How not to fix Medicare
Marcia Angell M.D.
Sen. Bill Frist (R-Tenn., whom The New York Times has taken to calling Dr. Frist), the Senate majority leader and President Bush’s new fair-haired boy, wants to fix Medicare. This is the same Bill Frist whose father founded a for-profit hospital chain, Hospital Corporation of America (HCA). Headed by Frist’s brother, HCA merged with another hospital chain, Columbia, to form the behemoth Columbia/HCA. After riding high for a few years, Columbia/HCA (now again called HCA) came crashing down when it was charged with massively defrauding Medicare and other insurers. So far it has paid $1.7 billion in fines to settle those charges, and its legal troubles are not over.
Not surprisingly, Bush and Frist would fix Medicare by making it more like the fragmented, for-profit insurance system that people under 65 find increasingly unreliable, inadequate and arbitrary. If Democrats engage this issue properly, it should be one of the epic battles of this session of Congress.
It’s not clear that Medicare needs fundamental fixing. It succeeds very well in its main purpose, which is to provide nearly every American over the age of 65 with a uniform package of benefits. Those benefits cannot be taken away from anyone or reduced for any reason. And because it is a non-profit, single-payer system, Medicare is fairly efficient, with low overhead costs.
Still, Medicare could use some fixing at the margins. It pays doctors too much for doing high-technology tests and procedures and too little for examining and talking with patients. Its benefit package needs updating to provide long-term care and drug benefits. And its finances need overhauling. More about this shortly.
So is this the kind of fixing Sen. Frist has in mind? Not on your life. Sen. Frist and his White House friends want the very opposite. They want to introduce commercial competition, encourage Medicare recipients to join managed-care plans, cap what Medicare will pay for services and pass more of the costs on to recipients themselves. Yes, they include a prescription-drug benefit, but apparently without any regulation of the pharmaceutical industry’s prices or of the drugs covered. Most Republicans favor paying private insurers to offer limited drug coverage under Medicare. Drug companies would remain free to charge whatever they like for expensive, new brand-name drugs often no better and sometimes worse than older, generic drugs. In other words, Sen. Frist and the White House would introduce the blessings of the private health market to Medicare.
Let’s take a closer look at those blessings. The majority of people under the age of 65 are covered by employer-sponsored private insurers, mostly through investor-owned managed-care plans. Health benefits vary widely and are often grossly inadequate. The hallmark of this market is the extent to which health dollars are diverted from medical care to corporate profits and overhead. Private insurers keep an average of 14 percent of premiums for their own profits and overhead; they outsource other tasks, such as utilization review and case management, to other for-profit businesses that also divert money from actual care. Compare that with the less than 3 percent overhead costs of Medicare.
Managed-care plans maximize profits in several ways. They try to avoid marketing their products to people likely to get sick. They cut costs by stinting on medical services and making patients pay more out of pocket. They usually limit the choice of doctors or charge higher premiums for the privilege of free choice. No wonder Americans hate managed care.
In fact, surveys have shown that Medicare is far more popular with its recipients than the private health-care system is. Furthermore, despite every effort to reduce costs by limiting services, private insurance premiums are now rising at double-digit rates — much faster than the rate of inflation for Medicare. Why on earth would anyone want to visit these conditions on Medicare? One might as well wish for locusts.
Furthermore, we have had experience with pushing Medicare recipients into private managed-care plans, and it was a disaster. In the early 1990s, Congress directed Medicare to encourage seniors to enroll in managed-care plans as a means of containing costs. For each senior, Medicare paid health plans 95 percent of the average Medicare costs per beneficiary in that geographic region. If the health-plan sponsors could provide coverage for less, they could pocket what they saved. Seniors were lured by the promise of smaller co-payments and broader benefits, such as coverage for prescription drugs and eyeglasses.
But look at what happened. The plans — deliberately — attracted mainly the youngest and healthiest of seniors, people who cost far less than 95 percent of the average. According to one study, Medicare ended up paying 12 percent more for enrollees in managed-care plans than it would have paid for the same patients outside the plans. “Choice” was a bonanza for the managed-care companies, but not for consumers or taxpayers. As patients aged or became seriously ill, they often left the plans and returned to the regular Medicare system, where coverage was usually more accessible and they could choose their own doctors and see specialists if they wanted.
When Medicare officials grasped that they were losing money, not saving it, on managed care, they cut back on reimbursement levels. At that point, deprived of their excess profits, private health plans began to bail out. Many curbed the benefits of Medicare recipients or stopped accepting them altogether (a couple of million seniors were simply dumped). Why would Sen. Frist, or anyone for that matter, want to repeat that failed experiment?
The answer may lie in a conservative ideology that believes private enterprise is always better and — even in the face of abundant evidence to the contrary — more efficient in providing just about anything, including a social service such as health care. And it may also lie in Republican gratitude for the lavish financial support the party receives from the health and pharmaceutical industries. But Sen. Frist’s own background is surely an important factor. His family is in the for-profit health-care business. Although he himself is said to have put his large interest in HCA into a blind trust (with the approval of the Senate Select Committee on Ethics), it still remains true that whatever is good for HCA is good for Bill Frist. And it is undeniable that Medicare policies affect the fortunes of the company. Yet Frist has become an important voice on health policy in the Senate, and now that he is majority leader, his influence will grow. It is astonishing that this obvious conflict of interest has been so little noted.
How, then, should we shore up Medicare? its fees should be adjusted to reward high-tech medicine less and time spent with patients more. It needs a mechanism for discouraging physicians from providing unnecessary services to generate more income. Other advanced countries with single-payer systems achieve that. In Canada, for example, doctors who are found to do much more than the average number of tests in their specialty may have their practices reviewed.
In addition, the benefit package should be updated to reflect current medical realities. Medicare, remember, was crafted in the mid-1960s, when medicine was quite different. Long-term care for chronic diseases was less important then (the focus was on acute diseases), as were prescription drugs for outpatients (there were not many effective drugs and they were cheap). That is why Medicare does not cover these things. But conditions have changed. Long-term care and outpatient prescription drugs are now not only medically necessary but also very expensive. It makes no sense for Medicare to continue to exclude them. However, any prescription-drug benefit would need to be restricted to the least-expensive effective drugs and include a mechanism for bargaining with drug companies for the best prices. Otherwise it would be an unaffordable windfall for the pharmaceutical industry.
The funding of Medicare also needs some attention. Medicare is divided into two parts. Part A, which covers hospital care and skilled nursing and home health care, is funded by a 2.9 percent payroll tax. Part B, which covers doctors’ services and outpatient care, comes out of general tax revenues and monthly payments from recipients. Those payments, now $58.70 per month, have increased over the years. Seniors are also responsible for substantial co-payments for services. The result is that Medicare recipients now pay more out of pocket (in constant dollars) for their health care than they did before Medicare was instituted. That tends to undermine the whole purpose of the program, which is to shield vulnerable seniors from the burdens of illness. I would favor eliminating the monthly Part B premiums and greatly reducing co-payments, as well as shifting more of the cost to general federal revenue.
Whether these reforms would have a net effect of increasing or reducing total Medicare costs is hard to say. Reducing overtreatment by physicians would save money. On the other hand, expanding benefits, eliminating Part B premiums and reducing co-payments would increase costs to the program. Seniors themselves would certainly save money, as would Medicaid, which now pays for much of long-term care. The fact is, countries with single-payer systems get more appropriate care for less overall money. Advances in technology and the aging population may well raise total health-care costs over time. But that’s all the more reason to spend health dollars efficiently. And if we Americans want to spend a little more of our gross domestic product on health care, that’s our choice.
Sen. Frist and the White House have it exactly backward. Turning Medicare over to the private sector would duplicate all of the health market’s arbitrariness, cost shifting and inefficiency. Instead, we should be thinking about strengthening and expanding Medicare as a public program. After all, it’s the only part of our health-care system that works even reasonably well. And if irony were not dead, we would surely notice how strange it is that the future of Medicare is in the hands of someone whose family business is paying enormous fines to settle charges of defrauding that very same program.
Marcia Angell M.D.
Copyright Ā© 2003 by The American Prospect, Inc. Preferred Citation: Marcia Angell M.D., “Dr. Frist to the Rescue,” The American Prospect vol. 14 no. 2, February 1, 2003. This article may not be resold, reprinted, or redistributed for compensation of any kind without prior written permission from the author. Direct questions about permissions to permissions@prospect.org.