Medicare Proposals Are A Case Of Too Good To Be True
There is a well-founded principle of consumer protection that says if something sounds too good to be true it probably is.
Medicare beneficiaries need to keep that in mind as Congress continues to debate proposals to establish a Medicare prescription drug benefit and expand use of managed care systems such as preferred provider organizations.
Unless Congress makes significant changes in the proposals so that they function more like true insurance programs, the promises may indeed prove to good to be true.
A primary example of the problem involves the prescription drug benefit, a concept that has broad political support. Under the proposals currently on the table, Medicare beneficiaries would be able to purchase subsidized prescription drug coverage from private insurers.
The program would be entirely voluntary, with beneficiaries being able to enter or exit the program at will.
Unfortunately, this is too good to be true. As currently outlined, the proposal would lead to the basic insurance problem of adverse selection.
Beneficiaries who know they will have high prescription drug costs will enter the program, others will not. There will be no possibility of effective risk-spreading. As a result, premiums for the drug benefit are likely to be so high as to be unaffordable for many senior citizens.
Moreover, it is highly unlikely that many private insurance companies would want to participate in a program that is so structurally flawed.
Congress is correct in looking to the private sector to take a bigger role in providing Medicare benefits. But if the drug benefit is to be a true insurance program, Congress must find a way to allow for effective risk spreading. Without it, the drug benefit will prove to be nothing more than an illusion.
Similarly, if Congress wants to offer beneficiaries the opportunity to utilize PPOs, it must establish conditions so that a broad range of PPOs will be able to participate.
Under the current proposals, Congress is insisting that participating PPOs cover specified regions of the country, some containing up to five states. The problem is that many health insurers are not licensed to do business in every state in a given region.
Thus, the number of PPOs willing and able to compete for Medicare business may be relatively small. The point of PPO participation is to bring the benefits of competition to the Medicare market. To achieve that benefit, Congress must assure that the legislation creates conditions where large numbers of PPOs can in fact compete.
And if the benefits of competition are to be realized, insurers participating both in the drug benefit program and the PPO program must be given the flexibility to innovate.
Unfortunately, both programs have such restrictive benefit packages that insurers will be unable to innovate. That also reduces the incentives to participate.
These issues must be addressed before any legislation is passed. It would be a shame to offer Medicare beneficiaries a promise that cannot be honored.
We already have witnessed the result of unfulfilled promises, as Medicare HMOs pulled out of the once promising Medicare+Choice program because of low reimbursement rates.
Congress should not repeat that mistake by offering Medicare benefits that are too good to be true.
Reproduced from National Underwriter Edition, July 14, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.