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Market-Based Model Recommended For Medicare, As National Academy Of Social Insurance Panel Urges Competition Among Medicare Plans

For Immediate Release: April 17, 1998
Contact: Jill Braunstein at (202) 452-8097


WASHINGTON, DC -- Amid growing public concern about managed care, a blue-ribbon panel today proposed testing a vision for Medicare's managed care program that includes a wide choice of health plans for beneficiaries, improved benefits and competition among plans on quality and price. The panel's membership crossed ideological and industry boundaries, bringing a unique blend of perspectives to bear on its proposal to transform Medicare into a publicly accountable, market-based system. (See list of panel members below.)


The panel, whose findings are contained in a new report released by the National Academy of Social Insurance, recommended that the Health Care Financing Administration (HCFA) carefully evaluate a "premium support system" for Medicare. A wide range of capitated plans and Medicare fee-for-service options offering a statutorily defined benefit package and meeting national performance standards would compete on price and quality. High-quality, accessible care would be assured for all beneficiaries through a fixed government contribution toward competitively bid premiums. Beneficiaries would pay more for a higher-priced plan but all beneficiaries enrolled in a given plan would pay the same premium. Features of the current Medicare benefits package—including prescription drugs and catastrophic costs—would be improved.


The model laid out by the Academy's panel includes provisions to ensure that all beneficiaries have meaningful choice among health plans and providers, and that current protections for low-income beneficiaries are maintained or expanded. Useful comparative information on plan options would be essential. The panel recommended expanded support for local consumer education services to provide individual counseling to beneficiaries.


The panel urged HCFA to conduct a major, multi-site demonstration project in which this model could be tested. In this demonstration project, the traditional program with its enhanced benefits, would be an option.


"The panel believes that Medicare needs to be restructured so that it is flexible enough to take advantage of local market efficiencies while still ensuring appropriate and necessary care for beneficiaries," said panel Chair Joseph Newhouse, John D. MacArthur Professor of Health Policy and Management at Harvard University. "By fostering competition among plans on quality and costs, people enrolled in Medicare plans will receive better and more cost-effective services. In addition, they will become better informed, and will be active participants in health care decision making."


About 13 percent of the nearly 39 million people served by Medicare were enrolled in managed care plans in 1997. Managed care enrollment is expected to increase to nearly 30 percent by the year 2002. The panel noted that recent provisions enacted by Congress opened up new opportunities for organizing capitated care plans that participate in Medicare, but that fundamental restructuring is needed to meet the needs of future generations of Medicare beneficiaries.


The panel also made these recommendations:


  • Medicare should coordinate its annual open enrollment and information periods with those for Medicaid, other federal health care programs and Medigap policies. This will make health plan "shopping" and care coordination easier for those enrollees with dual eligibility or supplemental policies.
  • HCFA should expedite the development and evaluation of alternative models of organizing local public and public/private consortia to manage group purchasing of insurance for beneficiaries. These demonstrations should be designed to yield useful information on the impact of alternative bidding systems, benefits designs and payment methodologies on beneficiaries' access to care, quality of care and out-of-pocket expenses.

The panel made its recommendations upon reviewing a series of background papers that analyzed the strengths and weaknesses of different approaches for structuring competition in a variety of public and private sector markets, as well as strategies for helping beneficiaries make informed choices in a market-based system.


Copies of the panel's report, Structuring Medicare Choices, are available to members of the press.


Study Panel on Medicare Capitation and Choice
Joseph Newhouse, Harvard University, Chair
Richard Anderson, Kaiser Foundation Health Plan
Robert Berenson, Health Care Financing Administration
Stuart Butler, The Heritage Foundation
Geraldine Dallek, Georgetown University
Judith Lave, University of Pittsburgh
Harold Luft, University of California at San Francisco
Charlie Pryde, Ford Motor Company
Alice Rosenblatt, Wellpoint Health Networks
John Rother, American Association of Retired Persons


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The National Academy of Social Insurance convened the panel of experts in medicine, public policy, law and industry to identify steps for transforming Medicare into a publicly accountable, market-based system. Its work was supported by grants from the Henry J. Kaiser Family Foundation, The Robert Wood Johnson Foundation, and The Pew Charitable Trusts. The Academy is a nonprofit, nonpartisan organization of the nation's leading experts on social insurance. Its mission is to conduct research and enhance public understanding of social insurance, develop new leaders and provide a nonpartisan forum for exchange of ideas on important issues in the field of social insurance.

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