The Reagan administration is considering a fundamental restructuring of Medicare, under which the 29 million beneficiaries would be eligible to drop out of the program and instead receive government vouchers to buy private health insurance or enroll in group health plans.
The vouchers would probably be optional, at least at first. The average voucher would be worth about $1,700.
The voucher idea reflects a basic preference of the Reagan administration in regard to health care, which is to reduce the federal role and increase reliance on free market forces -- competition -- to apportion services and hold down costs.
Advocates say that competition among insurance firms and health plans for shares of the potential $48-billion-a-year voucher market would lead them to offer extra benefits, like catastrophic health insurance, and to pressure hospitals and other medical providers to hold down costs. Both the patient and the government would be better off, the advocates say, though to protect patients the vouchers could be used only to purchase insurance policies and health plans that met minimum government standards.
Critics of the voucher concept, however, fear that its real purpose may be simply to curb government costs even if that means a reduction of services.
"The voucher system is among the options being looked at, that's correct," said Dr. Robert Rubin, assistant secretary of the Department of Health and Human Services, in response to an inquiry. But he said HHS Secretary Richard S. Schweiker "has not made a formal decision" on the voucher plan. He said the other major approach under study is to have the government negotiate fixed-fee agreements with those providing health services to Medicare beneficiaries.
Medicare is mainly for the elderly. It also helps pay the medical bills of nearly 3 million disabled people.
Rubin said that in all likelihood, if a voucher plan is adopted, it would give recipients a choice of switching to vouchers or staying under the existing program, under which the government reimburses doctors and hospitals for what it defines as reasonable charges for services rendered.
Rubin is a key member of an HHS task force studying ways to restructure the entire health care industry to introduce more competition and eliminate the "reasonable cost reimbursement" system that is now used by most private insurers as well as the government. Critics say this "cost-plus" system encourages health care inflation, which for years has been running higher than the general inflation rate.
Office of Management and Budget Director David A. Stockman is an ardent believer in the competition theory and, as a member of Congress, cosponsored a so-called medical competition bill with Rep. Richard A. Gephardt (D-Mo.), who is a member of the House Ways and Means Committee. Schweiker, while in the Senate, also sponsored a competition bill.
Paid on a cost-plus basis, the theory runs, hospitals and doctors have little incentive to be efficient and hold down their costs; they know they will be paid more if costs go up.
According to the competition theory, by forcing insurance firms and health plans to compete for business based on a more-or-less fixed premium, the government could put pressure on them to hold down their costs; they, in turn, would pressure hospitals and doctors to do the same, perhaps by negotiating fixed fees for services.
The Medicare voucher idea was included in the Gephardt-Stockman bill.
Although details haven't been finally worked out by the HHS task force, the general Medicare voucher concept provides that hospitals, doctor groups, health plans, Blue Cross/Blue Shield and commercial insurance companies would all be eligible to sell health plans to anyone eligible for Medicare who opted for the voucher plan.
Policies would have to offer benefits equivalent to those now provided by Medicare, plus, perhaps, catastrophic insurance.
Many aspects of a voucher plan remain undecided. Among them:
How much should the initial government voucher be? At present, there are 29 million beneficiaries and Medicare costs $48 billion a year. That averages to about $1,700 a person in government outlays and perhaps that would be the initial average voucher value, administration planners say, though the amount given each individual would vary according to such factors as health, sex and age.
How much should the government boost the voucher value each year to keep up with inflation? Alain Enthoven of Stanford, one of the originators of the competition concept, said in a July 18 paper prepared for Rubin that the increase should be limited in some way, for example, basing it on the inflation index called the GNP deflator.
Since this has been rising much slower than hospital costs (9.9 percent for the year ending in March, 1981, compared to 19.3 percent for hospital costs), its use would automatically slow the growth of government outlays for medical costs. It could also shift more of these costs to patients if hospitals and doctors could not provide them for less.