Breaux Proposes "Premium Support" Reform of Medicare

By Dept. of Medical Ethics

On March 16, 1999, a bipartisan majority of the National Bipartisan Commission on the Future of Medicare, chaired by pro-life Senator John Breaux (D-La.), voted for a Medicare reform " premium support" proposal that, by permitting older Americans to add their own funds on top of diminishing government payments, would allow them to escape rationing.

Because the 10-7 vote fell one short of the statutorily required two-thirds, no official proposal by the commission will be submitted to Congress. The Clinton-Gore Administration opposed the proposal, and its position was widely believed responsible for ensuring enough negative commission votes to defeat the plan.

The Breaux proposal, which still may be introduced as a bill for consideration by Congress, would expand an NRLC-backed innovation in Medicare adopted as part of the Balanced Budget Act of 1997.

Under the traditional government Medicare program, the government pays for health care as claims are submitted by physicians and hospitals. The 1997 law introduced an alternative known as the "Medicare+Choice" program. When someone eligible for Medicare elects this approach, instead of paying on a treatment-by-treatment basis, the government sets aside a lump-sum payment per beneficiary (the amount of which varies by the beneficiary's county of residence, medical condition, and other factors). This government payment is then used for the premium for a private insurance company plan which the beneficiary is able to select from among a number of competitors.

Many of the Medicare+Choice plans are 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. (See story on page 12 that addresses the the impact of the impending retirement of the baby boom generation.)

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 be permitted to add their own money on top of the government payment to pay a premium high enough to provide treatments without rationing.

The Breaux proposal would effectively expand this opportunity to the rest of the Medicare+Choice plans. (Under current law, those picking any type of Medicare+Choice plan other than private fee-for-service plans are restricted to the government payment.) For those who do not elect to pay what is necessary to obtain private fee-for-service plan - - still clearly the option safest from rationing - - this would permit them, by paying something over the government payment, to secure managed care plans in which rationing will be less drastic than those financed only by the government payment.

Since under the Breaux proposal the government would be providing financial support toward the cost of health insurance premiums, which would vary from health insurance plan to plan, it is known as a "premium support" reform proposal.

Recent studies demonstrate how much better off even those who pay nothing on top of the government payment would be under a " premium support" version of Medicare. Doctors and hospitals traditionally have provided reduced fee and free health care to those unable to pay for it, or to pay full price.

They have been able to afford to do so because the payments for fully insured patients covered their fixed administrative costs, such as office staff and diagnostic equipment. With the growing prevalence of low-paying managed care insurance, however, health care providers have been less and less able to provide undercompensated care for those who are uninsured or poorly insured.

A study in the April 5, 1999, issue of the Journal of the American Medical Association, based on a survey of 12,000 doctors, found that while those physicians who derived none of their income from managed care provided an average of 10 hours of uncompensated care in a month, those deriving 85% or more of their income from managed care provided an average of only 5.2 hours of uncompensated care.

"If working class and middle-class older Americans are permitted to add their own funds on top of declining government payments to get unrationed, unmanaged health insurance under Medicare," said Burke Balch, director of NRLC's medical ethics department, " this will put money into the system to cover health care providers' fixed costs, allowing them to help save poorer people from rationing.

"Thus," Burke concluded, "regardless of their income level, all older Americans would have a better chance of obtaining unrationed, lifesaving health care under a genuine premium support reform of Medicare."