Public concern over the cost of drugs for the elderly is widespread and many elected officials from both major parties have expressed support for adding some prescription drug benefit to the Medicare program.
President Bush addressed the issue in his State of the Union speech Tuesday by proposing that a prescription drug benefit be added to Medicare, but only for those people who join a health maintenance organization, or HMO. Seniors who continue in traditional fee-for-service Medicare would have to forego the drug benefit.
This will further tilt an already unjust system against millions of rural Minnesota residents. The problem is rooted in decisions made in the 1960s about how Medicare would be structured.
Back then, a national health care program was a highly controversial political issue. European countries created national health services that U.S. liberals admired. Conservatives feared anything that smacked of “socialized medicine.” Physicians wanted to make sure that their incomes and professional prerogatives weren’t hurt.
There were hosts of proposals. National health care was the country’s high school debate topic when I was in ninth grade and we didn’t lack for articles, studies and snappy quotes to use as evidence. But when the Lyndon Johnson Administration and Congress finally acted, the new program didn’t rock any boats.
It largely was limited to people on Social Security, a program that had achieved tremendous political popularity. It was based on an insurance model. There were no major changes for physicians or hospitals, which could continue to charge their “usual, customary and reasonable fees.” No health service staffed by civil servants was created.
And there wasn’t a nationwide mandatory fee schedule nor a flat per-person annual fee as in some European plans. This is what put rural areas at a disadvantage.
Under the old-age, survivors and disability programs of Social Security, people with equal earnings histories got equal monthly benefits whether they lived in Manhattan or Pipestone. There was no adjustment for local costs of living. Someone with a median retirement benefit who already owned a home could live quite well in rural Minnesota, while another person with an identical check who rented in New York City would live in poverty.
As adopted, Medicare ensured that high-fee physicians in high-income urban areas could continue to charge high rates. For them, the outcome was what economists call “Pareto optimal.” Many doctors were better off and virtually none were worse off. Almost all saw increased demand for their services since cost was now less of a problem for the age cohort that uses medical care most intensively.
Like Social Security, Medicare immediately was a hit. The economy was growing, the population was young, and many expensive procedures, devices and drugs that are now common were yet to be developed. The cost was very manageable.
As costs grew, limits emerged on what Medicare would pay for different services. But the limits froze in place geographic disparities that had existed in the 1960s, including lower reimbursement rates in rural areas than in cities.
President Bush’s proposal Tuesday night reflected the degree to which Medicare costs no longer are easily manageable. But the ghost of an acceptable compromise 35 years ago now haunts rural areas even more.
Such areas have fewer HMOs because there are fewer large employers who offer health benefits and a higher proportion of the population is self-employed. Many of these households go uninsured or have only major medical insurance, and rural populations are highly skewed toward older people and virtually all retirees depend on Medicare, which by historical “accident” pays very low rates relative to modern costs.
Bush’s apparently well-intentioned tweak to the perilously creaky Medicare structure points out the need for a more fundamental overhaul of U.S. health policies.
© 2003 Edward Lotterman