Managed care and Medicare HMOs aren't necessarily the way to fix the system

June 09, 1996|By Douglas J. Peddicord

Not long ago doctors and hospitals were the unchallenged center of the medical world. No more.

Just since 1980, enrollment in health maintenance organizations (HM0s) has increased six-fold, and today more than 50 percent of all Americans get their medical care through a managed care system. Health care is no longer a series of individual transactions between patients and those who offer care. It is a corporate enterprise: Managed care companies control who provides and who receives services and under what circumstances. The delivery of health care has been utterly transformed in less than a generation -- except for the 37 million Americans covered by Medicare.

Medicare represents the last large fee-for-service health plan left, with only 10 percent of its recipients electing to join HMOs so far.

But change is coming to Medicare, and rapidly. Last week, Medicare trustees warned that the health system will be bankrupt by 2001, only five years from now and a year earlier than projected, unless Congress and the president work together to fix it.

President Clinton said the system can be fixed. Republicans said politics should be put aside to save the system, but blasted Clinton for vetoing their Medicare proposals of last year.

Medicare finances have worsened because of higher costs for home health care, nursing facilities and hospice care and because hospitals are performing more expensive procedures on the elderly, said Health and Human Services Secretary Donna E. Shalala.

She also said less money than expected came into the fund through payroll taxes.

Although Republican and Democrats argue over just how much Medicare spending should be reduced, they agree that encouraging a higher percentage of seniors to choose managed care would save money.

In a move that could prompt millions of older Americans to join managed care plans, the American Association of Retired Persons will soon begin licensing its name to health maintenance organizations. And the Health Care Financing Administration, the agency that runs Medicare, has just announced a three-year experiment in which managed care plans in the Baltimore area will no longer be paid pre-set yearly fees. Instead, the plans will bid against each other for Medicare business, letting a competitive market set the price the government will pay for health care for the elderly.

Washington policy makers propose to squeeze the inefficiency out of Medicare. They vow to get more value for the health-care dollar. They talk of taking advantage of lessons learned in the private sector. They aim, in a phrase, to move Medicare from a 1960s medical insurance model into the current market place.

But before using private-sector experience to justify moving seniors into managed care on a wholesale basis, it would be useful to look at the factors that have reshaped the financing of health care and to consider the results so far.

Why do most employers -- through whom over 80 percent of people get their health benefits -- offer only managed care health plans? Are consumers satisfied with managed care? Will the health needs of seniors be adequately served in managed care?

For the past 25 years increases in health care costs have outstripped inflation and economic growth. Over time, many employers could no longer afford the constantly increasing costs of the traditional indemnity insurance, which pays a percentage of medical bills. While employees wanted and used an ever-expanding menu of services, from in-vitro fertilization to chiropractic care, employers needed help in putting limits on costs. Benefit managers turned to HMOs, which contracted to provide all necessary care within the limits of a pre-paid, fixed dollar amount per employee.

In being moved to managed care, employees get lower co-payments and better availability of routine care. They get less access to specialty medicine. For employees and employers, managed care represents a trade-off: more predictable costs for the employers in return for increased oversight and reduced choice for employees. Initially, benefits accrue. Most notably, there is good evidence that significant one-time savings can be achieved by moving people from traditional insurance to a delivery system that imposes price discounts on providers, strictly limits expensive care and requires pre-authorized and reviewed access to services. Quite simply, in the first year or two of managed care, expenditures decline.

But managed care plans are hard pressed to improve upon that early success. With excess cost squeezed out, greater and greater management produces smaller and smaller gains in efficiency. Quickly it becomes apparent that the same premium dollar cannot buy the same health coverage year to year. Employers and health plans bump up against hard choices. Should the number of doctors on the HMO panel be reduced to allow still tighter control of medical practice? Should the employee's share of costs be increased?

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