Proposed Bush Medicare Reform Plan Anticipates State of the Union Address

Published November 1, 2002

Where Congress failed, the Bush administration has succeeded: It has found a way to initiate Medicare reform and offer prescription drug coverage to senior citizens. The three-year demonstration project doesn’t require the approval of Congress.

“We’d like Congress to join us,” said Health & Human Services Secretary Tommy Thompson when he announced the initiative, “but we will take the administrative actions we can while we are waiting for Congress to act.”

11 Million Eligible

Under the Bush initiative, senior citizens in 23 states will be given the opportunity to join new plans offered by 33 preferred provider organizations (PPOs) who have agreed to enroll Medicare beneficiaries. While roughly 11 million Medicare beneficiaries are eligible to participate, federal officials have no idea how many will choose to do so.

The Medicare PPO option will be available in Alabama, Arizona, California, Florida, Illinois, Indiana, Kansas, Kentucky, Louisiana, Maryland, Missouri, North Carolina, Nevada, New Jersey, New York, Ohio, Oregon, Pennsylvania, Rhode Island, Tennessee, Virginia, West Virginia, and Washington. Enrollment is expected to open in December, with coverage beginning in January 2003.

The PPO option offers more flexibility than either traditional fee-for-service Medicare or the troubled Medicare HMO program, Medicare+Choice. Participating PPOs agree to cover all services available under traditional Medicare and may choose to provide additional coverage, such as prescription drug benefits. Federal officials said all 33 PPOs intend to include some kind of prescription drug coverage in their Medicare plans.

The new PPO plans will allow Medicare beneficiaries to see doctors outside of plan networks, albeit for an increased co-pay or higher deductible. Under the more restrictive Medicare+Choice HMO model, beneficiaries typically must pay 100 percent of any charges incurred over-and-above the Medicare benefit in order to receive broader coverage, especially for prescription drugs.

Medicare has never before offered a PPO option, although PPOs are currently used by some 79 million Americans under age 65. Medicare should offer the same option, said Tom Scully, administrator of the Centers for Medicare and Medicaid Services (CMS), which runs the program. Scully has said he wants Medicare to function more like the private sector, last year telling the National Association of Health Underwriters that in the private sector, “the first concern is the beneficiary, not the bureaucracy.”

Sharing the Risk

Responding to criticism from Families USA, which disapproves of the private sector’s involvement in Medicare, Scully said, “The PPO plans will allow the government to test a new financing structure, in which the government and the private plans share financial risk instead of the plans bearing it alone.”

Health and Human Services officials convinced the 33 PPOs to offer plans to Medicare beneficiaries by offering undisclosed “special financial incentives” and reducing their risk to claims losses. HHS will reimburse participating PPOs at either 99 percent of the rate for traditional fee-for-service Medicare coverage or 100 percent of the local Medicare+Choice rate, whichever is higher.

Medicare Reform?

The demonstration project is part of a broad Bush administration plan to tilt the government’s vast health insurance system toward the private sector. The plan also reflects the determination of Bush’s senior health advisors to begin refashioning Medicare, especially because several attempts by Congress this year to reform the program failed.

Conrad F. Meier is managing editor of Health Care News.