Major shift in Medicare principles

The Medicare reform bill now before Congress arguably represents the most profound change in federal social policy since Lyndon Baines Johnson was president.

If it becomes law as written - and that remains a big "if" - private insurance firms and managed health plans could become much more involved in providing drug coverage and medical care for participants in the huge program.

Opponents of the bill object vehemently to this philosophical change, saying it amounts to ripping up the old government-run Medicare without providing enough help for the neediest of the nation's elderly.

Supporters see it as necessary reform for an antiquated program that's careening towards fiscal disaster.

"If they get this through, it is a spectacular victory for President Bush and the Republican Party," says Jonathan Oberlander, an associate professor of social medicine at the University of North Carolina at Chapel Hill.

The debate now swirling on Capitol Hill closely mirrors the arguments that preceded the establishment of Medicare in 1965, says Professor Oberlander, author of a recent book on the political history of Medicare. Then, as now, many Republicans thought that Uncle Sam should simply subsidize the purchase of private health insurance for seniors. Washington would provide healthcare vouchers, in essence, and participants could then shop for the best program on their own.

Democrats wanted the federal government to foot the bill for the whole Medicare effort. They prevailed - at a time when national healthcare spending was far lower as a percentage of gross domestic product than it is today.

Since then Medicare has become one of the most popular things that Washington does. It has some 40 million enrollees, and costs upwards of $250 billion a year. But over the decades the healthcare industry has undergone drastic changes. Costs have skyrocketed, while the importance of prescription drugs in medicine has grown.

Since the GOP took control of Congress in 1995 there has been a renewed effort to revisit Medicare's basic structure. "What's been going on in the last decade is an attempt to overturn and unravel Medicare as a single-payer program," says Oberlander.

The bill now in Congress, which Republican leaders have pushed to the brink of passage, is the fruit of this effort. It offers a prescription-drug benefit to appeal to Democrats and many senior groups, and makes the introduction of market forces into the program more palatable to opponents. As it stands, the drug benefit in question is not only unprecedented, but also difficult to understand, and not necessarily an improvement over similar coverage that many retirees have from employers or other sources.

In 2004 and 2005, seniors would be eligible to purchase discount drug cards estimated to cut over-the-counter costs by 15 percent. Low-income seniors would have a $600 subsidy for drug purchases.

Beginning in 2006, seniors could enroll in a stand-alone drug plan, or join a private health plan. Premiums for this main drug benefit would be $420 a year. After meeting a $275 deductible, retirees would have 75 percent of drug costs covered, up to $2,200. Then there would be a coverage gap until a senior's drug costs hit $3,600 for the year. After that the program would cover up to 95 percent of added costs.

The drug premium, deductible, and coverage gap would be waived for enrollees whose income is less than $12,123 a year.

To prevent employers from ending current drug plans for retired workers, the bill provides up to $70 billion in subsidies for firms to maintain such plans. Private firms would administer the drug benefit region by region.

In addition to the drug benefit, the bill would for the first time charge some beneficiaries higher prices. Individuals earning more than $80,000 - $160,000 for couples - would have to pay more for doctor visits and other nonhospital charges.

To try to lure more private firms into the system, the bill would create a $12 billion fund to subsidize private health-maintenance and preferred-provider organizations that choose to enter the Medicare market. Beginning in 2010, traditional Medicare would also face competition from private plans in an experiment in six metropolitan areas where participation in such plans is already high. Seniors would pocket a rebate from the government if they choose private plans whose premium is lower than that of traditional government-run Medicare.

Among other changes, the bill would allow Americans to establish tax-preferred health savings accounts under certain conditions. It would remain illegal to bring in drugs from Canada and other foreign nations unless the Secretary of Health and Human Services deems such reimports safe. New benefits would include a free physical for new enrollees, and screening for diabetes and heart problems.

At the time of writing the Democratic opponents of the bill, such as Sen. Edward Kennedy of Massachusetts, had not decided whether they would mount a filibuster against the legislation in the Senate. Such a move might well kill the bill.

"I have many misgivings about the fact that this proposal does a great deal to destroy the traditional Medicare program at the same time that it fails to provide sufficient help to people who can least afford their medicines," says Ron Pollack, executive director of Families USA.

But the powerful senior group AARP was backing the bill, as a down payment on a long-sought drug benefit.

• Material from Associated Press was used in this report.