Otis R. Bowen, President Reagan's choice for secretary of health and human services, earlier this year drafted a comprehensive plan for "catastrophic health insurance" for the aged.
Catastrophic insurance is designed to save people from financial ruin when a serious illness requires long hospitalization or costly treatments not covered by insurance. Although such illnesses are rare -- the average Medicare hospital stay under the new prospective payment system is under eight days -- the bills can mount to tens of thousands of dollars when they do occur, driving even the rich into poverty.
The Bowen plan was drafted this summer before the former Indiana governor, now a professor of medicine at the Indianapolis campus of the Indiana University medical school, was selected to become HHS secretary. Bowen was not available for comment on whether he would push the plan after becoming secretary.
The plan would cover hospital bills, doctor bills and nursing homes for the elderly.
Under the hospital portion of the plan, in an article to be published shortly in Review Inc., a magazine of the Federation of American Hospitals, the $15.50-a-month Medicare premium would be raised between $3 and $3.50 a month for the 30 million Medicare participants.
That would guarantee up to 365 days of hospitalization a year to any Medicare patient needing it. The patient's only cost would be for the first day of hospitalization, about $400. If the patient entered the hospital a second time in the same year, another day would be charged, but there would be no further charges.
Therefore, no patient would have to pay more than about $800 a year -- in addition to premiums -- even if he were in the hospital all year. At no added cost to the government, this would provide protection against catastrophically mounting hospital charges, and it contrasts sharply with the current Medicare arrangements.
Under the current law, the patient pays $400 to cover the first day in the hospital, then receives up to the 60th day free. But a patient who stays longer has heavy out-of-pocket costs. From the 61st to the 90th day, the patient must pay $100 daily, and for days after that, $200. After the 150th day, the patient picks up the whole cost.
A second part of the Bowen plan would cover Medicare doctor costs. For another $9 or $10 a month extra premium, on top of the $3 to $3.50 for hospitalization, the beneficiaries would be guaranteed that their out-of-pocket costs for doctor bills covered by Medicare would not exceed $350 a year.
Overall, for an extra premium of about $12 a month, Medicare patients would be assured that out-of-pocket hospital and doctor costs would not exceed $800 a year for hospitals and $350 a year for doctors (in addition to premiums). In both cases, the small extra premium would be enough to pay government costs because few people incur catastrophic medical expenses.
Bowen and coauthor Thomas R. Burke, an HHS official, argued that most elderly persons would save money even if they paid the extra premiums because they could dispense with costly private "Medigap" policies designed to fill in these very gaps in Medicare, which usually cost $500 to $800 a year.
Most of this proposal was developed by Bowen and Burke when Bowen headed a Medicare advisory panel two years ago, but the Review Inc. article has one new idea. It would let people at age 40 or 45 start making voluntary, tax-free contributions into special federal "Individual Medical Accounts" to help pay for their care in nursing homes in old age if they needed it. The money would be held in the account and would draw interest. If the individual were incapacitated enough to go to a nursing home in old age, the money would be there, gradually built up over 20 years.
The details have not been worked out, but the concept is designed to help meet the dreaded catastrophe of an individual being unable to care for himself and unable to pay the costs of nursing home care without bankruptcy.