US healthcare

As the US's population ages, its health costs are rising. Whether the state intervenes or allows the market to decide Medicare's fate will say much about fin de siecle America, writes Howard Berliner

The US Medicare programme is in the throes of change. All Americans over 65 are entitled to enter, and it accounts for 2 per cent of America's gross domestic product, projected to rise to 7 per cent of GDP by 2030 if current trends continue.

But it is predicted that the trust fund which supports Medicare will run out of money some time between 2007 and 2010, coinciding with the first wave of the 'baby boom' generation entering the programme.

Past attempts to reform Medicare have included trying to move its beneficiaries into managed care plans to save money. The results have been disappointing, both in terms of savings and in the ability of managed care programmes to deliver care. At the end of 1998, managed care plans that had enrolled more than 400,000 Medicare beneficiaries withdrew from the programme because they could not make enough of a profit. Studies have shown that healthier beneficiaries opt for managed care plans, sicker beneficiaries stay in the fee-for-service plan, and the overall costs for the care plans are between 5 and 7 per cent higher than the fee-for-service plan.

During the last presidential election campaign, President Clinton promised to establish a bipartisan commission to explore ways of putting the programme on a solid footing.

The commission was due to report at the beginning of March but internal conflicts have delayed publication. It is possible that no recommendations will be approved by the full commission because, in an effort to avoid party line decisions, the commission agreed that recommendations needed 11 of the 17-member commission's votes to be approved - something that has not been possible so far.

When Medicare started in 1966, beneficiaries were entitled to hospital care and medical services. Over the past 30 years, attempts have been made to limit the supply of services to Medicare beneficiaries through hospital payment reform (diagnosis-related groups), physician payment reform, and ancillary service reforms including self-referral laws, protection for whistleblowers and enhanced fraud and abuse detection. But pressure from elderly Americans has thwarted attempts to limit the use of services and benefits.

Senator John Breaux, a Democrat from Louisiana who chairs the bi-partisan commission and is a strong advocate of competition and market-driven reform in healthcare, has proposed a 'premium support programme'.

Under this, the government would delineate a basic benefit package and ask care and health plan providers to bid for the services to be covered.

Based on these bids, the government would then set a fixed price (although less than the actual cost of the package) and pay that amount to beneficiaries, who would then contract with service providers. Anyone wanting a more comprehensive benefit package would have to pay the higher costs out of their own pocket.

Most complaints about Medicare are from elderly people having difficulties paying for increasingly expensive drugs. In fact, the growth of Medicare health maintenance organisations can be largely attributed to their decision to cover pharmaceutical costs, and the reason so many HMOs are dropping out of Medicare is precisely because the cost of providing those benefits is so high.

The fear is that if drugs are included as part of Medicare, costs will rise at an even faster rate and greater demand will drive drug costs up.

While Americans want to cure disease and find new and effective treatments, they are not prepared for the cost of doing so. There is now less support for continuing the classic Medicare model than there is for shifting to a market-oriented model. This shift in philosophy comes at a time of a booming economy, low inflation and a federal budget surplus.

President Clinton has proposed that 15 per cent of the federal surplus be used to give a cash infusion to Medicare, which could alleviate the fiscal crunch it faces without the need for major change. But most Republicans, and increasingly some Democrats, favour using the surplus to reduce income tax and letting the free market control the growth rate of Medicare costs.

Whether Medicare remains a model of social solidarity in which all people share, regardless of income, or becomes a subsidy programme for poorer elderly people, will say much about the ethos of the US at the end of the 20th century.

Howard Berliner is associate professor and chair of health services management and policy at the New School of Social Research, New York