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[by an anonymous blogger at dailykos.com - Ed.]
Since they took over Congress in 1994, the Republicans, with the help of a few Democrats, have worked to privatize Medicare. With the "Balanced Budget Act of 1997" (BBA) and "The Prescription Drug and Medicare Modernization Act of 2003" (MMA), Congress has built a foundation for just this kind of change to Medicare.
To encourage private plans to enter the market, the BBA increased payments to them above the average cost of traditional fee-for-service (FFS) beneficiaries. Still plans failed to enter many areas and withdrew from others. To encourage entry and continuity, the MMA raised average payments even more. Consequently, each beneficiary in a private plan came to cost mere than those enrolled in FFS
Part of the justification for creating Medicare private plans is to save the government money. This hope has not been fulfilled. In fact, private plans cost more than FFS. One study estimates that the 12.6% of Medicare beneficiaries enrolled in private plans in 2005 would cost Medicare $2.72 billion above what they would cost if enrolled in the FFS system. In some counties those enrolled in private plans would cost $1200 above the average cost of a beneficiary enrolled in FFS.
The Medicare Actuary testified to Congress in 2004 that the MMA (excluding its prescription drug provisions) decreased the life of the Medicare Part A trust fund by two years. These increased costs have also been at least partly responsible for the sharp increases in Part B beneficiary premiums in the past three years. In the past few years, these premium increases have equaled a substantial portion of the yearly cost of living adjustments awarded Social Security beneficiaries.
A brief summary of the history of Medicare financing arrangements will help explain this disparity between payments to FFS Medicare and those to private plans. At its origin, Part A of Medicare covered hospital costs and was financed by a payroll tax. Part B covered physician and ancillary services and was financed by the Federal general fund and by beneficiary premiums. Services provided by prepaid group practices (known later as Health Maintenance Organizations or HMOs) were reimbursed on a cost basis like services of other physicians.
In 1982, Congress integrated HMOs formally into Medicare as a money-saving measure. An HMO that contracted with Medicare was paid for each person it enrolled 95% of the average FFS cost of beneficiaries, adjusted for demographic factors, in each county it served. Since HMOs were believed to deliver services more efficiently than FFS, they were expected to save money while delivering increased benefits.
Over time, it became clear that there were vast geographic inequities in the premiums charged by Medicare HMOs and in the packages of benefits they delivered. In some areas, beneficiaries paid no additional premiums to their HMO and received prescription drug benefits, no co-payments and even free health club memberships. In other areas, beneficiaries paid additional premiums to the HMO, paid co-payments and received no prescription drug coverage. And in many areas, such an option was simply unavailable.
These disparities were the result of significant geographic variations in FFS payments throughout the nation. In some areas, physician practice styles simply cost more than in others as a result such factors as the frequency of hospitalization, the propensity to perform high tech procedures, etc. Since HMO payments were directly related to FFS costs, some plans received much higher payments than others.
As long as all Medicare beneficiaries received the same benefits under FFS, this cost variation went unnoticed. But when some beneficiaries began to enjoy benefits unavailable to others, it was recognized as a problem. Eventually, Congress addressed this geographic inequity, only to create significant disparities between payments to private plans and the cost of FFS Medicare.
In 1994, the Republicans won control of both Houses of Congress for the first time in 40 years. Their campaign did not emphasize the reform of Medicare, but it did emphasize the presumed advantages of private over government administration of many programs, an ideological conviction that the Republicans, with some help from Democrats, had advocated for the preceding quarter century. The opportunity to try to apply this prescription to Medicare came in 1995.
In that year, the Medicare Trustees projected that the Part A Trust Fund would, at then current rates of taxation and expenditure, become insolvent by 2002. Using the condition of the Part A Trust Fund as a measure of the health of Medicare as a whole was not very meaningful. Part A was only one part of the entire system and was subject to manipulation. For example, Congress sometimes moved categories of expenditure to Part B precisely to reduce Part A spending and lengthen the life of the Trust Fund.
Nevertheless, the newly ascendant Republicans decided to use the "crisis" as a reason to cut and "reform" Medicare. They proposed "The Medicare Preservation Act of 1995". The primary goal of this proposal was a reduction of $270 billion in projected Medicare spending over seven years. The primary means of reaching this goal was privatization.
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