Will Older People Lose the
Right to Protect Themselves from
Rationing in 1999?
By Burke J. Balch, J.D.
Director, Department of Medical Ethics

Older Americans now have the legal choice of health insurance that can save them from rationing. But 1999 is likely to see a critical struggle over whether that right will be taken away.

The 17-member National Bipartisan Commission on the Future of Medicare, created by the Balanced Budget Act of 1997, is to make recommendations to Congress by March 1, 1999, concerning the long-term restructuring of Medicare. The commission has been holding a series of hearings and other meetings, and is now beginning to formulate its recommendations.

While it is not yet known what the commission will propose, the views of some commission members, the Clinton Administration, and major media outlets such as the Washington Post make it likely that the rationing issue will resurface during congressional consideration of the commission proposal during 1999.

The Reality: Less Money From Government, More from Families
Currently, the reimbursement rates Medicare, the federal government's program of health insurance for senior citizens, pays to doctors are only about 71% of the private market rate. Even by the most conservative estimates, that percentage will drop further under the Balanced Budget Act enacted in 1997. With the coming retirement of the baby boom generation in the 21st century, the amount of federal government money available per Medicare beneficiary will drop further and further below the rate of medical inflation. Only massive tax increases - - which by all conventional wisdom are politically extremely improbable - - could reverse this trend.

That means one of two things: either ever-increasingly drastic rationing of care for those on Medicare as the dollars available per person (adjusted for medical inflation) become fewer and fewer, or the avoidance of rationing through senior citizens making up the shortfall with their own money. The Clinton Administration's long-standing position is that it should be illegal for older Americans to add their own money in order to choose unrationed insurance. Only strong congressional leadership during the 1997 budget negotiations forced the President to accept the legality of this alternative. Wide perceptions that the recent elections have strengthened the President's hand may well lead him to try to reverse this right during 1999.

How Is Medicare Now Organized?
Under the 1997 budget bill, government Medicare payments are made in either of two ways. Under the traditional government fee- for-service program, which is still available as an alternative, the government will pay for health care as claims are submitted by physicians and hospitals. In this context, the government itself effectively acts as the insurance company - - although the rate at which it pays, as explained above, is well below the private market rate.

The other method of government payment is through the " Medicare+Choice" program. When someone eligible for Medicare elects this approach, instead of paying on a treatment-by- treatment basis, the government will set aside a lump-sum payment per beneficiary (the amount of which will vary by the beneficiary's county of residence, medical condition, and other factors). The beneficiary will then be able to select a private insurance company plan from among a number of competitors. (At first beneficiaries will be able to switch from plan to plan at almost any time; after a few years this will generally be possible only during one month in the fall of each year, when a plan may be selected for the next calendar year.)

Many of the Medicare+Choice plans will be managed care plans, under which choice of provider is limited and treatments are subject to denial in order to hold down costs. Indeed, the government payments, standing alone, will only be enough to provide care that will have to be more and more rationed as the years go on.

Because they are set up to ration treatment through such mechanisms as "utilization review" (under which doctors must get permission from the insurance company in order to provide a specific treatment or diagnostic test), managed care companies can survive on low government payments and still make a profit.

Under the 1997 legislation, however, Medicare beneficiaries will be able to avoid such rationing by picking the new Medicare+ Choice option of a "private fee-for-service plan." In order to do so, they will need to add their own money on top of the government payment to pay a premium high enough to provide treatments without rationing.

What Is a "Private Fee-for-Service" Medicare Plan?
Under a "private fee-for-service" medicare plan, championed by National Right to Life and other pro-life groups, private insurance companies can offer health insurance plans that cover the same things Medicare does, but have no limits on the treatments that the doctors and hospitals you choose order. There are also no government-imposed price controls on the fees the insurance company can pay health care providers, eliminating incentives to rationing. Part of the cost of these policies will be paid by the federal government Medicare payment. The rest will be paid on a monthly basis by the Medicare beneficiary.

Is Paying Extra for a Private Fee-for-Service Plan Similar to Getting the "Medigap" Private Plans Older People Have Often Bought to Supplement Traditional Medicare?
There are extremely important differences. Under traditional government fee-for-service Medicare, there are deductibles and co-payments. "Medigap" policies can be purchased that pay for all or most of these deductibles and co-payments, as well as cover benefits not included in traditional Medicare, such as prescription drugs. However, these medigap policies do not pay for services theoretically covered by Medicare but which are denied on a case-by-case basis on the grounds that they are not medically necessary or appropriate, but in reality because of the rationing made necessary by the low amount of money available under Medicare. Thus, purchasing a "medigap" policy will do little or nothing to protect you from rationing.

What's Wrong with Traditional, Government Fee-for-Service Medicare?
The traditional government Medicare program does indeed continue to provide unmanaged fee-for-service coverage for physicians' services. You may pick any doctor you want, and you and the doctor, rather than an insurance company bureaucrat, decide on your treatment (although the doctor will be reimbursed at very low rates for treating you).

However, this is not the case for hospital services. Although you may pick any hospital, "traditional" Medicare does not reimburse hospitals on a fee-for-service basis under traditional Medicare. Instead, they are paid according to "diagnosis-related groups" or "DRGs." What does this mean? Any Medicare-eligible individual admitted to a hospital is given a diagnosis - - say, some form of kidney problem. The federal government then pays the hospital a set lump sum for each patient admitted with that particular diagnosis. This means that if the hospital can provide the person with relatively low-cost treatment and quickly release the patient, the hospital makes money. On the other hand, if the hospital gives the patient costly and extended treatment, it loses money. Finally, if the patient promptly dies without getting much treatment, the hospital also makes money. What this does, of course, is to create a financial disincentive to providing needed treatment if that treatment is expensive, even if the alternative is the patient's death. Essentially, it is a managed care technique.

Under the 1997 Balanced Budget Act, similar managed care techniques are being introduced into other aspects of the government's traditional so-called "fee-for-service" Medicare program - - including home health care, nursing homes, and rehabilitative hospitals.

What's Wrong with Managed Care Medicare?
"If it sounds too good to be true, it usually is." Far too many senior citizens, forgetting that wise adage, are being lured by the siren song of advertisements urging them to switch to managed care Medicare plans. Typically, they are told they will be given prescription drug coverage, low or no co-payments and deductibles, and even extras like health club memberships - - all for no extra cost beyond their current government Medicare subsidies. Such managed care plans will indeed generally provide decent preventive and routine medical care. What those selecting these "too-good-to-be-true" plans usually don't fully realize is that when they really need insurance because of a life- threatening illness or injury that requires expensive medical treatment, they are at grave risk of finding that treatment dangerously curtailed by managed care plans. Managed care plans are like the Procrustean bed of Greek legend. Traditional indemnity or "unmanaged fee-for-service" insurance adapts the plan to meet the treatment needs of those covered - - setting premiums to fit actuarial predictions of what is required to cover medical costs. Medicare managed care plans instead adapt the treatment available to fit the budget - - the already inadequate (and, in real terms, declining) payment from the federal government. Through "utilization review" and other means they deny treatments so as to bring costs within their budget. Instead of medical decisions being made by doctor and patient, they are ultimately made by cost-squeezed insurance company bureaucrats, (see NRL News, 6/19/97, p. 4).

Are There Any Unrationed Medicare Alternatives besides Private Fee-for-Service Plans?
Yes; there is an experimental alternative known in government jargon as "high deductible non-network plans linked with a Medical Savings Account." Under the private fee-for-service alternative just described, you can be assured of unrationed insurance by paying more in monthly premiums. Under the high deductible/ Medical Savings Account alternative, you obtain this assurance by foregoing insurance for routine health expenses, which you cover yourself with the help of a "Medical Savings Account." Under this option, which will be available to only 390,000 older Americans (probably the first who act to take advantage of it), the bulk of the government payment will go to purchase a "high deductible" insurance plan that will cover just those medical expenses over perhaps $3,000 to $6,000 a year. The money left over from the government Medicare payment will go into a "medical savings account" or MSA, similar to an individual retirement account or IRA in that the interest earned on it will not be taxed so long as the money in it is spent only for legitimate medical expenses. The money in the MSA may go to pay for annual medical expenses below the high deductible limit at which insurance kicks in. If the MSA money is not used, it remains in the account for use in future years.

Aren't the Unrationed Alternatives more Expensive?
There is an old story about someone held up by a robber. "Your money or your life!" the robber threatens. "Take my life," replies the victim. "I'm saving my money for my old age."

The humor of the joke comes from the obviously misplaced priorities of the victim. If deprived of one's life, one will have no "old age" in which to use one's savings. Yet when it comes to health care and health insurance, far too many - - forgetting that there is no such thing as a free lunch - - focus more on what alternative is least expensive than on what coverage is most likely to save lives by ensuring unrationed access to medical treatment in the event of a life-threatening illness or injury.

When we buy an automobile, how many of us consider only the cost, purchasing the cheapest available model? Certainly cost is a factor, but don't we also consider the safety, reliability, carrying capacity, and other features of competing models? If this were not the case, the only cars for which a market would exist would be economy subcompacts. Yet, clearly, many of us purchase mid-sized cars, minivans or station wagons, and even sports cars or luxury cars.

When it comes to health insurance options under Medicare, it is vital to begin by understanding that the best choice will not be the least expensive. In fact, most of the insurance options that will be available to older people will risk rationing, and only by picking the relatively "high-end," more expensive options will they be relatively safe. This recognition will require setting priorities. For most the issue is one of making certain sacrifices. In order to pay the extra monthly insurance premium, it may be necessary to forego a vacation, cut back on eating out, or even move to less expensive housing. The key thing to remember is that you cannot travel, dine in a restaurant, or live in style if you are dead. You pay your money and you make your choice.

What about Those who Absolutely Cannot Afford to Add Their Own Money?
When people are permitted to spend their own money for health insurance, and those who can afford it select the more expensive unrationed, unmanaged fee-for-service plans, this adds money to the system. Part of that extra money becomes available for private sector cost-shifting to help meet the needs of the poor. This provides the means for doctors and health care facilities to continue to provide services for poorer people at government reimbursement rates below actual costs. If it is illegal for older Americans to use their own money to supplement government payments when buying health insurance, little or no such cost- shifting will be possible. Poorer people will be far more likely to be denied lifesaving medical treatment than if supplementation were permitted.

What Must Be Done?
However Medicare is reformed or restructured in the wake of the bipartisan commission report, the ability to add one's own money to obtain unmanaged private fee-for-service health insurance under Medicare+Choice must be preserved. It is also important to retain the option of high deductible/Medical Savings Account plans.

U.S. senators and representatives should be informed NOW that in order to prevent involuntary euthanasia of older people, these choices must be preserved in any congressional restructuring of Medicare.