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Private plans were to provide Medicare services; a fixed dollar credit (voucher) was to be allotted to each senior for payment of the plan premium (leaving beneficiaries liable for any greater premium or other costs), and Medicare was to purchase a high deductible insurance policy and contribute to a Medical Savings Account to pay for deductible costs for those seniors who chose that option. This proposal became an issue in the 1996 election and went nowhere.
Once reelected, however, one of the Clinton Administration's priorities was achieving a balanced budget. In exchange for their cooperation, one of the concessions the Republicans in Congress demanded was changes to bring Medicare closer to their 1995 proposal. Thus was born "The Balanced Budget Act of 1997" (BBA). Among its provisions were such changes. These included substantial revisions in Medicare's payments to private plans.
Essentially, these provisions raised private plan payments in counties with the lowest capitation rates and lowered payments in counties with the highest capitation rates. These changes reduced the financial disparities among plans, but did not even come close to eliminating them. The BBA also guaranteed all plans a yearly increase in payments. It guaranteed that no plan would be paid less than 102% of their county's average FFS payment. And it authorized the development of several kinds of private plan in addition to the existing HMOs. Although the Republicans still claimed that private plans would save Medicare money, it was clear that the encouragement of private plans trumped saving money.
In 1997, The Congressional Budget Office (CBO) predicted that as many as one third of Medicare beneficiaries would be enrolled in private plans by 2005. Instead, enrollment peaked in 1999 at 16 percent, and declined to 12 percent in 2003. Plans in the highest paid counties were paid less and began to withdraw from participation, leaving their participants to find another plan with fewer benefits or return to FFS Medicare. There were still few plans in the lowest paid counties because payments were insufficient to attract them.
One would think that this kind of performance would be considered the failure of the program. But most Republicans and some Democrats in Congress and the Bush administration were swayed by their ideological convictions: If the plans chose not to participate, they simply needed more money as an enticement.
The 2003 effort to create a Medicare prescription drug benefit administered by private drug plans at a time when the GOP controlled both Congress and the Executive gave then the chance to write even more generous private Medicare plan reimbursements into the MMA.
Specifically, the Act brought per beneficiary private plan payments to an average of 107% of a county's average fee-for-service Medicare costs, leading to the above noted $2.72 billion "excess" payments to private plans estimated for 2005. It also provided $10 billion in additional expenditures to encourage a kind of plan expected to serve rural locations. It established a precedent for means testing Medicare. Starting at an income of $80,000, beneficiaries will begin to pay higher Medicare premiums in 2007. Extra payments will be based on a sliding scale topping out at $400,000 per year.
Perhaps most importantly, the Act created a potential Medicare "crisis" and obligated Congress seriously to consider changing the system if expenditures trigger that "crisis. If general revenue funding of the program is projected to exceed 45%, the President must submit and Congress must consider legislation addressing Medicare spending. This "crisis" is possible as early as 2007, leading to required Congressional action in 2008. This choice of this indicator limits the options Congress can consider. Only payroll tax increases (not considered general fund resources) or a cap on federal Medicare spending are likely substantially to reduce general fund spending.
The MMA thus only worsened the distortions in Medicare private plans created by the BBA. It is true that all Medicare beneficiaries had access to at least one private plan in 2006, while only 72 percent had access in 1999. It is also true that private plan enrollment increased from 4.6 million in 2003, the lowest since 1996, to 6.9 million in 2006, the highest ever. There is, however, no evidence that private plans produce better health outcomes. There is substantial evidence that private plans are a much more costly means of delivering services than FFS Medicare.
But these considerations are irrelevant to the privatizers. If there is still a Republican dominated Congress in 2008 and if that majority is not fearful about the results of that year's elections, we can expect to see further privatization of Medicare. Those who have always hated the concept of a universal health program controlled by the Federal government may get their wish: a program designed and administered by diverse private corporations, subsidized by fixed federal contributions, and providing different benefits to those who pay different premiums and even to those paying the same premiums--a system that looks remarkably similar to the private insurance system.
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