Medicare Reform - The President's Budget Proposal Would Eliminate Medicare As We Know It

THE PRESIDENT’S BUDGET PROPOSAL WOULD ELIMINATE MEDICARE AS WE KNOW IT

The budget proposal submitted by President Bush provides some information about the president’s plans for Medicare. While the information is not very detailed, it provides enough information to see the direction in which the Administration is headed, and it is not a direction in which the people who rely on Medicare want to go.

Here is a summary of what the Administration says about Medicare.

The Administration mis-states the financial health of Medicare. The Administration says that "Social Security and Medicare are in deep trouble financially ....[because] benefits promised will soon far outstrip their dedicated revenue." The budget warns that Medicare changes should "...not add to the long-term unfunded promise faced by the program, which stands at a staggering $13.3 trillion."

What does the Administration mean when it says benefits will outstrip "dedicated revenue" and that changes should not add to the "unfunded promise" faced by Medicare? Dedicated revenue is the revenue from payroll taxes that funds Part A and the premiums that pay for about 25% of Part B. The rest of the funding for Part B comes from general revenues. Because the Bush Administration and several members of Congress oppose the use of general tax money for Medicare, they characterize the portion of the Medicare budget not paid for by payroll tax or premiums as unfunded promises. Legislation introduced several years ago by now-Senate Majority Leader Frist placed a cap on the amount of money that could be spent from general revenues on Medicare, raising questions about what happened to Medicare coverage when the cap is reached. Those questions will have to be answered again if the Administration also proposes to cut off or limit funding for Medicare from general revenues.

The Administration speaks often about the possibility of Medicare going bankrupt as more Americans become eligible for the program. Yet, the Medicare Part A Trust Fund is predicted to be solvent until 2029, the longest solvency prediction in years. Economist and former Medicare Trustee Marilyn Moon says that the problems caused by increased numbers of Baby Boom Medicare beneficiaries are overstated; growth in productivity will offset the decreased number of workers. Thus, the concerns about the financial health of Medicare are overstated. They are used as a reason to change the whole funding mechanism, and to decrease Medicare funding.

The Administration refuses to admit that the Medicare+Choice experiment failed. The budget proposal states that the Administration wants to revise the funding formulas for Medicare+Choice plans. "Where they are available, private plan options give seniors [and people with disabilities] more power. If they are not happy with the service they are receiving, they can simply switch to a different plan."

Beneficiaries generally leave a Medicare HMO or other private insurance plan because the plan refuses to provide them with the health care they need and which they can obtain under traditional Medicare. In this way, plans can avoid enrolling and providing care to the individuals who need the most services, saving money for the plans.

The Administration says that the foundation for Medicare "must be a market-based system in which private plans can bid to provide coverage for beneficiaries at a competitive price." Almost 50% of Medicare+Choice plans have left the program, mainly for business reasons. Thus, the Administration fails to admit that market factors, including the need for private insurance plans to make a profit, have shown that the M+C program doesn’t work.

The Administration proposes to eliminate the guaranty and security of the traditional Medicare program. Instead, they want to give Medicare beneficiaries "...the same kind of reliable health care options that all federal employees and many other Americans enjoy."

The Administration fails to acknowledge that the Federal Employees Health Benefits Program (FEHB) does not provide the same protection as Medicare provides. In a report issued on January 31, 2003, the Friday before the budget proposal was released, the General Accounting Office (GAO) reported that average premiums for FEHBP plans increased yearly over the past 5 years so that FEHBP enrollees now pay about 50% more in premiums than they paid 5 years ago. The GAO further found that FEHB’s premium increases would have been even greater, but the plans increased cost-sharing requirements as well. In addition, the private insurance plans that participate in FEHBP are not required to offer a specific benefit package, as Medicare requires, but can propose their own benefit package.

Under the Administration’s Medicare proposal, private insurance plans would bid to participate in Medicare, and Medicare would establish a national premium. A beneficiary who elected one of the less costly competitively bid plans would keep most of the savings and even may not have to pay premiums. Based on the FEHB model, however, it is very likely that people who elect a plan based on low premiums will be purchasing a bare-boned package. In other words, by paying less they will get less .

The Administration proposes to amend the traditional Medicare program to make Medicare more like modern-day private insurance. This means changing to a "rationalized system of cost-sharing" so that patients who need acute care would not be penalized.

Of course, if the Part A Hospital Deductible ($912 in 2005) were lowered, people who need hospital services would save money. However, such proposals in the past have called for a combined Part A and Part B deductible that substantially exceeds the Part B deductible. Thus, the 85% of beneficiaries who are not hospitalized each year would pay more out of pocket. The proposal may also add co-payments for home health services, for which beneficiaries currently pay nothing out-of-pocket. Although the proposal may also add a catastrophic benefit when out-of-pocket expenses reach a certain amount, most beneficiaries would never reach the point of being covered. Thus, they would pay more up front in exchange for paying less for services most will not use.

The Administration would also revise the ten standard Medigap policies. "Medigap ...covers a far higher share of the up-front deductibles and cost sharing than many other private plans, yet few Medigap plans offer prescription drug coverage and even that coverage is thin." All 10 standard Medigap plans currently pay the Part A hospital deductible. Two of the most popular plans, Plans C and F, and one of the plans offering prescription drug coverage, Plan J, pay the annual Part B deductible. Medigap policies also pay most, if not all, of the original Medicare plan’s coinsurance amounts.

The Administration proposes to eliminate from Medigap policies coverage for deductibles and perhaps some co-insurance, while adding coverage for a prescription drug benefit. Unfortunately, the budget allocates an insufficient amount of money to provide a meaningful prescription drug benefit. Thus, in exchange for getting a small prescription drug benefit as part of the Medigap package, a beneficiary may have to pay the Part A hospital deductible and the Part B deductible, as well as some other co-payments. Of course, if the beneficiary can’t afford to go to the doctor because the deductible is too high, how is the beneficiary going to get the prescriptions?

There is no guarantee that traditional Medicare would remain an option for beneficiaries. According to the budget proposal, "today’s seniors and near retirees are counting on Social Security and Medicare to provide retirement income and health insurance. They should never doubt that promises made will be promises kept. But it is also true that these programs cannot continue as they are structured today." (Emphasis added.) In other words, the Administration wants to eliminate the traditional Medicare program for future beneficiaries, despite the program’s success and popularity with Americans of all ages.

Other provisions in the budget would also affect Medicare beneficiaries. The proposal would further reduce funding for the State Health Insurance Assistance Programs (SHIPs) that provide information and individualized assistance to beneficiaries on the local level. It also would change the Medicare appeals system to limit the opportunity for review of claim denials by an independent reviewer.

The President in his State of the Union Addressed stated, "Medicare is a binding commitment of a caring society." Unfortunately, his budget proposal would unbind the Medicare commitment made in 1965 - a commitment that resulted from the failure of private insurance companies to provide health insurance to older people. The proposal would destabilize an effective program, destroy its uniformity, and cause Medicare beneficiaries to pay more for fewer services. Rather than bringing the Medicare benefit package into the 21st Century, the outlines of the President’s plans contained in the budget would return older people and people with disabilities to the mid-20th Century, before Medicare was enacted.