Thursday, Mar. 25, 2010

2. What Does It Do to Medicare?

Fiddling with Medicare is not for the faint of heart. In 1989, Illinois Democratic Congressman Dan Rostenkowski supported a law raising premiums for some Medicare recipients to fund a new benefit for those with long-term illnesses. Furious seniors surrounded his car one day in Chicago, hitting it with picket signs, then chased the Congressman on foot down the street. The law was repealed months later.

Medicare, introduced into law in 1965 and now covering 38 million, is one of the most popular social programs in U.S. history, which is why the health reform legislation, in its early stages, will not fundamentally change the way the program operates. Americans 65 and older will continue to receive comprehensive health insurance; doctors and hospitals will continue to be paid per procedure. Those who wrote the new law insist that the $500 billion in cuts to the program over the next 10 years — out of the total $6.1 trillion expected to be spent — will come largely from the elimination of waste in the system and from small but widespread reductions in reimbursements to hospitals and doctors. Not surprisingly, seniors are skeptical.

But if there are to be far-reaching changes in the way medicine is practiced in this country, Medicare will have to drive them. When it comes to purchasing health care services, Medicare has the buying power that Texas does in the textbook market. "Medicare has to go first," says Len Nichols, director of the Center for Health Policy Research and Ethics at George Mason University. "It's the only buyer [in the health care market] with enough power. It's the only buyer big enough to make the hospitals pay attention."

The huge government program also gives health policymakers a window into what is working and what isn't. "Medicare is in a position to be a platform for developing and implementing new approaches," says Stuart Guterman, a former Medicare official and a policy expert at the Commonwealth Fund, a nonpartisan research organization. "It's perhaps the thing in the health care legislation that holds the most hope for the future."

The new law also addresses some problems with the current system. It begins by phasing out the wasteful subsidies that go to private insurers that contract with the federal government to provide Medicare-type benefits to seniors. Some 10 million elderly Americans get coverage from these Medicare Advantage plans, which often require lower co-payments than traditional Medicare and provide extra benefits like eye care, hearing aids and even gym memberships. These extra benefits, however, come at an extra cost, and experts say the government pays about 14% more for each Medicare Advantage beneficiary than for a traditional Medicare patient. These overpayments will be gradually ended beginning in 2011, and seniors enrolled in Medicare Advantage will feel the pinch as insurers try to find a way to continue coverage without this subsidization. (Guaranteed Medicare benefits as defined by federal law will not be changed.)

Further cuts — more than $150 billion — will be made through what the legislation calls "productivity adjustment": shaving small amounts off the annual growth in reimbursements to hospitals and other facilities in the hope that they will squeeze the fat out of their operations. But disappointingly for some, there's no blueprint in the bill for how to make providers more efficient. "It's assuming if we pay less, they'll figure out how to do it," says Gail Wilensky, a top Medicare official under the George H.W. Bush and Clinton administrations. "People shouldn't assume there's some kind of reform here."

At the same time, the government will start spending more money, not less, on Medicare Part D, which provides prescription-drug coverage. Currently, millions of seniors every year find themselves in the Part D "doughnut hole": a gap in coverage that exists once beneficiaries' costs exceed $2,830. Coverage doesn't kick back in until these seniors pay $6,440 out of pocket. The law will begin closing this gap immediately. Seniors on Medicare will also get free preventive services under the reform.

The new law will set up an independent board to study clinical outcomes and evidence and come up with ways Medicare can reduce spending without sacrificing quality or access. (A similar board exists now; Congress usually ignores it.) Hospitals with the highest rates of avoidable infections and unnecessary readmissions will be penalized — though not as much as many health care experts would have liked. And the Medicare Advantage plans (those able to survive without subsidies) with the best clinical outcomes and highest patient ratings will receive bonus payments. The variety of approaches "is an example of how the bill attempts to try virtually everything that anyone has suggested for slowing the rate of growth in health care costs," says Paul Van de Water, an economist and health care expert at the Center on Budget and Policy Priorities.

But the kind of transformational change that could bring Medicare — and in turn the rest of the U.S. health care system — back from the financial brink won't happen overnight, if ever. "The reason Congress didn't do more is that right now we don't have all the answers for what we need and what will work and how it will work," admits Guterman of the Commonwealth Fund. Plus, lawmakers have learned the hard way that nothing is more dangerous to their survival than treading too heavily on a program that is cherished by seniors.