Economy puts Medicare reform on Hold

June 1, 2001
Julie E. Williamson

Julie Williamson is a freelance writer living in Arizona.

Pharmaceutical Representative

Can George W. Bush, Tommy Thompson and Congress agree on how to move forward?

Although discussion surrounding a sweeping Medicare program overhaul is still making headlines, it isn't getting as much attention on Capitol Hill as some would like.

That's because the nation's sagging economy is forcing the issue of reform further down on the political priority scale. The fact that Medicare reform is such an enormous task – one that ignites passion and sparks debate from virtually every angle – is what makes it so difficult to tackle, particularly at a time of tax cuts and questionable financial footing, sources told Pharmaceutical Representative.

"If we were still enjoying the 12 consecutive years or so of economic growth, I think we'd be seeing more progress where these proposals are concerned. But that clearly isn't the case," explained Edward Hughes, professor of management and strategy and health industry management at Northwestern University's Kellogg Graduate School of Management, Evanston, IL. "Tax issues and budgetary concerns have taken precedence, so Medicare reform has moved down a bit on the list of priorities."

The Bush administration's tax plan has prompted bipartisan criticism. Democrats charge that President Bush's tax cuts will neither stimulate the sluggish economy nor improve Medicare funding. Republicans, on the other hand, fear a bigger tax cut could threaten Medicare's future, because the government would have to dip into the Medicare trust fund to finance the tax cut.

A report issued by the Washington-based consumer health organization Families USA found that the Medicare trust fund would become insolvent in 2010 – 15 years sooner than originally projected – if Bush's proposed budget were enacted.

"The President's budget plays a shell game with more than half a trillion dollars of Medicare funds. At the end of that game, the program's trust fund is bankrupt and the fund's losses help finance almost one-third of the proposed $1.6 trillion tax cut," noted Ron Pollack, Families USA's executive director. "Instead of strengthening Medicare, the President's proposed budget weakens it."

The weak economy still hasn't stopped congressional leaders from forging ahead with their reform proposals, however. Congress has before it various plans to modernize Medicare, all of which promise to make the program more effective and efficient and extend its life span.

Sen. John Breaux (D-LA) and Rep. Bill Thomas (R-CA) proposed a plan for a comprehensive Medicare program overhaul that has since become the framework of structural reform discussion. The approach uses a "premium support" model that would reduce universal eligibility to a defined set of benefits and require beneficiaries to pick among competing health plans. Under this model, the government would pay part of the premium, with the contribution established as a share of the national average premium price. Those who chose more expensive plans would pay a higher premium, giving beneficiaries the benefit of selecting their own plans and a financial incentive to opt for less expensive ones.

Two key issues that will affect the success of such a program from the perspective of both government and beneficiaries are whether a viable framework for establishing premiums in each area can be developed and whether a mechanism for adjusting the varying health status of enrollees is possible.

"Competition is the supposed benefit, but without these two technical factors, competition is unlikely to be effective," said Len Nichols, principal research associate for Urban Institute, a Washington-based nonpartisan economic and social policy research organization.

A bill introduced in February by Breaux and Tennessee Republican Sen. Bill Frist also aims at a major Medicare overhaul. Under the proposed bill, a new Medicare board would establish a competitive system of Medicare+Choice plans and draw companies back into the program. Incidentally, Congress intended to make participation in Medicare more attractive to plans last year when it agreed to restore $12 billion in funding, which was stripped away from them by the Balanced Budget Act, over the next five years.

Despite efforts to improve the Medicare program, some consumer rights groups charge that the reform proposals could do more damage to seniors. More specifically, Pollack said a voucher-type system based on competition among health plans and the traditional Medicare program would drive up costs of the traditional program, because the healthiest beneficiaries would be most likely to sign up for private plans.

Another downfall, he said, is that the proposals rely on private health plans for Medicare restructuring, even though those plans have abandoned hundreds of thousands of seniors from the Medicare+Choice program in recent years.

"There is little reason to turn Medicare over to private health plans when Medicare has done a better job than the private sector in controlling per-person healthcare costs. For the last three decades, per-person private health insurance costs have increased faster than Medicare," he added. "Reliance on private health plans to protect Medicare's solvency is based more on ideology than empirical data."

The Leadership Council of Aging Organizations, a coalition of 42 national groups representing more than 50 million seniors, has also expressed displeasure with the premium support model that would base the quality of seniors' healthcare on what they can afford, rather than what they need.

Something Americans and even Congress seem to agree on, however, is the need for quality-of-care and preventive healthcare initiatives. Proponents say building the initiatives, such as colorectal and breast cancer screenings, into the Medicare program will likely improve outcomes, boost the health of beneficiaries and prevent future health complications – a combination that will also cut Medicare costs, according to the Department of Health and Human Services' Office of Inspector General.

"Continuous quality oversight doesn't burden providers the way inconsistent, sporadic, infrequent and unfamiliar oversight does. Patient care is enhanced, reducing disputes between providers, advocacy groups and Medicare administrators on the most fundamental aspects of the program," said George F. Grob, deputy inspector general for evaluation and inspections, OIG, in a March 15 testimony before the House Committee on Ways and Means Subcommittee on Health.

The Medicare budget blueprint that President Bush proposed also includes research enhancements at the National Institutes of Health to help find cures for diseases like Alzheimer's, Parkinson's, heart disease and stroke that afflict millions of seniors and other Americans. Additionally, the president hopes to strengthen the healthcare safety net of those most in need by proposing an increase in funding for community health centers of $124 million this year – a first installment toward a goal to increase the number of these centers by 1,200 and double the number of people served by 2006.

Although comprehensive Medicare reform is not likely to happen this year, the administration agrees that certain components – most notably, the prescription drug benefit – can't be put on the back burner.

And with good reason: One in three seniors has no prescription drug insurance, and millions more only have limited coverage. Meanwhile, pharmaceutical medication prices keep climbing, creating a crisis for the nation's aging population. But agreeing on the need for a benefit is not the same as agreeing on how to fund it. Some view the program as an additional benefit, while others, President Bush included, believe that any drug benefit must be woven into the context of long-range Medicare reform.

In the interim, the President has put forward an Immediate Helping Hand drug proposal to provide immediate funding to states and allow gap coverage for beneficiaries who need it most. This assistance will give states temporary financial support to help protect those with limited incomes or very high drug expenses and no other alternative for drug coverage until Medicare reform is achieved.

Rallying in Bush's corner is HHS secretary and former Wisconsin governor Tommy Thompson, a drug benefit advocate and Medicare reform supporter with a proven track record for overhauling healthcare and welfare policy (he launched a successful statewide program that uses Medicaid waivers to provide healthcare for working families with incomes below 185% of poverty). Thompson said such a proposal is "long overdue," considering drug coverage has not been added to the Medicare package since its inception 35 years ago, despite the increasing role pharmaceuticals play in disease management and prevention.

The Pharmaceutical Research and Manufacturers of America in Washington is also encouraged by the direction the political leaders are taking on the issue.

"We think there's reason to be optimistic. The direction President Bush and Congress are taking shows us that prescription drug coverage is a key priority," PhRMA spokesperson Jackie Cottrell said.

But like everything else political, even the nation's most applauded proposal can run into some bipartisan conflict, particularly where healthcare policy is concerned. "Some have speculated that a drug benefit could be in place by fall or even as early as summer, but I question whether it will move that quickly," Hughes noted. "Like anything else, there's still a lot of red tape to go through. We'll just have to wait and see." PR

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