Medicare reform unlikely to save government much money

October 10, 2001

Washington, D.C. -- Proposed reforms of Medicare's managed care program, Medicare+Choice (M+C), are unlikely to yield significant savings for the federal government unless beneficiaries are required to increase their monthly contributions. This is the key finding in a new study by Kenneth E. Thorpe and Adam Atherly of the Rollins School of Public Health, Emory University, released on HealthAffairs.org as a Web exclusive on October 10. In fact, one major reform proposal sponsored by Senators John Breaux and Bill Frist could actually increase Medicare spending by $12 billion over the next ten years.

The M+C program has been floundering over the past several years, plagued by low enrollment and plan withdrawals. Critics have suggested that the current payment system has hampered plan expansion by creating uncertainty among plans about payment rates, and has created inefficiency by overpaying plans in some counties while underpaying plans in others. Recent congressional proposals, such as, S.357 and S.358, have advocated dropping the current system in favor of a system based on competitive bidding by plans.

Thorpe and Atherly analyzed three model plans, including two that closely resemble S.357 and S.358. Their results suggest that although competitive pricing could reduce plan uncertainty and better match costs and reimbursement, it is unlikely to raise enrollment in the M+C sector and is also unlikely to reduce government spending for the Medicare program. Total government spending on Medicare could be reduced, but only by greatly increasing the amount beneficiaries pay in premiums.

One key difference between the different proposals is the impact on geographic equity. The generosity of M+C benefits is now linked to the generosity of the county-specific payment rate. While some proposals would maintain the current spending distributions and the resulting intercounty inequities in benefits, other proposals would not. Although the net national effect of reforms may be slight, specific counties may be dramatically effected by the changes.
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Add'l contact: Kenneth E. Thorpe: 404-727-3373

Health Affairs, published by Project HOPE, is a bimonthly, multidisciplinary journal devoted to publishing the leading edge in health policy thought and research. Copies are provided free to interested members of the press. Address inquiries to Jackie Graves at Health Affairs, 301-656-7401, ext. 255, or via e-mail, press@healthaffairs.org. This Web-exclusive paper, as well as selected contents from the print edition, is available free on the journal's Web site, www.healthaffairs.org (the Web exclusive will be posted 10 October).

Health Affairs

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