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A Rational Prescription for Medicare—Viewpoints | EPI


A Rational Prescription for Medicare

by Edith Rasell

The seven members of the National Bipartisan Commission on the Future of Medicare were absolutely right to refuse to endorse Senator John Breaux’s Medicare reform proposal.

This plan — to provide “premium support,” or vouchers, which beneficiaries would use to purchase private insurance coverage — would have pushed most seniors into HMOs and other privately managed care plans. Moreover, the voucher would not necessarily cover the full cost of even the least expensive policy, forcing seniors to pay out of pocket for their insurance premiums in addition to making co-payments when services were received.

But those who could not afford these premium payments would be left uninsured. Given that the current Medicare program provides essentially all seniors with insurance, Breaux’s proposal is a huge leap backward.

Forcing most seniors into HMOs is another bad feature of the proposal. While many HMOs provide high-quality care, others perform less well. A study published in the Journal of the American Medical Association compared seniors with chronic illnesses — such as high blood pressure or diabetes — who were enrolled in HMOs in Boston, Chicago, and Los Angeles with their counterparts in the same communities who used traditional, fee-for-service Medicare. Over the four years of the study, seniors in HMOs were nearly twice as likely to decline in physical health (54% compared to 28%) as were seniors using fee-for-service Medicare.

Quality is not the only concern. It is far from certain that HMOs can contain the rate of growth in health expenditures. In recent years, many of the privately insured, under-age-65 population shifted from more traditional insurance to HMOs. During this transition, health expenditure growth slowed. But many of the savings HMOs achieved among these enrollees — for example, by reducing fees paid to doctors and hospitals, and shortening hospital stays — have already been wrung out of the Medicare program. Still unknown is whether HMOs can slow the rate of growth over the long term by delivering high quality care more efficiently.

Given the uncertainties regarding both cost containment and quality, it would be irresponsible at this time for Congress to push nearly 40 million Medicare beneficiaries into HMOs.

Fortunately, Breaux’s proposal is not the only approach to controlling Medicare costs. In fact, the cost containment measures that Medicare administrators have put in place in recent years are producing big payoffs. Last year Medicare costs grew just 1.5 percent. Adjusted for inflation and increased Medicare enrollments, expenditures per person actually declined. Moreover, the cost containment measures enacted in the Balanced Budget Agreement of 1997 cut the Medicare Trust Fund’s 75-year funding shortfall by half.

Containing Medicare costs is an important issue to address. However, shifting additional expenses onto seniors, who already pay over one-fifth of their incomes on health care, is not the answer. And while HMOs may eventually prove capable of containing costs and providing seniors with high quality care, until that time, Congress should not risk the lives and pocketbooks of our seniors on a program of premium supports.


Edith Rasell is an economist with the Economic Policy Institute. She is a former family physician and specializes in health care issues.

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