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Medicare Overhaul Is on the Horizon

Public Policy Expert Predicts Major Changes in Popular Health Insurance Program for Older Americans

By Cathy Cockrell, Public Affairs
Posted April 5, 2000

Within five years, Congress will fundamentally reform the Medicare program, Urban Institute President Robert Reischauer predicted March 23 in the second annual Rhoda Goldman Distinguished Lecture in Public Health.

Speaking on "Restructuring Medicare: Why? What? When?" the former director of the Congressional Budget Office and former Brookings Institution senior fellow described deficiencies, and proposals for reform, in the Johnson-era program that provides health care insurance for most Americans 65 and older.

"Medicare one of the great triumphs of the Johnson era," Reischauer said. But health care and health care insurance have since changed dramatically, and the program "looks pretty tattered at this point" he told the audience at the Richard and Rhoda Goldman School of Public Policy.

The speaker described current deficiencies with Medicare, which he called "the five I's" -- insolvency, inadequacy, inefficiency, inequity and incompatibility.

"The policy makers and wonks spent the last 15 years telling the American public that Social Security is in trouble," he said. But Medicare, in fact, is in more danger of insolvency.

Program inadequacies include the following: no coverage for outpatient prescriptions or long-term care; high co-payments (such as $760 for the first day of hospitalization), and no cap on out-of-pocket expenses.

Because of these holes in the system, said Reischauer, most Medicare recipients need supplemental coverage -- from former employers, Medigap policies or Medicaid (for the poor elderly).

However, "employers are cutting back big time," in supplemental coverage for their retirees over 65, at the same time that the cost of premiums for privately purchased Medigap coverage is rising dramatically. "The system of supplemental coverage is crumbling rapidly," he said.

Medicare also provides few incentives for providers or recipients to use health care options that are cost effective, said Reischauer. And although the public perceives the program as equitable, the government in fact spends "vastly different amounts per participant" in different parts of the country.

According to Reischauer, Medicare in its current incarnation is incompatible with the health care insurance system now in place for the rest of the American public.

"Providers are reimbursed differently for the elderly than for the rest of society," Reischauer said. "People spend their whole working lives in a managed-care environment, and at 65 are put into a system they are relatively unfamiliar with."

The public policy expert said there is a growing consensus in favor of reforming the system before the first Baby Boomers start using Medicare in 2011. "Currently 12 percent of the population is 65 or older," he said. "By 2025, 19 percent of the population will be 65 or older."

According to Reischauer, four different concepts for reforming Medicare have been put forward in Washington. One is to strengthen the existing program by expanding the benefit package. The second alternative, age-group prefunding, he called "the medical analogy to privatization of Social Security." Under that proposal, program funds would be invested in private assets and individuals would use their portion to purchase private health insurance.

The defined-contribution model would give each Medicare recipient a voucher to buy health insurance in a regulated market. With premium support, a variation on the voucher approach, health insurance plans would bid to be included in the program. The government would contribute a fixed amount to the benefit; a recipient's contribution would depend on the cost of the particular plan he or she selected.

Reischauer believes that the latter option has the most chance of being implemented. He called the coming debate on Medicare -- before Baby Boomers become dependent on it -- "our one and only opportunity to restructure the program."




April 5-11, 2000 (Volume 28, Number 27)
Copyright 2000, The Regents of the University of California.
Produced and maintained by the
Office of Public Affairs at UC Berkeley.
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