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Thursday, November 20, 2003 - Page updated at 12:00 A.M.

Froma Harrop / Syndicated columnist
'Competition' won't save Medicare program

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There's really no point in getting excited over the conservative plot to kill off traditional fee-for-service Medicare. It's going to fall flat on its face, anyway.

We're talking about the grand scheme to pit private health plans against the government-run program. It was to be a centerpiece in the big Medicare drug bill. The privatization idea has since shrunk to a few pilot programs, starting in 2010. Better to have the pipe dream fail in selected cities than to drive everyone crazy.

I appreciate the conservatives' unease over fee-for-service Medicare. About 80 percent of Medicare's 40 million elderly and disabled beneficiaries choose this option. Once Grandma buys a Medigap policy — which covers expenses Medicare doesn't — she can visit doctors all day and never spend an extra penny of her own money. The government picks up most of the bill.

This setup is rough on taxpayers. Under current rules, Medicare spending will jump from $250 billion this year to $310 billion in 2006. Heaven knows what will happen when the giant baby-boom generation starts retiring in 2008. So any thoughtful policymaker would want to change the program to encourage more careful use of medical resources.

But rather than reform fee-for-service Medicare, conservatives are trying to poison it slowly. And they're so blinded by hostility to the government-run plan that they are offering alternatives that will cost more, not less, money.

Well, what's wrong with competition? When it comes to Medicare, most everything.

Fee-for-service Medicare puts millions of people in the same giant insurance pool. Some enrollees use a lot of medicine. Others use very little. The healthy subsidize the sick. That's how health insurance is supposed to work.

A sneaky but effective way to destabilize this arrangement is to drain the pool of healthy participants. How can that be done? By subsidizing private health plans to attract the profitable beneficiaries.

Under the pilot program, each participant would receive a voucher to buy insurance from a private plan or from the government-run program. People who chose a cheaper private plan could get money back. That makes it a good deal for those who rarely see doctors.

The joke of it all is that while the private health insurers may hurt traditional Medicare, they won't save the taxpayers money. Consider the sorry history of Medicare HMOs: Private health plans were to lure beneficiaries into managed care with promises of drug coverage and other new benefits. Congress cut payments to the private insurers in 1997, and they abandoned the program in droves. Or they slashed benefits.

The Medicare bill will now sweeten the deal for private health plans — offering payments in line with those under the fee-for-service program. People in traditional Medicare, meanwhile, are protected against big hikes in their premiums. So where are the savings going to come from?

Many conservatives retain a touching faith in the private sector's ability to do the job more efficiently than government — but they never explain how. Medicare spends less than 2 percent of its outlays on administration. It has no marketing expenses. It doesn't pay dividends to shareholders or turn its executives into tycoons. Private health plans, by contrast, spend 20 percent or more on administration costs.

Today, private insurers generally pay doctors and hospitals higher fees than does traditional Medicare. After all, they lack the government's size and bargaining power.

One suspects that many conservatives don't really care how the chips fall — as long as they're heavy enough to break the back of traditional Medicare. The gold nugget in the ruins would be a voucher system, whereby every Medicare beneficiary received a check for X amount. Elderly Americans would use the money to buy insurance. Anyone who needed more care than the voucher bought would have to find funds elsewhere or go without.

The main goal, then, is to limit the taxpayer's responsibility for the senior citizen's medical problems. And the real issue is how much medical care our society is willing to pay for, rather than who will write the checks to the doctor.

If conservatives want to reduce the taxpayer's exposure to rising Medicare costs, let them say that. It's a fair argument. But all this talk about "choice" and "updating" or "modernizing" Medicare with "marketplace competition" is pure malarkey.

Providence Journal columnist Froma Harrop's column appears regularly on editorial pages of The Times. Her e-mail address is

Copyright 2003, The Providence Journal Co.

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