In the beginning, Congress created Medicare Parts A and B.
Now, some healthcare thinkers are looking at Washington's handiwork and saying it's not good enough.
The division of the program, a relic of the healthcare system of the past, creates more confusion than efficiency, critics contend.
"Distinct Part A and Part B is a distinction without a difference," says Sen. John Breaux (D-La.), chairman of a national commission plotting the future of Medicare.
The debate over merging administration and financing of Medicare is taking place as the panel considers ways to help the program survive the baby boom generation.
Part A, which administers hospital and other institutional care, and Part B, which pays for physician treatment and other nonacute services, are products of the healthcare system of the 1960s.
Congress modeled Part A after the Blue Cross plans of old, which covered hospitalization, and Part B after Blue Shield plans, which covered physician services.
The venerable distinction endures in Medicare, despite more than 30 years of evolution in the private-sector insurance market.
Private insurers, including merged Blue Cross and Blue Shield plans, now cover millions of Americans under capitated policies that require provider networks to manage care in the most cost-effective setting rather than dividing their financing based on where it takes place.
On the agenda. The National Bipartisan Commission on the Future of Medicare, created by the Balanced Budget Act of 1997, has put the split financing and administration of the program on its agenda as it seeks ways to assure the long-term solvency of the program, particularly the Hospital Insurance Trust Fund, which finances Part A (See chart, p. 136).
Unless action is taken, the Congressional Budget Office has estimated the Part A trust fund will be bankrupt by 2010.
"This is a structure that reflects a medical practice of the past," says Robert Reischauer, a former CBO director who is now a senior fellow at the Brookings Institution in Washington.
But, he cautions, merging Part A and Part B "is not a silver bullet that will push the date of insolvency back five years."
Breaux, however, says there's a "growing consensus" around a merger of the two components.
It's a question on which some providers already have taken a stand as they, too, look at a changing healthcare system. The American Medical Association, for one, has asserted that hospitals have taken advantage of the split financing system.
As the AMA's House of Delegates debated a painful change in Medicare's formula for compensating physicians' practice expenses two years ago, it said the association should lobby Congress to shift "inappropriately retained" Part A funds to Part B to reflect the shift of care from hospital beds to physicians' offices. The change pitted specialists and surgeons against primary-care doctors.
The theory was that hospital cost-cutting has forced physicians to take on more of the financial burden of running a practice.
Predictably, the American Hospital Association disagreed, saying that giving doctors a claim on Part A would only hasten the insolvency of the Hospital Insurance Trust Fund.
But the AMA's sentiment nearly resurfaced in the federal Balanced Budget Act of 1997. In seeking to force HCFA to redraft its proposed practice-expense formula, the House version of the bill would have told the agency to study whether hospital cost-reduction methods and changing practice patterns have resulted in increased physician costs.
That language was not included in the final version of the budget act, however, although its inclusion in the House bill was an indication that some members of Congress are sympathetic to the AMA's position.
Not easy. Yet, as with all issues related to the politically volatile Medicare program, merging Parts A and B is not an easy task.
For one, the financing of the two parts isn't necessarily compatible. Medicare pays the bills from hospital and nursing home stays and some home health visits out of the Hospital Insurance Trust Fund, which is financed by a payroll tax. To subsidize the fund, employers and employees pay 1.45% of earnings each.
Part B, on the other hand, is largely financed from general tax revenues. Beneficiaries pay for 25% of the program through their premiums, set at $43.80 this year.
Together, the two parts of the program will spend $216.6 billion on mandatory benefits in federal fiscal 1998, which ends Sept. 30, according to the CBO.
Of that, $19.5 billion will be Part B premiums. If the Medicare programs were merged today, Part B premiums would represent just 9% of total program costs.
Some fear that combining the two programs could undo the fiscal discipline that a dedicated trust fund imposes on Part A, as well as open the door to greater financing of the program out of general tax revenues.
"I would have some concerns about camouflaging the costs of the program," says Rep. Greg Ganske (R-Iowa), a plastic surgeon who serves on the Medicare commission.
"If you did it poorly . . . you've got the potential for mischief," agrees James Scott, president of the Premier Institute in Washington.
But in passing the 1997 budget act, Congress, in fact, did mask Medicare costs by taking advantage of the divided financing scheme. The Balanced Budget Act reduced Part A expenditures by about $40.4 billion between 1998 and 2002 by gradually diverting to Part B all of each patient's bills for home health visits except for the first 100 following a hospital or nursing home stay.
The CBO estimates the policy change will increase Part B's home health burden from about $300 million in 1997 to $11.5 billion in 2002. Part A's share, meanwhile, will shrink to $11.6 billion in 2002 from $17.2 billion in 1997.
Turf battles. Another hindrance to merging the two sides of Medicare could stem from congressional turf wars, particularly in the House. The House gives the Ways and Means Committee authority over Part A and the Commerce Committee jurisdiction over Part B.
Merging the two could force one of the committees to surrender control over one of the biggest programs in the federal government, which likely would encounter resistance.
"It has been recommended by every commission that's looked into Medicare," says Gwen Gampel, president of the lobbying firm Congressional Consultants and former Democratic aide to the House Ways and Means health subcommittee.
But it's never happened "because it's a jurisdictional issue," she says.
To some extent, however, some of the Medicare commission's other work could make the distinction irrelevant.
Many experts advocate changing Medicare from a "defined benefit" program in which beneficiaries are entitled to a specific set of benefits regardless of costs. They seek instead a "defined contribution" program in which the government pays a fixed amount and allows beneficiaries to select a health plan that matches the government contribution or pay the difference between the government payment and a more expensive plan.
Under such a proposal, the government would give private-sector health plans broad authority over financing and administration, which could cause the distinction between Part A and Part B to wither on the vine.
Turning Medicare into a defined contribution plan is by no means a done deal, however, as some seniors groups and members of Congress, including such Democratic healthcare leaders as Sen. Jay Rockefeller of West Virginia, oppose it.
"If there's a voucher that's subject to some arbitrary cost limits . . . there's some real risks," says Howard Bedlin, vice president for public policy and advocacy at the National Council on the Aging.
Losing the fiscal discipline of a dedicated trust fund also could have implications for the future of Medicare politics, according to some experts.
Phantoms. Although the CBO says Part A will have $112 billion in surplus payroll tax funds built up by the end of fiscal 1998, the idea of the Hospital Insurance Trust Fund is just an accounting tool that periodically forces Congress and the White House into "phantom" debates, says Thomas Scully, president and chief executive officer of the Federation of American Health Systems, which represents for-profit hospitals.
"Trust fund financing issues . . . create a lot of phony pressures that shouldn't exist," Scully says.
Instead of debating how to set Medicare spending growth at a sustainable level or how to keep premiums affordable, the crises created by short-term trust fund solvency crises drive Congress to the tried-and-true solutions of provider payment cuts, Scully says.
But Reischauer argues that such financing crises periodically force Congress into a healthy examination of Medicare's structure and financing.
"If you consolidate the program, some of that fiscal discipline will be lost," he says.