Understanding the Medicare Debate

Written By: Attorney Jeffrey A. Marshall , CELA*  

Originally Published August 6, 2003

  One of the exciting things about elder care law is that it is so fluid - applicable laws and regulations are constantly changing as our society struggles to cope with intractable problems related to aging.  Questions arise constantly, such as how do we provide quality health care to our seniors at an affordable cost? And, who should bear the financial risk of chronic illness - families or taxpayers?

Unfortunately, there are no simple answers.  So, our state and federal legislators and regulators are constantly tinkering with our laws and regulations in the search for more acceptable solutions.

Recently, on the state level, some legislative and regulatory initiatives are being postponed while our new Governor and his Administration get the "lay of the land," and the Legislature and Governor come to agreement on how to deal with our current fiscal crisis and the issues of education, gambling, and property tax reform.  At the federal level, on the other hand, legislation which could be of monumental importance to seniors (and to our society in general) is now pending. In Congress, a battle is raging over profoundly different visions of government's responsibility and role in providing health care for our elderly.

Our Health Care Delivery System is Broken 

It is hard to overstate the significance for our society of the decisions that are about to be made in the area health care delivery.  Total Federal Government spending is about $2.2 trillion this year, and about a quarter of that ($500 billion) goes to health care spending. That's about double the level of ten years ago. Total annual spending on health care in this country from all sources is over $1.5 trillion a year.  We spend much more, per capita, on health care than any other country.

But it seems we don't spend this money very wisely.  A study released in the May/June issue of Health Affairs shows that the United States spends more on health care than any other industrialized country - by far - 44 percent more per capita than our nearest rival, Switzerland - yet Americans do not necessarily receive more care.  (It's The Prices, Stupid: Why The United States Is So Different From Other Countries - available online at http://www.healthaffairs.org/1130_abstract_c.php?

ID=/usr/local/apache/sites/healthaffairs.org/htdocs/

Library/v22n3/s16.pdf.)

The Health Affairs study suggests that the difference in spending is mostly caused by higher prices for health care goods and services in the United States - not by increased use of those services.  In fact, we have fewer than the average number of physicians per capita, and fewer doctor visits per year. 

The higher rate of health care spending in the United States is not a result of higher government spending. Our per capita rate of government health spending - primarily Medicare and Medicaid -- is similar to other countries.  The added costs of our health care system are paid by consumers.  In the United States , private spending on health care is more than 5 times as much as the average in other industrial countries.  In most of the other developed countries the public expenditures cover everyone pretty completely.

Americans have always liked to boast that we have the best health care system in the world.  But the truth is that what we have is the most expensive system, with most of that cost being privately financed.  We have a confusing and fragmented payment system, 15% of the population is uninsured, and we lack a coherent national health care policy.  It is clear that, whether compared to the rest of world or simply viewed on its own, the current American health care delivery system is expensive, inefficient and dysfunctional. 

Everyone admits that the American health care system is broken. The ideological debate in Congress is over how we should try to fix it.  The liberal view is that we should move toward the government-run social insurance model followed by most industrial countries.  The conservative view is that we need to recoil from the government model and expand the role of private health plans with a goal of fostering competition that hopefully will eventually lower costs and improve quality.    

This philosophical gap has swallowed many a proposal.  This year, however, the existence of a popular conservative Republican President and Republican control of Congress raises the potential for changes that will set the direction of national health care policy for the foreseeable future.  First, to Medicare:            

Medicare Reform and Prescription Drug Legislation

Medicare reform legislation, including prescription drug coverage, was passed in both chambers of Congress on June 27^th.  With Republicans in ascendancy, both House and Senate bills will move our Society towards the conservative vision of private control of delivery of health care services.  However, the House is pushing us much more quickly and inexorably toward this goal. 

The drug benefit provisions in both bills are fairly similar.  Both would add complicated, but limited prescription drug coverage to Medicare.  Both House and Senate bills would spend approximately $400 billion over 10 years. The main aspects of prescription drug coverage would not take effect until 2006.  The drug benefit would be made available through private insurance companies which would be subsidized by the government.  Seniors would initially pay an estimated $35 per month premium and would have to meet an annual deductible before any coverage would kick in. Both measures have significant gaps in coverage before resuming benefits for individuals with catastrophic prescription costs.

Most seniors will find that less than 50% of their prescription costs are covered.  The early betting in the Press is that seniors are going to end up being unhappy with what they see as an inadequate benefit.  AARP has already come out in opposition to both plans unless significant changes are made.    

While there is pretty general agreement between the House and the Senate regarding the prescription coverage, there is a gulf between the chambers on some other provisions.  Under the House Bill, beginning in 2010, traditional fee-for-service Medicare would have to directly compete with private plans for seniors' health care business.  The competition would not be limited to prescription drugs but would apply to all Medicare benefits, premiums, and cost sharing. Basically, the Conservatives in the House are saying that their price for adding the new prescription drug entitlement to Medicare is a big lurch toward privatization of the entire Medicare program.

The Conservatives say that "opening-up" Medicare to competition will result in cost savings and improved services. Critics say that there will not be a level playing field between the traditional Medicare, which has to enroll everyone - the oldest and the sickest regardless of condition - and private companies who will cherry-pick relatively healthy people while receiving reimbursements based on the average person. This kind of unfair competition from private companies will eventually destroy the traditional Medicare program.

Both the Senate and House Bills contain numerous other provisions including various subsidies and other incentives for insurers and private plans to expand their participation in the Medicare marketplace. Both would create a new preferred provider organization alternative to traditional Medicare, kind of a "son of Medicare + Choice," and impose higher annual deductibles and other costs on individuals who choose to stay in traditional Medicare.   

It is expected that Conference committee negotiations to work out the differences will be contentious and continue for some time. The pressure is on both legislators and President Bush to finally enact some form of Medicare prescription coverage to comply with campaign promises.  But, I really can't tell you where Medicare will end up on this year's leg of the journey to privatization.  It is difficult at this point to figure out what is going to happen.

One possibility is that a measure close to the Senate bill, without the most aggressive House's provisions for open competition in 2010, will come out of Conference.  In that case, the Senate should approve it.  The conservative House, (most of whose members really don't want to spend $400 billion on a new entitlement anyway) probably will not approve a Senate type bill unless President Bush really puts on the pressure.  So, for a Senate-type bill to be approved, which will better maintain traditional Medicare, the President will have to be willing to exert his influence in the House. 

Another possibility is that a measure with the Conservative's open competition provision will emerge from Conference.  In that event, I don't think it will pass in the Senate.  There will be adamant Democratic opposition and maybe even some from moderate Republicans.  In that event we probably won't have prescription coverage this year.  But a House approved and Senate opposed bill could provide political cover and advantage for conservative Republicans who could then say that they passed a great prescription benefit and Medicare reform package and the Liberals defeated it.  I can hear the Art Linkletter commercials now. 

Stay tuned.  I will try to keep readers of the Elder Care Law Alert updated as this battle plays out.