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‘The wrong direction’: Health-policy expert decries Bush’s Medicare proposal

| 12 March 2003



Helen Halpin, director of the Center for Health and Public Policy Studies and a health-policy professor in the School of Public Health. In an expanded online version of this Q&A, she proposes that the federal government purchase drugs for the elderly at a discount — something the drug companies would oppose.
Bonnie Azab Powell photo

The challenge of reforming Medicare, the U.S. federal health-insurance program created in 1965 for the elderly, has defeated several U.S. leaders. Now the 43rd president is taking a stab.

On March 4, President George W. Bush unveiled his adminis-
tration’s proposal for modernizing Medicare in a speech to the American Medical Association. [For a summary of the White House proposal, visit www.whitehouse.gov/news/releases/2003/03/20030304-1.html] His plan offers three versions of Medicare:

Option 1 — Traditional Medicare. Government continues to reimburse the doctor of the patient’s choice, but adds coverage for high out-of-pocket drug costs and a drug-discount card. Low-income participants (income levels are not defined) would receive a $600-per-year drug subsidy.

Option 2 — Enhanced Medicare. Participants choose from a list of subsidized private-sector plans (including Preferred Provider Organization, or PPO plans) in order to receive comprehensive drug coverage, full coverage of preventive care, and caps on out-of-pocket costs for hospitalization.

Option 3 — Medicare Advantage. Participants join a health-maintenance-organization-style plan, which includes drug coverage and results in lower overall costs for members, but limits physician choices.

To evaluate the proposed Medicare changes, Berkeley’s online NewsCenter turned to Helen Halpin (formerly Helen Halpin Schauffler), director of the Center for Health and Public Policy Studies and a health-policy professor at Berkeley’s School of Public Health. She has testified before Congress and the California state legislature about reforms for the health-care industry, and has developed her own comprehensive health-care-reform proposal called CHOICE.

What, in your opinion, needs changing about the current Medicare system?
There are two major things wrong with the current system. The biggest and most important is the need for prescription-drug coverage. The second is the lack of coverage for long-term care, comprehensive preventive care, and protection against catastrophic costs. The last time that the Congress attempted to add coverage for long-term and catastrophic care, the politics played out in such a way that the bill was overturned a year after passage, and that issue has not been revisited.

To understand where Medicare is today, we need to look at where it came from. When Medicare was created in 1965, it was modeled after the old Blue Cross/Blue Shield employer group plans in effect at that time, which were really created to cover the cost of hospital care, not outpatient care. They originally didn’t cover physical exams, preventive services, immunization, or outpatient drugs. Since then, medicine has changed a great deal. However, new benefits, which require the approval of Congress, have been added very gradually to the Medicare program, often just one at a time. The prescription-drug benefit has such an enormous cost attached to it that it’s been very difficult to figure out how to finance and deliver it in a way that is politically viable.

The Medicare program as it was initially designed meant that everyone over a certain age who had paid into the system, and individuals with specific disabilities, were all offered health-insurance coverage that was the equivalent of what working people had in private plans through their employer. Now, the benefits in private health plans have grown considerably over the last 35 years to keep pace with evidence of medical effectiveness, new technology, and an emphasis on prevention, but Medicare has not kept pace with them.

And would the Bush administration’s proposal take care of these problems?
Some low-income elderly who choose to stay in the traditional Medicare program [through Option One] would have limited drug coverage and more comprehensive preventive care, but I haven’t seen how the income levels are defined for eligibility. Right now, the poorest of the elderly are often dually eligible for both Medicare and Medicaid, which offers comprehensive prescription-drug coverage. So many of the poorest of the poor elderly already have that benefit, as do most elderly with employer retirement benefits or Medigap coverage.

What I think is odd is that the proposal’s Options 2 and 3 use more extensive drug coverage as the carrot for seniors to enroll in private managed-care plans. For quite a number of years the Medicare program has allowed elderly beneficiaries to enroll in HMOs that have offered comprehensive drug coverage. More recently, under the Medicare+Choice plans, the elderly have had access to a broader array of private health plans, similar to what the administration proposes. There is nothing new in this. And I think most people are aware that while the HMOs initially made money off the elderly beneficiaries who enrolled in them — because at first the healthiest of the elderly were more likely to enroll — as the enrollment in those HMOs began to more broadly resemble the entire Medicare population, and the population grew and aged, the HMOs were no longer making money on them. In fact, they felt they were losing money, and many HMOs have stopped participating in the Medicare program entirely.

The for-profit incentive is relatively new. In the early ‘60s, when Medicare was developed, most working people with employer-based coverage were covered by statewide nonprofit, fee-for-service plans like Blue Cross/Blue Shield. There were also other large insurance companies that were for-profit, like Prudential and Aetna, which were competing to cover employed groups. Now almost all health plans are for-profit, and their fundamental mission is a return on equity to shareholders, not to provide the best health care with the dollars that they have available. That’s of great concern to me. I think to shift more elderly people into a for-profit medical-care system is the wrong direction. We should be improving the traditional Medicare program.

For the complete text of the NewsCenter’s conversation with Helen Halpin, visit www.berkeley.edu/news/media/releases/2003/03/07_medicare.shtml

Medicare Fast Facts
• Medicare covers more than 35 million Americans ages 65 and older, and nearly 6 million younger adults with disabilities.
• By 2031, the number of Medicare recipients is predicted to rise to 77 million.
• The government’s 2002 projections show that currently 24% of Medicare recipients have no prescription-drug coverage. The rest have coverage through employer-sponsored health plans (32.9%), Medicaid (12.3%), Medigap (14.8%), Medicare+Choice (10.6%), or other supplemental programs.
• Medicare, Medicaid, and Social Security accounted for 42% of all federal spending last year.