Medicare at 50: Is privatization the way to go?

Editor's note: Fifty years ago this month, President Lyndon B. Johnson signed a law to give American seniors something they had never before had - guaranteed access to affordable health care. We asked the health-policy experts who write for the Field Clinic blog at Philly.com for their thoughts on Medicare at 50, especially as pressures grow to privatize this popular program further.

Medicare is often touted as a government-run single-payer insurance system, a model that some would extend to all health coverage. But it isn't. An indispensable partnership with private insurance companies was baked into the program's core, and it has grown relentlessly over the years.

Invisible to many beneficiaries, yet crucially important, are companies that process claims and make many coverage decisions. More visible are companies that offer Medicare-supplement policies to cover the program's often-hefty deductibles and co-payments and a wider range of services.

Since the 1980s, private insurers have played an even more direct role by offering managed-care plans that beneficiaries can select in lieu of traditional Medicare coverage. The option is now called Medicare Advantage, and it attracts more than 30 percent of beneficiaries. That means that almost one-third of Medicare is run as a voucher system for privatized coverage, and the other two-thirds depends heavily on private companies for administrative support.

Some politicians want to privatize Medicare even further by placing all beneficiaries in private managed-care plans.

Supporters point to greater incentives for innovation and experimentation in private markets than in government-run systems.

But traditional Medicare is estimated to spend about 2 percent on administrative overhead. The rate for private insurers is estimated at closer to 17 percent. That's right: When it comes to providing health insurance, the government is actually more efficient than the private sector.

It is the balance of government and private roles that keeps Medicare running so effectively. Further privatization might bring some benefits, but only if it is implemented with great care.

Robert I. Field, professor of law and health management and policy, Drexel University

Rather than deliver savings to the Medicare system, Medicare Advantage actually became a drain on it, costing 13 percent more per enrollee. This is especially surprising, given that Medicare Advantage plans, through benefit designs, marketing, and extra perks like gym memberships tend to attract and retain healthier enrollees who should be cheaper to cover, not more expensive.

The Affordable Care Act does a lot to strengthen Medicare, starting with ending the overpayments to Medicare Advantage plans and seeing that these insurers, like others, put at least 80 percent of enrollees' premium dollars toward medical care, rather than administration, marketing, and overhead. The law also incentivizes greater coordination between hospitals, insurers, and providers through Accountable Care Organizations.

That's the direction we should be moving: toward savings that are achieved through better care that's coordinated and patient-centered, and addresses the challenges patients face once they return home. Privatization - especially when it's forced upon vulnerable populations like seniors living on fixed incomes, often with multiple, chronic health conditions - doesn't lower costs, it simply shifts the risk onto those who can least afford it.

Antoinette Kraus, director, Pennsylvania Health Access Network

When Medicare was first passed in 1965 and implemented in 1966, it was designed to be similar to Social Security. It was not intended to interfere in the spending relationship between patients and providers of health care, any more than Social Security was intended to interfere in the spending relationship between older people and grocers, gas stations, or landlords.

How much has changed in 50 years!

Government has assumed the role as major buyer and controller of medical care for most seniors and is about to embark in an even more directed relationship as traditional Medicare moves into Accountable Care Organizations with monitoring of quality and outcomes. Nearly a third of seniors have chosen to transfer their Medicare fiscal benefit, in a voucherlike arrangement, to the purchase of private managed-care Medicare Advantage plans that definitely do come between the patient and the provider, but in return offer what many think is a better financial deal.

Had this future been apparent in 1965, my guess is that both supporters and opponents of the Medicare legislation would have been surprised. They might well still have gone ahead, but the discourse then and now would have been very different.

Mark Pauly, professor
of health care management,
Wharton School

The implementation of Medicare legislation allowed physicians to make much more money than they ever imagined. This is especially true for the procedural specialists.

New categories of workers including coding and insurance specialists were needed. There was a loosening of the doctor-patient relationships with government involvement.

Although Medicare allowed more people to receive health insurance and health care, there is not much evidence that it improved the quality of care. Doctors were paid for quantity rather than quality. Our goal for the next 50 years should be to develop new payment systems and improve the quality of care.

Paula L. Stillman,
MD, MBA