Dean Rosemary Stevens (S eptember 19 Compass feature) is right to deplore the 180-degree turn in the focus of health care reform that occurred last fall. We have gone from trying to provide coverage for the millions of working families who have no health insurance to economizing dramatically on the existing insurance of Medicare and Medicaid beneficiaries. Dean Stevens stops short of exploring the implications of the Medicare proposals for University faculty and staff--those who are planning for retirement, as well as those already retired.
Congress is proposing to reduce the Federal expenditures for Medicare by $270 billion over seven years. It is important to understand that this reduction is not from current expenditure levels but from projected growth levels--i.e., it represents a reduction in the rate of growth. It is also important to understand the forces driving projected growth: expansion of the elderly population, inflation, and the rapid increase in the proportion of beneficiaries over 80, who have considerably higher medical costs per capita than younger retirees. If these growth factors are not accommodated by the Medicare budget, we will see deterioration in the quality of health care for the elderly.
There are four ways in which the government can achieve significant savings in its Medicare costs. First, more efficient use of medical resources can be obtained by eliminating unnecessary treatment and by emphasizing preventive care and early diagnosis. Second, the fees paid to hospitals and doctors can be limited through price controls (as is currently the case) or through competition among providers. Third, beneficiaries can be required to pay a higher fraction of program costs. Fourth, the quality of care can be permitted to deteriorate by cutting corners on the services provided.
Only the first of these options will fully protect the interests of Medicare recipients; and there is no assurance whatsoever that the potential for efficiency gains is sufficient to provide the large expenditure reductions promised by Congress. Price controls on Medicare reimbursement of providers, if they are substantially out of line with private market prices, carry the risk of turning the elderly into second-class citizens who have difficulty in finding doctors willing to treat them. This has already happened with Medicaid, where reimbursement allowances are considerably lower than the current Medicare rates.
The last two paths to government saving are unambiguously detrimental to retirees. Under the Congressional proposal, there is a very real possibility that Medicare recipients will have to choose between paying considerably more or receiving lower quality of care.
Those who can afford to do so will probably be able to maintain the fee-for-service plan to which they are accustomed. Fee-for-service offers the patient greater control over his/her own treatment, including unrestricted access to specialists, but is inherently wasteful in that it contains little or no economic incentive to avoid over-treatment or to select cost-effective options. HMOs are more efficient but, especially in the case of for-profit organizations, may contain economic incentives for under-treatment of chronic illnesses (tending to offset the desirable incentives toward preventive care and early diagnosis of acute problems). Those Medicare recipients who choose for- profit HMOs should remember that the first duty of managers and boards of directors is to the stockholder, not the patient, and that primary care physicians and case managers are sometimes rewarded for holding down the number of times they refer patients to specialists.
-- Jean Crockett,
Emeritus Professor of Finance