Suppose you were trying to balance the federal budget and needed, oh, roughly $270 billion in savings over seven years from Medicare. What would you do?
Congressional Budget Office estimates show Medicare costs are growing nearly three times as fast as inflation in the private healthcare sector. And managed care is credited as one of the primary ways the private sector has controlled costs.
Being an astute legislator, you put two and two together and get Medicare managed care. But is it really that simple?
Of course not.
Nevertheless, GOP congressional leaders and the Clinton administration are hailing the idea.
Late last month House Speaker Newt Gingrich (R-Ga.) told the American Hospital Association's annual membership meeting he would create a task force to "rethink Medicare from the ground up." Gingrich's comment moved the issue of Medicare managed care, which lay nearly dormant for years, to the forefront.
Moments after Gingrich spoke, House Ways and Means Committee health subcommittee Chairman William Thomas (R-Calif.) said he soon would introduce legislation that would seek to move significantly more seniors from the current fee-for-service Medicare system into managed care.
Thomas is considering several options:
Extending "Medicare Select," currently a 14-state experiment, nationwide. It allows beneficiaries to buy discounted "Medigap" polices to cover copayments and deductibles if they enter a managed-care plan.
A program Thomas called "Medi-check." Beneficiaries would get vouchers for the actuarially determined value of their Medicare benefit. They could choose to stay in Medicare or use the voucher to "purchase" coverage from one of several federally authorized private managed-care plans.
Such a menu would be patterned after the Federal Employees Health Benefit Plan, in which federal workers choose among government-qualified plans. If an employee wants a plan that costs more than the federal government will cover, the employee pays the difference.
Before last November's elections, the Clinton administration was perceived as opposing Medicare managed care. But no more.
HCFA Administrator Bruce Vladeck said he is talking to congressional staff about developing a Medicare PPO option in which beneficiaries would pay less if they use designated providers. In a news conference last week accompanying the release of the president's budget, Vladeck said PPOs would not save money initially but would acclimate seniors to the idea of managed care. PPOs also might be more popular than HMOs because beneficiaries could continue seeing their current physicians.
Under the administration plan, HCFA would pay a capped amount to the PPO for each beneficiary, giving HCFA more control over costs.
Vladeck said at issue is whether to present the PPO option as an administration initiative or as a proposal from the Republican congressional majority.
Republican leaders have made no bones about the fact that they want to convert Medicare to managed care primarily to cut the budget. According to the CBO, Medicare is projected to cost $176 billion in fiscal 1995 and grow more than 9% annually for the next five years.
Gingrich told the AHA audience that under his plan any money saved off average Medicare costs would be split between the beneficiary and the government, motivating beneficiaries to choose the least expensive plan.
But the question is, will managed care really save Medicare any money?
According to the General Accounting Office, the current Medicare managed-care program actually costs more than traditional Medicare. That's because, according to the GAO, managed-care plans tend to enroll the youngest, healthiest beneficiaries who, on average, usefewer services. According to the GAO, "HCFA paid HMOs more for beneficiaries' treatment than it would have spent had those same beneficiaries remained in the fee-for-service sector."
In fact, according to CBO accounting methods, moving to wide-scale Medicare managed care would actually cost more money up front than it would save because of the cost of establishing the program, said Chris Jennings, White House healthcare adviser.
But the arcane rules of the CBO aside, AHA President Richard Davidson questioned how much money could really be saved by moving to a managed-care environment.
"Even if they have 100% participation (in managed care), it can't produce anywhere near the savings (Republican leaders) are projecting," Davidson said.
Paul Van de Water, assistant director of the CBO, which has the final call on how much any legislative proposal costs or saves, agreed.
"Despite the cost-saving potential of managed-care plans, expanding enrollment in such plans...would be unlikely to reduce Medicare's cost under the current system," Van de Water said.
But what if Republicans really do undertake an effort to "rethink Medicare from the ground up" and scrap the current system?
According to Thomas Scully, president of the Federation of American Health Systems, the federal government can reap substantial savings by controlling the growth in program reimbursement rates.
"For every person you can entice into managed care and then control the growth of the (reimbursement, HCFA) doesn't have to constrain provider payments," Scully said.
Since nearly everyone agrees that forcing seniors into managed care is not realistic politically, the success of Medicare managed care will depend greatly on how many seniors switch voluntarily.
In the past, getting Medicare beneficiaries to give up their fee-for-service plans has been about as easy as getting members of Congress to give up their free parking spaces.
"I don't know what legislative changes...will cause (enrollment) to grow fast enough to make a dent in the program," said one Democratic Senate aide.
Medicare HMOs have tried everything from prescription drug benefits to elimination of most copayments and deductibles in an effort to increase enrollment, but growth has been slow (See chart, p. 52).
Even if the number of seniors in managed-care plans-currently 7% of beneficiaries-increases significantly, the program will have difficulty exceeding the managed-care penetration of the overall population. According to a recent survey by KPMG Peat Marwick, 65% of all those who receive their insurance through their employers are enrolled in some type of managed care.
While part of the problem is attitudinal-many Medicare beneficiaries haven't experienced managed care and are leery of it-the problem is also practical.
"We are for expanding beneficiaries' choice," said John Rother, chief lobbyist for the American Association of Retired Persons. "But there are many places where there aren't any managed-care plans, much less enough for a choice."
Another variable in the Medicare equation is the effect such a voluntary system would have on those who remain in traditional fee-for-service plans.
According to HCFA chief Vladeck, the voucher plan is "a terrible idea that reflects a fundamental misunderstanding of how Medicare works and how healthcare works."
Vladeck said such a plan would "create a windfall for folks who market to the healthier beneficiaries" and hurt providers who treat the sick, driving up overall costs.
Hospital groups generally favor expanding Medicare managed care. The AHA's Davidson said he supports incentives for Medicare beneficiaries to move into managed-care plans with capitated Medicare payments.
"I think (hospitals) know their future is in coordinated systems of care and a fixed-payment system," Davidson said.
Some physicians apprehensively eye any further expansion of Medicare HMO coverage. Daniel Ullyot, M.D., president of the American College of Cardiology and a cardiac surgeon, said weeding out inefficiency is necessary, but doctors are frustrated by the burden to control costs in managed-care groups and the threat of being kicked out of HMO networks if they provide too much expensive care.
"I don't think anybody's happy with the gatekeeper system," Ullyot said. "Doctors are very unhappy about being in that box."
He said he doesn't have a problem with further managed-care coverage of Medicare beneficiaries "if we preserve choice and access to specialty care."
Ullyot echoed the feeling of many providers-that increasing managed care as a way to control costs is preferable to ever-growing reductions on provider reimbursements.
"Let's not squeeze (Medicare) again; let's look at it another way," Ullyot said.
`(Managed care) can't produce the savings (GOP leaders) are projecting.'
`I don't think anybody's happy with the gatekeeper system.'
-Daniel Ullyot, M.D.