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By Amy Goldstein
Washington Post Staff Writer
Thursday, December 3, 1998; Page A04

A federal commission searching for a way to preserve Medicare yesterday began to contemplate a profound change in the program that would rely more heavily on the private health care market, giving the nation's elderly an insurance system similar to the one for federal workers.

Under the controversial idea, touted by proponents as a means to hold down costs and draw more elderly Americans into managed health care, the federal government no longer would set the rates it pays private health plans. Instead, Medicare would subsidize patients' purchase of health care coverage from plans that bid to participate in the program.

The basic idea is supported by many of the commission's 17 members. But in a highly charged debate yesterday, the group displayed the kind of trouble it could have agreeing on a concrete plan or resolving the enormous financial problems confronting the nation's health care system for the elderly.

"This gives everyone a clear idea why [trying to fix Medicare] is as immense a problem as it is," said the panel's chairman, Sen. John Breaux (D-La.). "People come to Congress and say, 'Fix it, but don't change it.' "

Breaux is a strong advocate of the approach resembling federal workers' insurance, known as "premium support," although he said he would favor allowing patients the choice of remaining in the original version of Medicare, in which they pick their own doctors and visit them whenever they want. He said after the meeting that he believes the group eventually could embrace a version of the "premium support" idea, even though the panel is composed of members of Congress and outside health care specialists with widely divergent views.

The commission, created by Congress as part of last year's agreement to balance the federal budget, remains far from a final decision; its recommendations are due in March. But yesterday marked a turning point in the work of the group, which until now primarily had been collecting advice from the outside. For the first time, members began debating the alternatives they want to pursue.

The group's assignment is to recommend to Congress and the White House ways to prolong and improve Medicare, a highly popular program created in the 1960s that now is approaching insolvency. The trust fund that pays for hospital bills is expected to run out of money in a decade, a few years before the first members of the large baby boom generation become old enough to sign up. By 2030, when the last of the 77 million baby boomers will retire, the number of Americans old enough for Medicare is projected to double from 38 million to 76 million.

Yesterday, commission members began considering a half-dozen potential changes, debating the effects they would have on patients, the health care system and the program's fragile finances.

Most of their ideas involved efforts to save money, such as by raising the age at which people become eligible from 65 to 67 or by shifting to other parts of the federal government the Medicare subsidies that help provide training to doctors and ease the economic burden on hospitals that treat a large share of poor patients.

The panel also considered a revamp of the private insurance that many elderly patients purchase to fill in the gaps in Medicare coverage, as well as the merging of patients' payments for doctors' visits and hospital stays.

At the same time, members considered whether the traditional version of Medicare should begin to cover prescription drugs -- a popular benefit that is available to most of the 6 million elderly people who belong to HMOs and other forms of managed care.

Even without adding the drug coverage, which is conservatively projected to boost the program's costs by $300 billion, commissioners came to a sobering conclusion yesterday: Even if they were to recommend all the ideas under consideration, Medicare still would not be financially viable three decades from now.

Sen. John D. "Jay" Rockefeller IV (D-W.Va.) accused the panel's Republicans of adhering to a promise extracted by House Speaker Newt Gingrich (R-Ga.) that they would not consider raising taxes. "I am personally concerned as to why a revenue increase was not put out there as a possibility," Rockefeller said. "It is incomprehensible to me, unless there was a proscription not to do it."

He, other Democrats and the panel's more liberal outside experts were highly critical of the proposal to convert Medicare to a system like that offered to federal workers. Some said the predicted savings were exaggerated, while others contended that the change would end up giving more help to relatively affluent patients with more generous health plans, while harming people in rural areas where managed care has remained scarce.