The New York Times points out a couple of things about the Medicare bill negotiations in this article, Competition Causes Widest Split Over Medicare. These issues won’t be strangers to those reading TheJeanneScottLetter, whether or not you were sent there by me.

Here’s the short-hand. The House bill introduces the notion that Medicare needs to compete with private plans, rather then allowing them as an option under Medicare+Choice as now.  In order to give this some teeth, it looks like premium cost-sharing, based on income, is emerging from the current Senate-House negotiations. The Democrats led by Ted Kennedy see the long term outcome of this being Medicare as welfare, with only some people getting a flat payment (defined contribution) to spend as a voucher amongst competing plans. Unstated is the Democrats belief that the private plans would skim the healthier and wealthier from the public plan, which would be left with those who couldn’t "trade up" to join the private plans,  and that traditional Medicare would be forced to cut services, and would eventually go broke.

That’s as maybe.  When Medicare Risk plans were growing in the early 90s they were able to make money getting 95% of the average cost of a recipient in the local area for each member they signed up, and usually they got people to sign up by offering them free insurance for drugs with no extra premiums. Several reports at the time suggested that plans were signing up healthier patients than average, and thus were skimming (duh!).  However, at some point even those patients got sick and more importantly payments were not put up in line with medical costs. The result was that benefits were cut within the Medicare Risk plans, and then many private plans pulled out of Medicare risk altogether. The percentage of Medicare enrollees in managed care plans went from 10% in 1995 to 18% 2000 but fell to 13% in 2003 (all January numbers, for more see the CMS site here).

What this tells me is that the government can pass regulations that can change health plan behavior in terms of its recruitment and profitability. So if a benevolent HIPAA administrator was sent down from Mars to run a neutral system in which there were private and public plans competing and incentives were designed to be even, it is possible that a mixed system could work. It might even improve the efficiency and quality of care delivery.

But this is politics and that’s not going to happen. Note that the House bill which includes the privatization thrust only passed by one vote, while the Senate bill had broader approval among Democrats. Bush will soon have to make a call as to whether it’s more important to shore up his support amongst conservative Republicans in the House, or whether it’s worth using his eroding political clout to have them cave on that, in order to be able to campaign as the President who passed Medicare drug coverage. If he does and if Medicare Reform passes including real competition between Medicare and private plans, watch out for a large battle in the years to come as this concept moves into reality. But realistically that’s looking less and less likely.

Up date: Harris Interactive’s latest poll shows that there’s a slight uptick in support for the Democrats on the health care issue with a plurality favoring the Dems 35% to 20%, although they don’t think it’s big enough for the Dems to be happy. Interestingly, among the over-65s who matter most in health care politics, it’s ony 36%-30% in favor of the Dems.