Conservatives Now Find Themselves Open to Managed Health Care

The latest proposal to transform Medicare is, as Yogi Berra might say, “deja vu all over again.” That’s because the proposal bears an uncanny resemblance to the Clinton health care reform bill, which expired for lack of political support in 1994.

Only this time, the players are starkly different. In 1999, it’s a conservative and largely Republican contingent in Congress, not a moderately liberal Democrat in the White House, that has proposed relying on so-called managed competition to control costs. Led by Sen. John B. Breaux (D-La.) and Rep. William M. Thomas (R-Bakersfield), this group calls for legislation to curb Medicare spending by giving seniors set amounts of money toward buying insurance and structuring a competition among managed care plans for their business.

The group’s advocacy of defined contributions toward the purchase of private health insurance--which would leave seniors at risk for cost increases--comes at an odd time. Managed care plans are complaining that Medicare isn’t paying them enough now. Plans have dropped hundreds of thousands of Medicare enrollees in the last year because they say they’re losing money on the business--under current rules they can’t hike their prices to seniors--and the managed care industry has launched a national political campaign to increase Medicare reimbursement rates. Why do so many conservatives now back an idea they openly derided only five years ago?

The answer is not that they’re responding to a surge of public demand for Medicare reform--or for this particular brand of it. When the Kaiser Family Foundation and the Harvard School of Public Health asked voters after the election to name the most important issue for the new Congress to deal with, less than 1% cited Medicare reform. In a survey conducted by the same organizations before the election, 69% of the respondents opposed the sort of voucherization of Medicare the Breaux-Thomas plan envisions. What seems to be at work is a combination of context, calculation and conviction.

* Context. It matters to many conservatives that in their latest incarnations, vouchers and managed competition would be applied just to Medicare. Their hope is that by capping the government’s financial obligation enrollee by enrollee, reform can create--from the bottom up, if not from the top down--a firm limit on total Medicare spending. Their devotion to this objective trumps whatever objections, principled or political, they may have had to managed competition when it was proposed by a president who saw it as a strategy for financing universal coverage.

* Calculation. Several major trade and professional associations in the medical care sector--organizations with close ties to key Republican lawmakers--have reinforced this new-found conservative enthusiasm for managed competition. To these associations, Medicare reform represents a chance to escape the program’s current regime of controls on the reimbursement of medical care providers.

Most Medicare enrollees are covered through the program itself, rather than from private insurance plans. The Health Care Financing Administration, which runs Medicare and is by far the biggest single purchaser of medical care in the country, pays physicians, hospitals, and other providers according to set fees. It has the leverage to establish those fees unilaterally and without negotiation. For providers and the associations that represent them, Medicare reform has this appeal: It could break up HCFA’s concentrated purchasing power--and with it, the system of price controls that has sharply limited compensation for care provided to Medicare enrollees.

* Conviction. When President Clinton proposed managed competition in 1993, he saw it as a middle course for health care reform--somewhere between a reliance on unfettered market competition (then preferred by most conservatives) and the replacement of private health insurance with a Canadian-style public financing system (the first choice of many liberals). From the perspective of free-market conservatives, the Clinton approach would have moved American medicine in the wrong direction--toward more, rather than less, regulation.

Many of those same conservatives now view managed competition as a move in the right direction for Medicare--away from its current use of fee schedules and regulation and toward more competition. What a difference half a decade makes.

Even as conservatives line up to prescribe a dose of managed competition for Medicare, the program has been quietly containing costs without it. For last year and this year taken together, Medicare spending will be essentially flat. By contrast, health care premiums in the private insurance market, where managed care plans compete pretty vigorously, will have jumped about 15% over those same two years. Managed competition is looking more and more like a solution in search of a problem.