Private Plans Again Seen as Aid to Medicare

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http://www.nytimes.com/2003/07/05/business/05HMO.html?th

 

July 5, 2003Private Plans Again Seen as Aid to MedicareBy REED ABELSON

 

 

The last time Congress tried to promote private health plans as a panacea for

Medicare's high costs, the effort proved a bitter disappointment.

 

Now six years later, President Bush and Congress are trying again. Last week the

Senate and House passed similar measures giving the 40 million Americans on

Medicare the chance to receive a prescription drug benefit either under the

traditional, government-run Medicare program or under new programs offered by

private health plans. The government hopes that, by encouraging beneficiaries to

enroll in the private plans of their choice, it can rein in Medicare costs

through the discipline of the free market.

 

Proponents argue that the new measures provide more money to the private plans

and that, ultimately, the private sector can provide better care for less money.

But some policy analysts say that private health plans have never proved to save

significant sums of money and that Washington is at risk of repeating its

mistake of trying to encourage private health plans while keeping a lid on

costs. It is also at risk of spending more on these plans without achieving the

promised benefits.

 

Congress already seems amenable to paying the plans more to participate in the

existing program, and legislators are discussing other ways of reducing the

plans' financial risk.

 

Most analysts do agree that private plans may be able to provide the elderly and

disabled with a broader, and more attractive, range of benefits than is now

available under traditional Medicare. In addition to the drug benefit, the new

plans will also offer checkups and other preventative care and, even more

important, the ability to oversee and coordinate the treatment of chronic or

complicated conditions.

 

" We believe we are delivering a package of benefits that is value added to the

traditional program, " said Dr. John W. Rowe, the chairman and chief executive of

Aetna, a large insurer that now provides coverage under Medicare.

 

But analysts worry that similar plans have never met the expectation of saving a

lot of money in the long run.

 

Over the last 30 years, Medicare has more effectively controlled health care

costs than private insurers did, according to a recent study by the Urban

Institute. The study found that since 1970 spending per enrollee had grown an

average of 9.6 percent a year at Medicare, and 11.1 percent at private insurers.

 

In 1997, under a program called Medicare+Choice, the government tried to

encourage the elderly to enroll in H.M.O.'s, including well-known health

companies like Aetna. But then medical costs began to rise sharply and the

federal government reduced payments to the plans as part of a larger clampdown

on Medicare costs under the Balanced Budget Act of 1997. The plans could then no

longer afford to offer the generous benefits that lured people to enroll in the

first place.

 

Half of the plans disappeared and many others cut benefits drastically. Today

there are 4.6 million Medicare beneficiaries enrolled in managed care, more than

25 percent fewer than there were six years ago.

 

According to Stuart H. Altman, a health care policy professor at Brandeis

University, the private plans operate under a number of disadvantages to the

traditional Medicare program. First, Medicare operates with much lower

administrative costs: those costs eat up as much as 15 percent of the revenue of

private plans. Medicare's administrative costs are typically one-fifth that.

Second, Medicare is able to drive a much harder bargain with hospitals and

doctors than the private plans can.

 

" It turns out that administered pricing has been an effective way to control

costs, " said Nancy-Ann DeParle, one of the administrators who headed Medicare

under the Clinton administration. In an analysis she wrote for the Journal of

Health Politics, Policy and Law on why so many plans left after the Balanced

Budget Act of 1997, Ms. DeParle said the government's goal of saving money

conflicted with the desire to encourage the development of the health plans in

the market.

 

" The fundamental problem is that we still have not figured out how to save money

with managed care in Medicare and maintain, at the same time, its attractiveness

to beneficiaries, " Ms. DeParle concluded in the article.

 

Even in their most comprehensive forms, managed-care plans have demonstrated an

ability to achieve only modest savings delivering Medicare benefits, according

to a recent article posted on the Web site of the academic journal Health

Affairs by Marsha Gold, a senior fellow at Mathematica Policy Research.

 

Health plans do not participate in Medicare in some areas of the country, like

West Virginia and South Dakota, where negotiating with doctors and hospitals is

difficult. Ms. Gold said that may not change under the new law. " You can't just

legislate and expect them to come, " she said.

 

While the health plans say they are effective at controlling costs in some

markets, even they acknowledge there are places where they cannot negotiate low

enough prices. In rural areas, for example, hospitals and doctors are forced to

charge more for their services because they have fewer patients.

 

The current proposals seem to acknowledge some of the cost problems. Health

insurers are lobbying both the House and Senate to increase payments to existing

private Medicare plans.

 

The House bill calls for some $1 billion in additional payments over the next

two years, said Paul Heldman, an analyst with the Schwab Washington Research

Group. " In order to get the health plans to participate, " he said, " you have to

make it attractive for them to play. "

 

Congress has also already decided to pay rural providers more although it has

not worked out the details, said Karen M. Ignagni, the president of the American

Association of Health Plans. " They also need to acknowledge this challenge on

the private side of the marketplace. "

 

Congress could set the prices for the providers there that contract with the

plans or pick up the additional costs in some other fashion, she said.

 

Ms. Ignagni is also adamant that Congress increase the payments to plans under

the current program. " That provides a very strong foundation for moving

forward. "

 

But some analysts are wary of paying more in order to create the kind of

competition envisioned by President Bush and members of Congress. Paul B.

Ginsburg, the president of the Center for Studying Health System Change, likens

it to a tariff offered to a fledgling industry. " The main problem is that the

tariff fosters the industry and you can't get rid of the tariff, " he said.

 

Ms. Deparle says she thinks that if legislators choose to encourage the plans by

paying them to participate they should not expect significant savings that would

improve Medicare's financial condition. " These two bills are not primarily about

preparing for the baby boomers and saving the Medicare trust fund, " she said.

 

The current legislation, which is now before a House-Senate conference committee

to resolve differences, also would encourage preferred provider organizations to

offer Medicare benefits. The P.P.O.'s are seen as a more palatable alternative

to the H.M.O.'s that people have come to complain about. But P.P.O.'s may be

even less successful in controlling costs and managing care, some analysts say.

 

The problem is that the plans that allow people to go outside their network to

see a doctor or get treated in a different hospital have grown in popularity as

a way for businesses to shift more of the costs of care onto the consumer. " The

private plans gives one an easy tool to use to contain costs in the future: the

ability to create a defined contribution system, " where the government is only

obliged to pay a certain amount towards care, said Marilyn Moon, a senior fellow

at the Urban Institute who served as a trustee for the Medicare and Social

Security trust funds.

 

" I think that's a quiet way for Congress to allow it to happen without being

explicit that it is sticking it to the beneficiary, " she said.

 

But Ms. Ignagni of the health plans' association says the organizations can make

use of the same tools that traditional plans can to coordinate care and provide

better benefits. " Congress should be agnostic about the type of product

offered, " she said.

 

Copyright 2003 The New York Times Company

 

 

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