First, Do Less Harm - New York Times
The New York Times

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January 5, 2007
Op-Ed Columnist
First, Do Less Harm
By
PAUL KRUGMAN

Universal health care, much as we need it, won't happen until there's a
change of management in the White House. In the meantime, however, Congress
can
take an important step toward making our health care system less wasteful,
by fixing the Medicare Middleman Multiplication Act of 2003.

Officially, of course, it was the Medicare Modernization Act. But as we
learned during the debate over Social Security, in Bushspeak "modernize" is
a synonym
for "privatize." And one of the main features of the legislation was an
effort to bring private-sector fragmentation and inefficiency to one of
America's
most important public programs.

The process actually started in the 1990s, when Medicare began allowing
recipients to replace traditional Medicare - in which the government pays
doctors
and hospitals - with private managed-care plans, in which the government
pays a fee to an H.M.O. The magic of the marketplace was supposed to cut
Medicare's
costs.

The plan backfired. H.M.O.'s received fees reflecting the medical costs of
the average Medicare recipient, but to maximize profits they selectively
enrolled
only healthier seniors, leaving sicker, more expensive people in traditional
Medicare. Once Medicare became aware of this cream-skimming and started
adjusting
payments to reflect beneficiaries' health, the H.M.O.'s began dropping out:
their extra layer of bureaucracy meant that they had higher costs than
traditional
Medicare and couldn't compete on a financially fair basis.

That should have been the end of the story. But for the Bush administration
and its Congressional allies, privatization isn't a way to deliver better
government
services - it's an end in itself. So the 2003 legislation increased payments
to Medicare-supported H.M.O.'s, which were renamed Medicare Advantage plans.
These plans are now heavily subsidized.

According to the Medicare Payment Advisory Commission, an independent
federal body that advises Congress on Medicare issues, Medicare Advantage
now costs
11 percent more per beneficiary than traditional Medicare. According to the
Commonwealth Fund, which has a similar estimate of the excess cost, the
subsidy
to private H.M.O.'s cost Medicare $5.4 billion in 2005.

The inability of private middlemen to win a fair competition against
traditional Medicare was embarrassing to those who sing the praises of
privatization.
Maybe that's why the Bush administration made sure that there is no
competition at all in Part D, the drug program. There's no traditional
Medicare version
of Part D, in which the government pays drug costs directly. Instead, the
elderly must get coverage from a private insurance company, which then
receives
a government subsidy.

As a result, Part D is highly confusing. It's also needlessly expensive, for
two reasons: the insurance companies add an extra layer of bureaucracy, and
they have limited ability to bargain with drug companies for lower prices
(and Medicare is prohibited from bargaining on their behalf). One indicator
of
how much Medicare is overspending is the sharp rise in prices paid by
millions of low-income seniors whose drug coverage has been switched from
Medicaid,
which doesn't rely on middlemen and does bargain over prices, to the new
Medicare program.

The costs imposed on Medicare by gratuitous privatization are almost
certainly higher than the cost of providing health insurance to the eight
million children
in the United States who lack coverage. But recent news analyses have
suggested that Democrats may not be able to guarantee coverage to all
children because
this would conflict with their pledge to be fiscally responsible. Isn't it
strange how fiscal responsibility is a big concern when Congress is trying
to
help children, but a nonissue when Congress is subsidizing drug and
insurance companies?

What should Congress do? The new Democratic majority is poised to reduce
drug prices by allowing - and, probably, requiring - Medicare to negotiate
prices
on behalf of the private drug plans. But it should go further, and force
Medicare to offer direct drug coverage that competes on a financially fair
basis
with the private plans. And it should end the subsidy to Medicare Advantage,
forcing H.M.O.'s to engage in fair competition with traditional Medicare.

Conservatives will fight fiercely against these moves. They say they believe
in competition - but they're against competition that might show the public
sector doing a better job than the private sector. Progressives should
support these moves for the same reason. Ending the subsidies to middlemen,
in addition
to saving a lot of money, would point the way to broader health care reform.

Copyright 2007
The New York Times Company

Posted by Miriam V.