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February 1999

OP-ED

"A MEDICARE BREAKTHROUGH: MORE CHOICES, FEWER RULES"

By Samuel H. Howard

Fixing Medicare is an old problem in search of a solution. I should know. In 1982, President Reagan asked me to serve on the first federal advisory committee to study the long-term solvency issues facing Medicare. Today, fifteen years later, I once again find myself on a new Medicare commission created by President Clinton and Congress.

Watching the slow wheels of government commissions grind away at the same problem is usually a recipe for frustration. But I have never been more optimistic about our chances for reforming Medicare. For the first time, a consensus is building around a plan that will keep Medicare solvent and actually give seniors more choices and better quality care.

The problems with Medicare are no secret. With an entire generation of baby boomers set to retire, the financing of Medicare is under enormous strain. Most economists believe that the trust fund will be empty in about a decade. By the year 2030 it will take the taxes of two full time workers to support one Medicare beneficiary.

But money is only part of the problem. Since its creation in 1965, Medicare has become encrusted with layers of regulation that make it nearly impossible for doctors to focus on delivering the best care they can. The over-regulation of Medicare has now reached a point where almost anything that is innovative or cost-effective is at risk of being condemned as fraud. Enforcing rules has become more important than delivering health care.

I believe we can re-invent, save and even improve Medicare coverage if we simplify the government's role and give people the ability to choose what kind of care they want. The plan most worthy of bipartisan support is known as "Premium Support" for Medicare Choice. Here is how it works: the government establishes an amount each year that will help a senior citizen buy private insurance. It leaves the choice of the health plan--an indemnity plan, a PPO, an HMO, traditional Medicare, whatever--up to the individual. As a general matter, the federal government would pay 88 percent of the average cost of plans providing the Medicare benefits package. If you choose something more elaborate, then you pay for it. That is your choice. The amount of the government’s contribution would be adjusted each year to reflect new technology and the current costs of buying coverage for the Medicare benefit package.

A small independent Premium Support Medicare Choice Board could oversee this program. This would be separate from the Health Care Financing Administration, the large bureaucracy that now administers Medicare. But instead of writing rules and regulating doctors, its main task would be informing consumers. It would provide information and a comparison chart of all the eligible private sector health plans and let Medicare enrollees decide which one suits their needs.

The advantages are numerous. Premium Support allows government to provide a safety net without dictating exactly how the safety net is constructed. It allows consumers to choose the best health plan for them. And it allows free market competition to keep costs in check.

Premium Support is no policy pipe dream. In fact, it is modeled after the most successful government health care program in history: the Federal Employees Health Benefits Plan. That is the health coverage program available to all federal employees, including every member of Congress. Under this plan, people choose their own coverage, which means they exercise enormous influence over the health plans competing for their business. I run a major health plan. I know first hand the pressure that competition puts on us to provide quality care at the lowest possible cost. Reflecting the benefits of competition and individual choice, the prices in the FEHBP have increased less than 3% per year over the past 5 years, while Medicare’s per capita costs have increased at twice that rate.

The plan for federal employees has other attractions, including a lot less bureaucracy. Today, FEHBP has about 100 employees serving nearly 9 million participants in the plan. By contrast, the Health Care Financing Administration and its claims intermediaries responsible for overseeing Medicare have more than 25,000 employees.

Creating a new model for Medicare is long overdue. The benefit package was written 35 years ago and private sector and federal employee plans are now superior. Our commitment to serve the elderly must be modernized and strengthened as we take steps to assure solvency. A new Medicare program has to reflect these changes by creating a flexible plan that allows more recipients to tailor health coverage to their needs -- including the option of choosing more elaborate benefits like long-term care. The principles behind this reform are choice and efficiency -- two things that Medicare desperately needs.

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