The Deal

Congressional negotiators have produced a compromise Medicare agreement that falls short of overall modernization of the program. But it does contain some important reforms that will set consumer-friendly initiatives in motion.

I am convinced that negotiators have done everything they can to get as much reform as possible in this agreement.

With so many conservatives on the fence, it seems important to ask: If this bill were to fail, where would we be? Worse off, I fear. Next time, negotiators would include fewer reforms and more political give-aways. The initiatives that provide a foundation for market transformation likely would vanish.

We must start the process of change if future disaster with the Medicare program is to be averted. Major changes to our health care system will never happen overnight. We will evolve toward change through small steps. This bill opens the door to those first steps that can lead to greater, more positive, change in the future.

The policy community has relentlessly hammered away at Congress and the administration over these last months to get the structure and the incentives right for overall reform. But the policy debate now is over. The bill is finished (or nearly so), and now 535 members of Congress must decide how to vote.

My own analysis of a dozen key elements came down to seven plusses and five minuses, albeit not all of equal weight.

The negatives are serious: Putting Medicare on a track toward healthy competition will be limited to demonstration projects starting in 2010. The bill creates a massive new entitlement and will shove trillions of dollars in unfunded liabilities onto future generations. And no self-respecting insurance agent ever would come up with a drug benefit structured like this one.

There also important victories in the agreement, including Health Savings Accounts (HSAs), drug cards offering privately negotiated discounts with cash subsidies of up to $600 for low-income seniors, and incentives for private health plans to stay in Medicare, providing a base of participation for future modernization.

Keeping private health plans in the program is key if there is to be a base to create the FEHBP model program that we envision for the future. The administration believes the new incentives in the bill will encourage many more private health plans to enter and re-enter the Medicare market.

And in 2006, when the drug benefit kicks in, there will be a solid base of millions of seniors who will be able to choose from among competing private health plans offering an integrated drug benefit. Wasn?t this the goal all along?

The next step will be to fix the financing structure to give beneficiaries more control over the resources. But that can be the next battle.

And the agreement provides an opportunity for millions of Americans to make tax-free deposits to their own Health Savings Accounts and purchase real insurance for major health care expenses.

HSAs give consumers more control over spending decisions to seek the best value for their dollars. And that can begin the essential change of putting doctors and patients back in control of medical decisions.

Here?s an overview on HSAs from my colleague Greg Scandlen?s ?Consumer Choice Matters? newsletter.

On balance this agreement must be seen as a starting place for reform of Medicare, not the end. Forty million Americans have come to rely on Medicare for their health coverage. This is not something to be taken lightly.

Those 40 million Americans are not yet demanding fundamental change, and they are fearful that change will be hurtful. They need to be convinced that changes will be better than what they have now, and that case has not yet been made.

Realities: Congress is going to pass a drug benefit for Medicare, and they believe it has to be universal.

We worked for two years to develop and market an idea that would have targeted more resources to lower-income seniors while setting up a structure for a competitive, market-based benefit. That?s not what we got.

I agree with The Wall Street Journal that the better track would be to ?pass a low-income subsidy, drug discount card and Medicare Plus Choice stabilization.?

That would have been a good place to start, but today it would be viewed politically as a retreat. Further, any new effort to revisit the issue will face the same line-up of special constituencies whose appetites now are whetted for their piece of the pie. They will just redecorate the Christmas tree, and break a few ornaments in the process.

The agreement extracts a very high price to pay for the prospect of change, but I believe that this the best we are going to get with the Congress ? and probably the next

Writing the rules: It?s also important to remember that the Bush administration, not the Clintons, will be in charge of writing the implementing regulations. Instead of designed-to-fail MSAs and Medicare+Choice rules, these new experiments are less likely to start out strangled in red tape. That can make a huge difference, especially after seeing the Bush administration?s heroic work on implementing the Trade Adjustment Act health care tax credits last year.

Principles: It?s impossible to reduce a complex agreement like this to a few words in a newsletter, especially when we haven?t seen legislative language yet. But key guiding principles are clear:

Big changes evolve over time?Incentives matter?You must start somewhere.

This is my principled position, based upon my understanding of how change takes place, how markets develop, and how people and systems learn and evolve.

Helping the uninsured and other important health issues await. It?s time to move on.

*****We opted for a longer commentary this week rather than our usual round up of papers and articles by others. Our regular format will continue next time.

*****Health Policy Matters will give our hard-working team the Thanksgiving weekend off. We?ll be back in December.

Grace-Marie Turner