This Picks Up From Krugman re Medicare

new_york_times:http://www.nytimes.com/2008/07/14/opinion/14mon1.html
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Published: July 14, 2008
The intense struggle in Congress last week over a relatively modest Medicare reform bill has underscored a disturbing truth: many of the private plans that participate in the huge government-sponsored health insurance program for older Americans have become a far too costly drain on Medicare’s overstretched budget.


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Private health plans were promoted in the 1980s and 1990s in the belief that they could reduce costs and improve care through better management. And for a while they did. But policy changes that were championed by the Bush administration and a Republican-controlled Congress led to exactly the opposite outcome.
These private plans — that now cover a fifth of the total Medicare population — receive large subsidies to deliver services that traditional Medicare provides more cheaply and more efficiently by paying hospitals and doctors directly. Congress was right — for reasons of equity and of fiscal sanity — to pass a bill that would at least begin to remove some of the subsidies.
There is no doubt that the traditional Medicare program had many inefficiencies. There were high hopes that H.M.O.’s, which are private plans that have their own networks of doctors and manage their patients’ care, could do better.
The initial results appeared promising, and even today the H.M.O.’s operate more efficiently. But the idea that private plans could save the program money started to unravel with the 1997 Balanced Budget Act, which encouraged more loosely managed private plans to participate. In some parts of the country, it increased payments to draw in more private plans. Companies rushed in and then found they couldn’t prosper under tight restrictions on cost increases. Many plans dropped out, disrupting coverage for more than two million beneficiaries.
That set the stage for the 2003 Medicare Modernization Act, which dumped hefty new subsidies on private plans to encourage them to rejoin. Medicare now pays the private plans, on average, 13 percent more than the same services would cost through traditional Medicare. The subsidies have fueled explosive growth in the least-efficient plans, fee-for-service plans, which do little or nothing to justify their 17 percent overpayment.
This is outrageous. Instead of paying private plans less than traditional Medicare, in the belief that they could find innovative ways to cut costs and improve care, we are now paying them significantly more. The only explanation is Republicans’ ideological compulsion to provide a private option.
Private plans can be a good deal for beneficiaries because they are required to use most of their subsidies to reduce premiums or add benefits. Eliminating the subsidies would likely force the plans to charge more or offer less. But as it stands now, the beneficiaries in traditional Medicare are paying higher premiums to subsidize benefits for the minority in private plans, and the taxpayers are chipping in to boot.
The Democrats in Congress, and the Republicans who dared to join them, deserve thanks for removing part of the subsidy. President Bush should drop his veto threat and adopt the principle that Medicare should pay the same amount for all beneficiaries. That is the only way to ensure real competition between the private plans and traditional Medicare, treat all beneficiaries fairly and begin to fix Medicare’s fiscal problems.