It’s impossible in a brief post to capture the full essence of the current Medicare bill. (Although Jeanne Scott’s latest newsletter tries very hard)! In a few days we’ll know whether it has the votes to make it in the House, and whether it’ll survive a potential Kennedy-led filibuster in the Senate.  And of course this doesn’t happen in a vacuum–there’s the small matter of the $25bn barrel of pork known as the Energy Bill that also has to go through the vagaries of the Senate.  However, leading aside the lack of price controls or caps in the pharma section of the bill, it’s worth looking briefly at the two of the most contentious issues. 

Competition: The Republicans want to put Medicare into competition with private plans. This has though been tried before, and after a promising start, it began to die a death. A report from the Commonwealth Fund, suggests that there were many problems with the 1997 attempt to introduce private plans into Medicare, known as Medicare+Choice.  The two most important are that the private sector’s participation is not stable, and that the private plans don’t cost any less than traditional Medicare.  Due to plans pulling out, participation has gone down from 15% of enrollees to only 11%. Realistically it’s impossible to say what the environment will be for the competition slated to be introduced in 2010 in 6 cities.  But there’s no guarantee that it will kill off Medicare as we know it or even that it’ll work.

Cost Containment: Also  buried in the bill is an overall cost containment strategy.  The Bill provides $400 bn over 10 years in increased spending. Via a complex formula, if this limit is broken and if more than 45% of Medicare  funding comes out of the general fund (because Part A via the payroll tax and Part B via premiums are not bringing in enough revenue), then Congress has to either cut Medicare spending or increase taxes. (I hope I got that right, but you can be sure it’ll be changed by the time it happens). The only certainty is that estimates like this will be wrong–original estimates for Medicare spending back in 1965 were something like $4bn a year and very soon they were off by a factor of 10, I believe! However, I’ve seen estimates that the spending cap will hit in 2008-20016, so again this is putting off the real issue into some future never-never land.  But I did notice this report from Health Affairs which suggested that hospital spending will rise 75% by 2012.  I’m unsure as to whether that will get included in the overall spending that triggers the cut, but as hospital spending is what Medicare Part A is for, I assume so. In any event there’ll be a big issue with hospital spending somewhere out past 2010.

Of course the politicos who are voting on this bill will mostly be out of the picture by then, and the bill doesn’t take effect at all until 2006. Its most important political implication–the impact on the senior vote in Florida and Pennsylvania in 2004–will not actually have anything to do with what actually happens, but will hinge on what the perception of the bill’s effect will be. And of course the votes in the next few days will be based on guesstimates of what that perception will be whether the bill passes or not.

For much more go see Don Johnson’s almost minute by minute blogging at The Business Word