Taking Two Aspirin Won't Do

By Susan Tifft

Radical surgery is recommended to cut health-care costs

In 1967, its first full year of existence, Medicare, the nation's health-insurance program for the elderly and disabled, cost $4.6 billion. Medicaid, the medical-assistance program for the poor enacted simultaneously, cost $2.9 billion. This year the combined programs are expected to cost about $75 billion, or 9.5% of all federal spending. And in five years, according to the Congressional Budget Office, that price tag is expected to climb 87%, to $142 billion, a rate twice that of all other federal spending. The chief causes of this upward spiral are longer life expectancies for Americans and medical-care costs that are rising 11% a year, nearly three times the rate of the Consumer Price Index.

Some argue that there is a third factor at work as well. "At least part of the blame," said departing Health and Human Services Secretary Richard S. Schweiker in his budget message in January, "belongs to federal policies that have actually rewarded inefficiency in health care." President Reagan evidently agrees. In his 1984 budget, delivered to Congress Jan. 31, Reagan outlined sweeping changes in Medicare, Medicaid and private employer-based group health insurance. The projected payoff in Medicare and Medicaid savings: an estimated $2.1 billion in 1984 and $19.3 billion through 1988.

Known as the "pro-competition" plan, the Administration proposals are based on the assumption that patients are insulated from price consciousness by a system in which the Government and private insurers pay the medical bills. As a result, patients "overconsume" health care and drive up its cost. If consumers had to foot at least part of the bill, according to the Administration, they would become comparative shoppers in the medical marketplace, eventually forcing the price of services down and saving the Government money. One Reagan proposal would hike the costs of short-term hospital stays for Medicare patients. There are 29 million of them; most are retirees on fixed incomes. Under the present system, Medicare recipients pay a deductible ($350 in 1984) for the first day in the hospital. Thereafter, Medicare picks up the whole cost through the 60th day, and part of it for 30 days more. After an additional "lifetime reserve" of 60 days has been depleted, Government coverage ends, and the patient is fully liable. By contrast, the Administration plan would provide unlimited coverage after the 60th day but require patients to pay not only the initial $350, but also an incremental charge for the next 59 days. Under the Reagan approach, the average hospital stay of eleven days will cost a Medicare patient $280 more in fiscal 1984 than it does today.

A second cost-cutting measure would count health-insurance contributions provided by private employers as taxable income. Many businesses now offer health insurance as a fringe benefit and deduct their contributions as a business expense. The change would affect insurance programs whose premiums exceed $70 a month for an employee ($175 a month for a family); some 50 million privately insured employees would be involved. The Reagan Administration maintains that the tax would raise $2.3 billion in 1984. It argues that the policy is principally a cost-control device that will induce workers to pressure their employers for less comprehensive insurance coverage, thereby cutting medical costs.

A third major element of the Reagan health package is a proposal to establish a catalogue of fixed prices that Medicare will pay hospitals. Under the proposed "prospective payment" system, the Government would pay hospitals set fees for 467 "diagnosis-related groups" of illnesses, based on the average cost nationally for the procedures plus a labor differential. If a hospital spent less than the amount, it could pocket the difference; if more, it would bear the overrun. Hospitals are now reimbursed for all "reasonable" charges associated with a Medicare patient. The projected savings: $1.5 billion in fiscal 1984 and $20.4 billion by 1988. The Administration plan has other cost-slashing measures, including a oneyear freeze on Medicare fees paid to physicians, nominal but mandatory $1 to $2 assessments on the nation's 22.2 million Medicaid patients for doctor and hospital visits, and an optional voucher system by which Medicare benefits could be exchanged for a private insurance policy.

With a single exception, the entire plan has drawn fire from a wide spectrum of critics who challenge the central assumption of the Reagan scheme: if patient benefits are reduced, the system's cost hemorrhaging can be stopped. Critics insist that it is physicians and other healthcare providers, not patients, who drive up the costs, because they decide what services will be rendered. "There is no good research to make one believe that consumers are abusing the system," says Lori B. Andrews, an attorney on the board of the nonprofit People's Medical Society, based in Emmaus, Pa. "The key to cost control must be the provider."

The prospective-payment plan is the only element that does not automatically send temperatures soaring. At hearings before the Health Subcommittee of the House Ways and Means Committee last week, expert witnesses suggested a range of adjustments in the Administration's approach, but prospects for congressional passage of this part of the package still appear reasonably good. Senate Health Sub-committee Chairman David Durenberger, a Minnesota Republican, predicts that the plan will reach the Senate floor for a vote in March.

Not a moment too soon, it seems: even if the entire Administration health-cut package were enacted, a most unlikely development, Medicare benefit payments for 1984 would still run an estimated $63.2 billion, a sum 13.2% higher than this year's level.

-- By Susan Tifft. Reported by Jeanne Saddler/Washington

With reporting by Jeanne Saddler/Washington This file is automatically generated by a robot program, so viewer discretion is required.