Should the Medicare Bureaucracy Manage a Drug Benefit?

Published November 1, 2002

Many Members of Congress want the current Medicare bureaucracy to manage a new Medicare prescription drug benefit.

But a major government-wide survey of federal managers, conducted by the U.S. General Accounting Office (GAO), found the Centers for Medicare and Medicaid Services (CMS)—the federal agency that runs the Medicare program—is one of the most poorly performing agencies of the federal government.

In May 2001, the GAO, the fiscal watchdog agency of Congress, released Managing for Results: Federal Managers’ Views on Key Management Issues Vary Widely Across Agencies, a survey of federal managers in 28 federal agencies.

GAO investigators were trying to determine the degree to which federal agencies were meeting their management objectives under current law. The GAO found the CMS ranks at or near the bottom in many managerial categories.

For example, the CMS ranked

  • at or near the bottom in key measures of managerial performance.
  • dead last in terms of the percentage of managers who reported having key performance measures for their work.
  • near the bottom in measures of customer service.
  • next to last in having a measure for customer service as part of its managerial culture.
  • near the bottom in measures of accountability for results.
  • next to last among federal agencies in having a management team that was held accountable by performance measures.

Of CMS managers surveyed by the GAO, 16 percent reported having customer service measures to a “great extent” or to “a very great extent.” Only the Nuclear Regulatory Commission, with just 14 percent of managers reporting the presence of such measures, scored lower in this category.

Need a Better Program

For years, Medicare trustees and responsible officials at the GAO and Congressional Budget Office (CBO) have warned Congress it would be a profound mistake simply to add a Medicare prescription drug benefit to the current Medicare program without serious structural reform.

Not only would such an additional responsibility aggravate the growing financial pressures on the program, but it would also complicate what has already become a serious and largely neglected Medicare managerial problem.

In a recent National Academy of Social Insurance (NASI) report, a philosophically diverse panel made several recommendations on how to improve the governance of the Medicare program.

The report declared: “In the absence of a decision by Congress to fundamentally reform Medicare, or provide substantial new investment of resources, both financial and human, the study panel urges Congress not to enact major changes in the program in the near term because CMS does not currently have either the resources or the capacity to implement such changes in a timely fashion.”

Best Solution

The best solution is to transform Medicare into a program that more closely resembles the popular and successful Federal Employees Health Benefits Program (FEHBP) that covers members of Congress, federal workers, and retirees.

These enrollees not only have access to solid prescription drug coverage, but can also choose better health plans if they wish to do so. Not surprisingly, the GAO ranked the Office of Personnel Management (OPM), the agency that administers the FEHBP, the highest among federal agencies in terms of the percentage of federal managers who reported they had the authority to get results.

The OPM also ranked first among agencies in its use of performance information in managing its responsibilities.

Intermediate Steps to Reform

If Congress is reluctant to re-create the fundamental structure of Medicare on the FEHBP model in a single legislative act, it could at least start the transformation to a new and better system. It could do this by allowing new retirees to keep their private health plan and drug coverage and to take it with them into retirement as their primary coverage should they wish to do so.

To offset the cost of this, Congress would provide a government contribution in the form of premium support. Congress could thus phase in Medicare reform gradually, enabling the first wave of retirees from the huge baby boom generation to take advantage of a flexible new program with richer and more varied benefits.

Meanwhile, Congress would have an opportunity to make any necessary adjustments to the program over time. Congress could also help the CMS function more effectively by streamlining CMS responsibilities and allowing CMS staff to concentrate time, effort, and resources on the traditional Medicare fee-for-service program, rather than trying to run the “Medicare+Choice” system of private health plans or implementing a complex new drug benefit.

Robert E. Moffit, Ph.D. is director of domestic policy studies at The Heritage Foundation. This article is an abbreviated version of his September 9, 2002 Executive Summary #1583, available at under the title, “Congress Should Think Twice About Allowing the Medicare Bureaucracy To Manage a Drug Benefit.”