December 17, 1997

Seniors Soon to Experience Clinton's Health Care "Vision"

Ever since President Clinton first proposed a government takeover of America's health care system in 1993, debate has been waged over how "Clinton-Care" would operate, but with the enactment --at the Administration's insistence-- of an obscure provision in the Balanced Budget Act earlier this year, America will shortly get its first glimpse of "Clinton-Care." The Administration insisted on terminating Medicare beneficiaries' rights to choose to go outside the system for their medical needs, beginning in 1998. And so seniors will be the first to begin to experience President Clinton's "vision" for America's health care. For those who do not share his vision, this termination of seniors' freedom to choose will not be a pretty sight.

"Private Contracting" Rights Now Effectively Terminated

Heretofore, the law did not prevent Medicare beneficiaries from choosing to pay a doctor out of their own pocket for services, although the Clinton Administration has long sought to discourage it. Despite the fact that seniors had been able to do this since Medicare's inception, the Clinton Administration threatened a veto of this year's Balanced Budget Act unless this right was effectively removed. As of January 1998, America's seniors and their doctors will be locked into a government-run system of one price and one choice for the next two years --effectively ending the basic right to make their own contracts.

Kyl Bill Reinstates Medicare Patients' Freedom to Choose

Senator Kyl has introduced legislation (S. 1194; HR 2497 by Rep. Archer) to return private contracting to its original intent and codify the right that had existed prior to the current administration. It also retains existing safeguards that patients be notified of the terms and implications of any private contract (including the right for parties to mutually agree to terminate or modify the contract) as well as provisions to prevent fraud and to protect beneficiaries.

Not surprisingly, the Kyl bill has been met with the usual demagogic attacks --that it will "destroy Medicare"-- delivered by those endorsing the Clinton vision of nationalized health care. Yet, in all these years, the lack of legal prohibition of private contracting between doctors and patients never delivered such evils, and even a cursory examination of the economics underlying the proposal reveals why.

Administration Ignores Medicare Experience and Basic Economics

Recall that private contracting was not prohibited by the law throughout Medicare's history and had not "destroyed" the program in any way, shape or form. However, the reason why private contracting existed without detriment to the Medicare system --and why it would continue to do so if reinstated-- is important to explore.

It's the Economics, Stupid

Due to their "command economy" mentality, Clintonites forget that Medicare's fee schedule does not supplant the market. Seniors would not purchase and doctors would not provide a service that they found uneconomical. If seniors were willing to pay more than Medicare pays, doctors would not take Medicare now --yet the overwhelming majority (96 percent, according to the American Medical Association) do.

This is not just economic theory but Medicare fact. Doctors already have the option to bill above Medicare's fee schedule but few do. They have the option of being either "participating" physicians (whereby they agree to take all Medicare payments for all procedures) or "nonparticipating" (whereby they agree to take Medicare payments for only certain procedures).

The crucial difference is that nonparticipating physicians can charge beneficiaries an additional 9.25 percent above standard Medicare rates (a premium which they must pay from their own pocket). This practice is known as "balance billing." In short, it would be much more economically advantageous for doctors to be nonparticipating physicians and receive the additional fee. Yet only 20 percent of physicians chose to not "participate" in 1997, according to the Congressional Research Service. Why?

The answer is that seniors are savvy shoppers: they are unwilling to pay more than they feel is necessary -- overwhelmingly, this means the standard Medicare rate.

Medicare's Private Contracting Rights

If seniors choose to do so, they may use Medicare's insurance only for hospitalization expenses (so-called Part A), but only 4 percent of seniors choose to take Part A alone, instead preferring to take Part B as well, which basically covers doctor bills. Part B provides a fixed-fee reimbursement rate for some 7,000 procedures. After the beneficiary pays a $100 deductible, the government pays 80 percent of the fee schedule amount with beneficiaries paying the remaining 20 percent as coinsurance.

Since Part B's inception, neither Medicare nor the Department of Health and Human Services prevented beneficiaries from contracting with their doctors to purchase at their own expense a service covered by Part B. The Health Care Financing Administration (HCFA) has long opposed this practice but had never even attempted to prosecute a case.

In 1992 a U.S. District Court Judge in New Jersey dismissed a case fighting the HCFA prohibition. The judge concluded in Stewart v. Sullivan that, since neither the law nor government policy made any provision regarding private contracting, the case was "not ripe" and therefore allowed the practice to continue. With the advent of the Clinton Administration, HCFA attempted to deter the practice, going so far as to write in 1993 in its Medicare Carriers Manual that "agreements with Medicare beneficiaries purportedly waiving federal requirements have no legal force or effect."

Clinton: Instituting a Government Monopoly

Opponents of freedom to choose one's own doctor would have us believe the practice will result in monopolistic predatory pricing as the rich leave the system and the less well-off remain, but if anyone is trying to create a monopoly, it is the Clinton Administration itself: with its vision of a single-choice, single-price system, there is no escape for seniors or doctors. Clinton's prohibition creates an unprecedented monopoly in the health care system for seniors. Seniors and doctors can purchase and provide the services dictated by the government only at the prices dictated by the government. Starting January 1, there is no recourse.

This prohibition is a paternalistic and patronizing overturning of original Medicare practice. No other health plan besides a government monopoly would be allowed to do this. No other government health plan --not the federal employee's plan, not the private-sector plan for the military, not Indian Health Service, the VA, nor any other, including Medicaid-- does this. What other government activity presumes this kind of monopoly?

To understand how outrageous is this power grab, consider the Food Stamp program, which allows beneficiaries to purchase specific foods with government coupons. Would anyone imagine for a moment that it would be considered permissible that these individuals would not be allowed to purchase out of their own pocket the same food for which food stamps could be used?

Return this Basic Right to Seniors

What does all this mean? The demand by seniors to pay prices above the Medicare rate has been limited throughout the program's history --as demonstrated by private contracting and by balance billing practices to date. Such demand is unlikely to significantly increase if the Kyl bill is passed. Doctors could therefore never hope to maintain their income (26 percent of which was due to Medicare payments in 1993) by substituting the large majority of seniors unwilling to pay more with the few seniors who would be willing to do so. If doctors could afford to practice without Medicare, they already would have done so. The evident competition among doctors also will work to make sure that any prices they would charge under private contracting would be kept to the value of the service.

Doctors cannot survive without their Medicare practice and would be no more able to do so after the passage of the Kyl bill than before it. The Clintonites had this in mind in crafting their exclusion of private contracting to physicians receiving any Medicare payments. And, if doctors could adequately run their practices treating only fewer patients at a higher rate as under balance billing, they already would be doing that.

Under the Kyl bill, Medicare would continue to pay the standard fee for the standard procedures by the standard practitioner with private contracting reserved for more specialized procedures. While it would be a right that --because of economics-- would be exercised only in special circumstances, private contracting is a basic right every senior should have. And importantly it would provide a safeguard from government manipulation --something which under the Clinton Administration is an all-too-real possibility.

Under the Kyl bill, seniors would be even less likely to privately contract than they are to go to a nonparticipating physician because with private contracting they agree to pay the full cost of the service themselves (just as they historically have). In fact, if the desire to pay out-of-pocket were widespread, seniors wouldn't join Part B (which is voluntary) at all. But seniors overwhelmingly choose Part B insurance --just as most other Americans do in choosing doctor-visit coverage in their health plans.

Administration's No-Exit Strategy

As a result of the Administration's position, private contracting can be arranged only if the doctor agrees to not accept any Medicare payments for two years, i.e., they could only continue to see Medicare beneficiaries under private contracting but not under the program itself. While it expands private contracting in principle --because it allows doctors to do so, in contrast to HCFA's attempts to discourage it during the Clinton Administration-- it effectively eliminates it in practice. Not surprisingly, the Congressional Budget Office expects that, under that condition, "direct contracting will almost never be used" [CBO, 10/30/97 letter to Rep. Archer]. In essence, the Administration has erected a no-exit policy for Medicare.

When in Trouble, Demagogue

Understanding Medicare's history and the market effect of private contracting, it's easy now to refute such long-winded rhetoric as this: "...[What [the Kyl bill] would really do is . . . create a two-tiered health system, one for the rich and one for everyone else" [New York Times, 11/5/97]; "Patients could end up finding that fewer doctors are willing to accept Medicare reimbursement for certain procedures or services. . ." [Senator Rockefeller, Dear Colleague, 11/4/97]; and "the bill [amounts to] 'pure greed wrapped in the flag of freedom' and would 'destroy Medicare...'" [Rep. Pete Stark (D-CA) as quoted by the San Francisco Chronicle, 11/12/97]. When you're short on facts, rhetoric fills volumes.

The Clinton Administration position is this: Medicare patients must surrender their ability to choose; they must accept the medical procedure that the government determines at the government's price, or they get no service at all.

The Clinton "vision" as applied to Medicare is this: Essentially, on the day before your 65th birthday you can choose your own health care; on your 65th birthday and for the remainder of your life, government chooses it for you.

As with all systems seeking absolute control, the Clinton prohibition is founded on inane logic. In this case, the Clinton administration ultimately wants to keep physicians in Medicare by the threat of removing them from it. For those interested in seeing the Clinton health care "vision," the future is now for seniors.