Commentary: Give Medicare A Strong Dose Of Managed Care

When Virginia A. Marhefka retired from Digital Equipment Corp. in 1992, she took a step stunning to Washington's lobbyists for the elderly: She dropped her traditional health insurance and joined a health maintenance organization. "I knew eventually I would need the kind of services I get from an HMO," explains Marhefka, who's a former software buyer in Clinton, Mass.

Her HMO, Fallon Community Health Plan, pays for preventive checkups, blood-pressure medicines, and a dietician to help her control her diabetes. Therefore, when she turned 65 in November, Marhefka refused to even consider abandoning Fallon for the standard Medicare insurance package, which wouldn't cover all those extra services she needed.

LOST LOVE. Mrs. Marhefka, please drop a line to Washington. For the capital's health and budget experts, it's an article of faith that seniors so love Medicare they wouldn't tolerate the slightest change. So, while Medicare's trust fund is going broke, politicians talk timidly about squeezing nickel-and-dime savings from doctors' and hospitals' fees. That approach would barely dent Medicare's soaring costs, let alone offer hope of controlling the federal budget.

Instead of tinkering, Congress should overhaul Medicare--now. Its models should be the Federal Employees Health Benefits Program and the pioneering benefit schemes of such companies as Digital and Xerox Corp. Congress should replace Medicare with a system of vouchers that seniors could use to choose any health plan that meets federal standards for quality and service. Most likely to prevail under such an approach would be managed-care systems, which provide more services for less money than does traditional Medicare.

Managed care's ability to limit health spending is constantly improving. In 1994, private companies saw their health-benefit costs per employee fall by 1.1%--the first drop in two decades, according to benefits consultants A. Foster Higgins & Co. Some of the savings came from a dramatic rise in managed-care enrollment. But leading HMOs also are rooting out inefficient treatments and promoting preventive medical practices that promise to keep costs on a slow track in the future.

No insurer is riper for such changes than Medicare. Its benefits package--state-of-the-art for 1965--"promotes blank-check medicine," suggests economist Linda A. Bergthold of the health consulting firm Lewin-VHI Inc. Under Medicare, it's easier to collect for a stay in the hospital than for services that would prevent hospitalization. The Medicare plan lacks such basics as prescription-drug coverage and a cap on out-of-pocket costs.

Medicare's own attempts to promote HMOs haven't made managed care widely available or attractive: Only 9% of Medicare's 33 million enrollees are in HMOs, and more innovative preferred-provider plans are available only as an experiment in 15 states. And under Medicare's pricing system, the bulk of managed-care savings go to the HMO--not to the government.

PLAY OR PAY. Medicare vouchers would offer seniors a clear choice: If they want expensive, uncoordinated fee-for-service medicine, they can simply pay the price. Most beneficiaries would probably decide to give cheaper managed-care plans a try. That could cut Medicare's double-digit spending growth rates in half, says economist J.D. Kleinke of the Baltimore-based health-researcher HCIA Inc.--trimming at least $250 billion off the $1.9 trillion Medicare bill between now and 2002.

Are America's politicians up to such an overhaul? "We are going to rethink Medicare from the ground up," House Speaker Newt Gingrich told the American Hospital Assn. on Jan. 30. However, Gingrich's lieutenants are focusing on minimal changes in premiums and benefits. If the Republicans want to achieve real savings--and to improve the health care that the elderly receive--they should be as bold as Virginia Marhefka and throw out an obsolete and out-of-control system.