The President's Medicare Framework:  Good Ideas, Bad Rhetoric
By Jeff Lemieux
4/20/2003

Although its pro-HMO rhetoric was weird, the President's Medicare Framework is a constructive step.

President Bush's Medicare Framework deserves some of the criticism it has received.  First, before unveiling any details to the public, news leaks created the impression that the White House wanted any new drug benefit to exist only in alternative private plan options, such as HMOs or Preferred Provider Organizations (PPOs).  There would be no drug benefit at all for the vast majority of Medicare beneficiaries who are enrolled in the traditional government-run fee-for-service program.

When the framework was finally released to the public, the details showed that there would in fact be a zero-premium catastrophic (high-deductible) drug benefit for enrollees in the traditional program.  However, the rhetoric used by the President still seemed to indicate that fee-for-service enrollees would be second class citizens, and that HMO and PPO enrollees would be given the advantage of better drug benefits.  Because the framework isn't specific about financing levels across the fee-for-service and HMO/PPO sectors, we can't really be sure of the Administration's intent.

The Administration is correct to push for HMO and PPO (and other) privately run options in Medicare.  However, the financial subsidies should be equal from the beneficiaries' point of view, with no favoritism shown to either the government-run or privately run options.

Indeed the best vision for Medicare reform is the Federal Employees Health Benefits (FEHB) program, which manages multiple options for health coverage of roughly 9 million federal workers and their families.  FEHB shows no financial favoritism:  the program creates a level playing field for all types of plans.

If the Administration is committed to improving the fee-for-service sector as it adds new privately-run options for Medicare beneficiaries, then its framework is a helpful step.  The President's framework is certainly a better vision than the proposals of both parties from 2002. 

The House Republican drug benefit from 2002 -- a premium-based, stand-alone drug benefit -- is unworkable and would probably hurt seniors with employment-based retiree coverage.  The Democratic leadership bills from 2002 were too expensive and would lead (explicitly or indirectly) toward federal price controls on prescription drugs.

By starting with a zero-premium catastrophic drug benefit, and then adding private plan options, the President's framework avoids the adverse selection problems that would doom the standard Republican approaches.  (Adverse selection is when the people who choose to purchase health insurance are disproportionately those with expensive health care needs -- precisely the people who would cost most to insure.)

However, the President should make clear that the Administration favors a level playing field among health plans in Medicare, and that his vision of Medicare reform would be like the FEHB system, which is widely regarded as fair and innovative.

Links:
President's Medicare Framework (March 4, 2003)
CentristPolicyNetwork.Org  Legislative Resources Home Page
Progressive Policy Institute  An 'ABC' Proposal to Modernize Medicare (February 14, 2003)