Editor’s note. To read this blog in its entirety go to http://powellcenterformedicalethics.blogspot.com. Footnotes and additional material have been omitted in the interest of space.

Section 3209 of the health care bill signed into law on March 23, 2010, effectively allows federal bureaucrats at the Centers for Medicaid and Medicare Services of the federal Department of Health and Human Services to bar senior citizens from adding their own money, if they choose, to the government contribution in order to get private-fee-for-service Medicare Advantage plans less likely to ration life-saving treatment.

BACKGROUND

Medicare—the government program that provides health insurance to older people in the United States—faces grave fiscal problems as the baby boom generation ages. Medicare is financed by payroll taxes, which means that those now working are paying for the health care of those now retired. As the baby boom generation moves from middle into old age, the proportion of the retired population will increase, while the proportion of the working population will decrease. The consequence is that when adjusted for inflation, the amount of money available for each Medicare beneficiary will shrink.

In theory, taxes could be increased dramatically to make up the shortfall – an unlikely and politically difficult proposition. The second alternative—to put it bluntly but accurately—is rationing. Less money available per senior citizen would mean less treatment, including less of the treatments necessary to prevent death. For want of treatment, many people whose lives could have been saved by medical treatment would perish against their will.

There is a third alternative. As the government contribution decreases, the shortfall could be made up by payments from older people themselves. Their Medicare health insurance premium could voluntarily be financed partly by the government and partly from their own income and savings. It is not widely understood that, as a result of legislative changes in 1997 and 2003 undertaken at the behest of the National Right to Life Committee, this third alternative had become law.

Under the title of “private fee-for-service plans,” there is an option in Medicare under which senior citizens can choose health insurance whose value, under the law in effect through 2010 was not limited by what the government may pay toward it.

These plans could set premiums and reimbursement rates for providers without upward limits imposed by government regulation.

This means that such plans would not have been forced to limit treatment, as long as senior citizens were left free to choose to pay more for them. Medicare covers everyone of retirement age, regardless of income or assets.

Yet, because of budget constraints, the Medicare reimbursement rates for health care providers tend to be below the cost of giving the care—a deficit that can only accelerate as cost pressures on Medicare increase with the retirement of the baby boomers. To cope with this, providers engage in “cost shifting” by using funds they receive in payment for treating privately insured working people to help make up for what the providers lose when treating retirees under Medicare. Thus, comparatively low-income workers often effectively subsidize higher-income retirees.

However, when middle-income retirees are free voluntarily to add their own money on top of the government contribution, through a private fee-for-service plan, they stop being the beneficiaries of cost-shifting and become contributors to it. Thus, preserving this option without premium price controls would not only have allowed retirees who could afford it to reduce the danger of being denied treatment; it also would have resulted in the ability of providers to provide more treatment to those who cannot afford to add additional funds on top of the government contribution. See generally the Powell Center's webinar on affording health care without rationing (http://nrlcomm.wordpress.com/2009/06/13/hcrwebinar).

Section 3209 of the new law indirectly amends the section in the Medicare law as it previously existed that allowed private fee-for-service plans to set their premiums without approval by the Center for Medicare and Medicaid Services by adding, “Nothing in this section shall be construed as requiring the Secretary to accept any or every bid submitted by an MA [Medicare Advantage] organization under this subsection.” This gives statutorily unlimited discretion to refuse to permit private-fee-for-service plans to charge premiums sufficient to offset the reductions in the Medicare government contribution.

Theoretically, of course, the federal bureaucrats given this new authority could choose not to exercise it. That seems highly unlikely during the Obama Administration, since on February 22, 2010, the President specifically proposed that the health bill include a provision under which Medicare Advantage plans (which, as noted, include the private-fee-for-service plans) would explicitly "be prohibited from charging seniors more than they would pay for services delivered under the traditional Medicare program."

While this explicit prohibition was not included in the final law (presumably because rules governing the “reconciliation” procedure did not permit it), it clearly demonstrates the policy stance of the Administration, which under Section 3209 it will now have authority to implement.