Democrats Should Reform Medicare, Not Universalize It

Posted May 6, 2009 at 4:37pm

If President Barack Obama really is a pragmatic problem solver and not a liberal ideologue, he will stop pushing for a government-run insurance plan as part of health care reform.

[IMGCAP(1)]And Democrats in Congress, instead of trying to drive all Americans into a Medicare-style, single-payer health plan, should first figure out how to reform Medicare itself, which is rapidly going broke while failing to serve all the medical needs of seniors.

As several studies show, if health reform includes a “public— insurance plan to “compete— with private insurance, it will mean the end of private insurance in America — all at once or gradually, depending on the design.

If the model is Medicare, as pushed by liberals like Reps. Pete Stark (D-Calif.) and Henry Waxman (D-Calif.), it will also lead to the bankruptcy of major U.S. hospitals, including some of the biggest in Waxman and Stark’s home state.

In an interview, C. Duane Dauner, president of the California Hospital Association, told me that if half of privately insured patients shift to a public plan paying Medicare rates, each of California’s 430 hospitals would lose, on average, $40 million a year.

The state’s largest hospitals, Cedars-Sinai Medical Center in Los Angeles and the University of California-San Francisco Medical Center, would lose $268 million a year and $147 million a year, respectively. “That simply can’t be sustained,— he said.

The fact is, a ready alternative to a public plan already exists as part of most Democratic health proposals — government-overseen regional “insurance exchanges— where individuals and employers could shop for the best private plan for their needs.

Such a system — with subsidies for poor people — would resemble the Federal Employees Health Benefits system and would fulfill the Democratic mantra that all Americans should have health coverage choices matching those of Members of Congress.

Moreover, the private insurance industry — in a huge departure from the examples of, say, tobacco, auto companies, financial services and student lenders — has proposed fundamental changes in the way that it is regulated, making it utterly unnecessary for Congress to create a government-run competitor.

America’s Health Insurance Plans, the for-profit insurance lobby, and the Blue Cross-Blue Shield system now support the key goals of reformers: mandatory universal coverage, “guaranteed issue— so that no one is denied coverage based on medical conditions and “community rating,— equal premiums within geographic areas.

And private insurance plans are far ahead of Medicare, Medicaid and other government programs on reforms such as pay-for-performance medicine, chronic disease management and disease prevention.

A health reform outline issued last week by Sens. Max Baucus (D-Mont.) and Chuck Grassley (R-Iowa) declared as objectives pushing Medicare to adopt just such reforms for seniors.

The “public plan— issue is now the most contentions in the health reform debate, with opponents arguing — and some advocates trumpeting — that it will lead to a Canadian-style, single-payer system.

That’s because a government-run plan like Medicare will not negotiate with doctors and hospitals, but will arbitrarily set prices that are lower than private insurance pays.

According to a study this month by the authoritative Lewin Group, Medicare pays hospitals 30 percent less than private insurers pay for the same services and physicians 20 percent less.

That differential, plus lower administrative costs — because Medicare does not do disease management, pay taxes or make a profit — will enable a public plan to charge lower premiums, encouraging individuals and employers to leave private coverage.

And, the more who leave, the more providers will shift their unpaid costs to the remaining private insurers, driving their premiums up even higher and accelerating the move to the public plan.

If a public plan is structured to cover only self-employed persons and small businesses and pays at Medicare rates, Lewin calculated, it would cause 32 million people to shift out of private insurance to the public plan.

If all firms, large and small, could shift to the public plan, 119 million people would be switched into that plan, accounting for 70 percent of the 170 million now holding private insurance. Health insurance would soon be all-government, like Canada’s.

Various proposals are in play to “level the playing field— between public and private plans, such as paying higher-than-Medicare rates or, as Sen. Charles Schumer (D-N.Y.) has suggested, having the public plan keep reserves and pay claims entirely out of premium revenues.

However, most half-way measures incur the danger of a slippery slope toward Medicare. As costs rise — and they will rise, given increased demand for services — pressure will mount to make the public plan more like Medicare.

And Medicare is a mess. The 2008 Medicare trustees report predicted that its Hospital Insurance Trust Fund will be bankrupt by 2018 without huge infusions from the U.S. Treasury.

In its June 2008 report to Congress, the Medicare Payment Advisory Commission declared that “without change, the Medicare program is fiscally unsustainable over the long term and is not designed to produce high-quality care.—

Medicare actually pays only 58 percent of the medical expenses of all seniors. A quarter buy private Medigap coverage and another quarter are enrolled in private-run Medicare Advantage managed-care plans, which Democrats want to eliminate.

Almost every analysis shows that the Medicare fee-for-service payment system, while underpaying doctors and hospitals — leading increasing numbers of doctors to refuse to take Medicare patients — also encourages overuse of services, driving up costs.

The system is also highly political. Every time Medicare’s managers recommend lower payments to providers, they rush to Congress for a “fix— to protect their income.

The better path is for government to pay doctors to keep people healthy, to have nurses call diabetics and asthmatics to be sure they are taking their medicine, and to judge and pay hospitals based on quality measures. Guess what? That’s what private insurers do.

So before having the government take over all of U.S. health care, Congress ought to fix what it already mismanages. And it should leave “universal coverage— to government-regulated private competitors.