health Access/The National Campaign to Protect, Improve, and Expand Medicare at (415) 395-7959.

Click here for an online version of the report.

September, 1998

Physicians for a National Health Program is a national organization with over 8,000 physician members across the United States. Our members represent every state and medical specialty, and include national experts in geriatrics, psychiatry, chronic illness, public health, women’s health and long-term care as well as health care policy and financing.

We are pleased to be invited to testify on a panel before the Medicare Commission on health system reform, as that is PNHP’s primary focus. PNHP was founded in 1987, and for over 10 years has performed nationally recognized research and education on the need for and the way to achieve system reform to address the fundamental problems plaguing the American health system.

Medicare is critical to the health and security of American seniors and the disabled, but despite this, Medicare is inadequate protection for many. On average, seniors now spend over 20% of their incomes for health care. Deductibles and co-payments are a barrier to access. Medications and nursing home care are not covered; home care services are limited and subject to fraud and abuse. With decreasing lengths of hospital stays and more out-patient procedures, the burden of care is being shifted from trained physicians and nurses to frail and untrained seniors and their family members.

The privatization of the Medicare program, shifting seniors into for-profit HMOs, has led to a new series of problems, notably increasing costs (6% higher per beneficiary in an HMO) and bureaucracy in the Medicare program, and a troubling rise in quality and access problems.

According to the Health Care Financing Administration, Medicare lost $2 billion on HMOs in 1996 alone due to selective enrollment of healthier seniors. A 1996 Physician Payment Review Commission Study of Medicare HMO enrollees between 1989 and 1994 confirmed previous studies showing selective enrollment, finding that HMOs enroll healthy seniors with only 63% of average Medicare costs prior to enrollment. The study also found that patients who disenrolled from Medicare HMOs had 60% higher health care costs — a sign of the Medicare HMO “revolving door,” where the “healthy go in, and the sick go out.”

Other disturbing evidence from privatization is the rise in bureaucracy. The latest HCFA data show that administrative costs for beneficiaries in HMOs have skyrocketed to 9.1% while traditional Medicare’s administrative costs are 2%.

Research also shows that the elderly, chronically ill, and poor do worse under managed care. A four year study of 2,235 patients in three cities with hypertension, diabetes, recent MI, congestive heart failure, or depression published in the Journal of the American Medical Association found that patients who were elderly were almost twice as likely to decline in physical health in an HMO than in traditional Medicare.

Medicare HMO enrollees are also, according to the Physician Payment Review Commission, three times more likely to report access to care problems as those in fee-for-service.

MSA’s and other forms of privatization and fragmentation of the Medicare risk pool (e.g. the proposed Kyl amendment to allow physicians to charge Medicare patients higher fees) also would raise Medicare’s costs and increase the risk of fraud and abuse within the Medicare program.

Although cost containment has not been successful in the U.S., other industrialized countries have done a far better job at controlling costs than the U.S. while also providing universal coverage. Between 1980 and 1994, national health expenditures as a share of GDP in France, Canada, Western Germany and the U.K. rose an average of 1.30% annually. In the U.S., the average was 3.15% or more than double this rate. During this period, Canada also experienced a rapid aging of the population. Between 1980 and 1990, the share of Canadians age 65 or above rose from 9.5% to 11.5%, an increase of 21%. This is only moderately below the 25% growth the trustees of the Social Security trust fund project will occur between 2010 and 2020, the decade of peak growth in the elderly in the U.S. (Economic Policy Institute study).

In 1996, the U.S. spent 13.6% of its total GDP on health care ($3,759 per capita), even though 43 million were left uninsured. Costs continue to rise and an additional 100,000 people lose coverage every month. Our neighbor to the north covered all residents for $2,002, about 10% of (her lower per capita) GDP in 1996. Canadians also continue to have free choice of physician and have much lower spending on bureaucracy (2% on insurance administration).

A study by the U.S. General Accounting Office concluded that the U.S. could save enough simply on administrative costs with a single payer national health program to cover all uninsured Americans. In addition, with more the more effective cost-containment mechanisms possible under single payer (negotiated fees, global hospital budgets, capital planning and budgeting), the U.S. Congressional Budget Office found that the U.S. could save $224 billion by 2004.

The advantages to seniors, and to Americans as a whole, of a single payer national health program would not include just affordable health care throughout their lifetimes. These advantages include: being able to choose their physicians, hospitals, clinics and other care settings; enough savings on bureaucracy to cover prescription medications and long-term care; an end to hospital, doctor and insurance bills; and a preservation of the doctor patient relationship with care based on clinical decisions by chosen caregivers.

Despite its magnificence, Medicare since 1965 has been an incomplete universal single payer insurance program for the elderly. Opponents of universal care for all people have cynically pointed to the limitations of Medicare which were imposed by the marketeers who profit from the present systems as an argument against guaranteed care for everyone. The Commission must not fall into this trap.

For more details, we submit to the Medicare Commission the following proposals: “A National Health Program for the U.S.” (New England Journal of Medicine, January 12, 1989); “A National Long-term Care Program for the United States: A Caring Vision” (JAMA, December 4, 1991); “A Better Quality Alternative: Single Payer National Health System Reform” (JAMA, September 14, 1994); “Liberal Benefits, Conservative Spending: The Physicians for a National Health Program Proposal” (JAMA, May 15, 1991).

My name is Douglas Robins. I am a practicing physician in Washington, D.C. and I am representing Physicians for a National Health Program, an organization with over 8,000 physicians across the United States representing every specialty. Our primary goal is to promote a universal health care system that would provide health care benefits to all Americans. It would eliminate for-profit health insurance and substitute a single payer system funded through a payroll deduction in place of the health insurance premiums which are now being paid. It would eliminate for-profit managed care and allow free choice of physician and hospital for all. We believe that as a result of the enormous savings that could be realized by eliminating the present insurance system, that with these same health care dollars that we’re now spending, we could cover all of the 43 million Americans who now lack health care coverage, and expand benefits for those of us who are already covered. In fact, the GAO estimated a 10 percent administrative savings with a single payer system which would amount to more than 100 billion dollars a year in savings.

We, too, share your concerns about the future of Medicare as it now exists. We feel that it is a good system, although it could be improved by expanding pharmaceutical coverage, mental health benefits and long-term care support. Because it is such an integral part of our health care system, it simply cannot be dealt with in isolation, and the Medicare population would be best served by integrating with the remaining population into a universal single payer system.

I would like to highlight two of the major concerns in our health care system that would be eliminated by our single payer approach. The first concern is the myth that managed care saves money. When managed care first became prevalent a few years ago, it was able to slow down the runaway health care inflation which was occurring at that time by significantly reducing fees to physicians and hospital and by controlling utilization. In recent years managed care has failed to achieve further savings, and health care costs are again on the rise. At the same time, there has been a tremendous public backlash against many of the restrictive practices of managed care, and as the public and the political process tries to reform some of those restrictive practices, it will ultimately raise costs even further. What is often forgotten, however, is the huge administrative costs that managed care generates. In contrast to Medicare, which runs on a 2 percent administrative cost basis, managed care insurance companies routinely take 15% to 20% of health care premiums for their administrative costs and profits. In addition, because of the excessive paperwork requirements in the present system, physicians are often spending 10% or more of their gross incomes on billing costs. It doesn’t take an advanced degree in health economics to determine that a health care system that is spending 25% to 30% of its dollars on administrative costs, is an extremely dysfunctional system. A well run single payer system would take the savings which managed care was previously able to achieve, and by eliminating much of the bloated bureaucracy, marketings costs and sales commissions, excessive executive compensation packages and shareholder profits, would be able to function far more economically. Most of the restrictive practices and expensive micro-management of managed care would be eliminated, Instead, quality and utilization control mechanisms would include practice guidelines, outcomes research and practice profiling to identify “outliers.”

The second concern is the number of uninsured Americans which now stands about 43 million and is growing at the rate of 1 million a year in spite of a booming economy. Much of the large safety net which once existed in our health care system has now been eliminated because of the financial pressures of managed care, so that these increasing numbers of uninsured have far less access to health care than they had previously. I believe that most Americans feel that access to health care is a basic human right, and they are sympathetic to the plight of the uninsured. However, there is another aspect to this problem which is the significant public health implications, which of course, will affect the insured, as well as the uninsured population. The spread of infectious disease, as well as the closure of vital clinics, emergency rooms, and hospitals are examples of these public health issues; and, of course, the failure to diagnose and treat illness early in its course, rather than late, will ultimately lead to a far more expensive outcome for society as a whole. In spite of the fact that there has been extensive public and political debate on how to solve the uninsured problem, no other viable solution has yet been brought forth, other than using the savings achieved by converting our health care system to single payer and eliminating the insurance companies.

Let me close on an optimistic note. “Free market competition” is the mantra that is repeated so frequently in relation to our current economic prosperity. I would submit to you that when it comes to health care, almost all Americans would prefer not to have that competition between multi-billion dollar conglomerates competing on the basis of stock price and shareholder profits – but instead would rather see their physicians, hospitals, and other health care providers competing on the basis of competence, compassion, and cost-effectiveness. The good news is that we can have that kind of a system, one in which all Americans are included, for a much smaller price than what we are paying for now.