Commentary: Give Medicare A Shot Of Managed Care

Doctors turn away elderly patients. Ailing seniors can't afford costly surgery. Children are bankrupted by their aged parents' mounting hospital bills. All because the Medicare fund that provides health coverage for 37 million Americans runs out of money.

To listen to the politicians talk, that ghastly prospect is imminent. The latest report from the Medicare trustees shows that the federal government's hospitalization trust fund is headed for bankruptcy in 2001.

The reality is somewhat less scary. Medicare is always going broke--on paper. Since 1970, the trust fund has faced insolvency nine times before Congress legislated short-term financial fixes. Another reprieve is already in the works. But the larger issue is being lost in the election-year bankruptcy babble. Far more important than the short-run crisis is the need over the long haul to control Medicare's runaway costs--now averaging $4,600 annually per recipient--and improve its delivery of services.

TAX TROUBLE. As baby boomers approach retirement and as people live longer, Medicare costs are projected to keep growing by 10% yearly, well above the 4% industry rate. Without major reform, the program will require ever-larger tax increases, further destroying its political support. Eventually, Generation X'ers will rebel at having to finance a government blank check for increasing numbers of boomer retirees while accepting more restrictive managed-care plans for their own care. By 2020, the Medicare payroll tax will have to jump 44% just to sustain the current system, according to the Congressional Budget Office.

A solution is available in the form of managed care, which now accounts for 70% of employer-provided health coverage. In the private sector, managed care has cut medical inflation: Hospital costs rose just 3.6% in 1994, down from 10% in recent years. How? Where Medicare keeps adding benefits, with no disincentive for patients to seek unnecessary care, health-maintenance organizations restrain costs by emphasizing prevention and coordinating treatment.

HMOs are, in fact, seeing dramatic Medicare enrollment growth in some regions. But they still account for just 8% of the total elderly population--and even where seniors have switched, cost reductions typically haven't followed. That's because HMOs tend to attract the youngest and healthiest seniors, folks who aren't much worried about having to switch doctors. HMOs, which get 95% of the cost of covering the average Medicare fee-for-service patient, can make huge profits on this crowd. But they leave Medicare saddled with the sickest, costliest patients. "Without more managed care, and without a restructured payment system to cover it, we won't be able to get Medicare costs down," warns Stuart Altman, a Brandeis University health economist.

The answer lies, simply, in getting more of the elderly to switch. To do that, regulators will have to assure that the quality of care will be protected. Here, states have already led the way. More than 30 have limited the power of HMOs to deny private-sector care. Virginia, for example, requires HMOs to pay for emergency room visits if a "prudent" layman would consider a medical problem an emergency. More important, seniors who want to remain in traditional fee-for-service care should have to pay higher co-payments and deductibles. This would ease Medicare's short-term financial problems while increasing the lure of managed-care groups, which typically require less cost-sharing by patients.

Health & Human Services Secretary Donna E. Shalala worries that the dated Medicare system is delivering "a Chevrolet at Cadillac cost." She's right. A properly regulated system of managed care offering a wide choice of options to the elderly is the best way to control costs and ensure quality. Neither political party will gain if this end slips away amid partisan bickering.

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