By Judith Havemann and Linda Perlstein
Washington Post Staff Writers
Wednesday, September 9, 1998; Page A04

Health care groups yesterday flooded a federal commission with dozens of ideas on how to improve Medicare, offering dissonant, clashing proposals that illustrate the difficulty the commission will face as it attempts to shore up the nation's vast health insurance system for the elderly.

At its first formal hearing seeking solutions to Medicare's problems, the commission heard from insurers defending private insurance policies, managed-care companies pleading for higher federal payments, and consumer groups calling for coverage of prescription drugs.

"This was mostly to get everything on the record," said commission member Bruce Vladeck, former head of the government's Health Care Financing Administration. "It is quite clear that we're not going to try to [have the outlines] of a deal until after the November elections."

With the Medicare system facing a financial crisis within a decade as the baby boomers begin to retire, the panel is faced with the task of presenting Washington lawmakers with a plan that will preserve the long-term health of a program that insures 38 million people, or one in every eight Americans. Appointed by Congress and the president, the commission has until March to come up with its proposal.

Commission co-chairman Rep. Bill Thomas (R-Calif.) said his biggest disappointment was that neither the American Association of Retired Persons nor the American Hospital Association came to testify. The two groups will be crucial to crafting a deal because the AARP represents more than 35 million Americans over the age of 50 and the members of the hospital association receive 40 percent of their revenue from Medicare.

"No one should hold themselves above the fray," Thomas said. "This was our call for solutions. I hope to nudge them toward the table."

Spokesmen for the two groups said they were unprepared to offer overall proposals until they have reached consensus among their own members about when or how Medicare should be changed.

But the absence of two of the most important players in the Medicare debate yesterday illustrates the obstacles faced by the commission as it attempts to forge agreement on solutions to Medicare's looming financial insolvency.

As the health insurance industry testified yesterday, there are only three real solutions to preserve Medicare: cut costs, increase the premiums that the elderly pay, or raise taxes for everyone.

All three alternatives are political poison, and neither party is anxious to be seen as attacking a program that so many Americans rely on for the health insurance, particularly not before November's congressional elections.

Much of yesterday's testimony focused on prescription drugs, which are not covered by Medicare, and supplementary private insurance, called Medigap, that many seniors buy to help them pay for out-of-pocket expenses that Medicare doesn't cover.

Critics, including the American Medical Association, argued that the insurance has the unintended effect of encouraging seniors to seek medical services they don't need because they pay the same premium no matter how much care they receive.

"The consumer is not bearing the cost of his or her decision," said AMA secretary-treasurer Timothy Flaherty. "There's a tremendous incentive to overconsume."

The Health Insurance Association of America, which represents private insurers, countered that Medigap users are satisfied with the program, so it should be protected. "The fact is, people speak with their dollars, and they're spending their own dollars, and with the regulated system we have I think they get a fairly good product," said Charles N. Kahn III, the group's president-elect.

The issue of prescription drugs and whether Medicare's coverage should be expanded to cover them also sparked lively debate. Several organizations, including the National Council on the Aging, the Medicare Rights Center and the National Coalition on Health Care, supported such a change.

But Kahn said that the federal government has neither the capacity nor the money to expand the program to include prescription drugs.