Can Competition Improve Medicare?: a Look At

QUALITY ACCOUNTABILITY UNIVERSAL COVERAGE GUARANTEED ACCESS RISK ADJUSTMENT

COST CONTROL BENEFICIARIES INFORMED CHOICE STANDARD COMPREHENSIVE BENEFITS

QUALITY ACCOUNTABILITY UNIVERSAL COVERAGE GUARANTEED ACCESS RISK ADJUSTMENT

COST CONTROL INFORMED CHOICE PRIVATE INSURANCE PLANS STANDARD COMPREHENSIVE

BENEFITS QUALITY ACCOUNTABILITY UNIVERSAL COVERAGE GUARANTEED ACCESS RISK

ADJUSTMENT HEALTH CARE PROVIDERS COST CONTROL INFORMED CHOICE STANDARD

COMPREHENSIVE BENEFITS QUALITY ACCOUNTABILITY UNIVERSAL COVERAGE GUARANTEED

ACCESS RISK ADJUSTMENT COST CONTROL INFORMED CHOICE GOVERNMENT QUALITY

UNIVERSAL COVERAGE GUARANTEED ACCESS RISK ADJUSTMENT COST CONTROL

BENEFICIARIES INFORMED CHOICE STANDARD COMPREHENSIVE BENEFITS QUALITY

ACCOUNTABILITY UNIVERSAL COVERAGE GUARANTEED ACCESS RISK ADJUSTMENT COST

CONTROL INFORMED CHOICE PRIVATE INSURANCE PLANS STANDARD COMPREHENSIVE

BENEFITS QUALITY ACCOUNTABILITY UNIVERSAL COVERAGE GUARANTEED ACCESS RISK

ADJUSTMENT HEALTH CARE PROVIDERS COST CONTROL INFORMED CHOICE STANDARD

COMPREHENSIVE BENEFITS QUALITY ACCOUNTABILITY UNIVERSAL COVERAGE GUARANTEED

ACCESS RISK ADJUSTMENT COST CONTROL GOVERNMENT STANDARD COMPREHENSIVE

BENEFITS QUALITY ACCOUNTABILITY UNIVERSAL COVERAGE GUARANTEED ACCESS RISK

ADJUSTMENTCan Competition COST CONTROL INFORMED CHOICEImprove STANDARD COMPREHENSIVE Medicare? BENEFITS QUALITY ACCOUNTABILITYA Look UNIVERSAL at Premium COVERAGE GUARANTEED Support ACCESS RISK ADJUSTMENT COST CONTROL INFORMED CHOICE STANDARD COMPREHENSIVE BENEFITS QUALITY

ACCOUNTABILITY UNIVERSAL COVERAGE GUARANTEED ACCESS RISK ADJUSTMENT COST

CONTROL INFORMED CHOICE STANDARD COMPREHENSIVE BENEFITS BENEFICIARIES QUALITY

ACCOUNTABILITY UNIVERSAL COVERAGE GUARANTEED ACCESS RISK ADJUSTMENT COST

CONTROL PRIVATE INSURANCE PLANS INFORMED CHOICE STANDARD COMPREHENSIVE

BENEFITS QUALITY ACCOUNTABILITY UNIVERSAL COVERAGE GUARANTEED ACCESS RISK

ADJUSTMENT COST CONTROL INFORMED CHOICE HEALTH CARE PROVIDERS STANDARD

COMPREHENSIVE BENEFITS QUALITY ACCOUNTABILITY UNIVERSAL COVERAGE GUARANTEED

ACCESS GOVERNMENT RISK ADJUSTMENT COST CONTROL INFORMED CHOICE STANDARD

COMPREHENSIVE BENEFITS QUALITY ACCOUNTABILITY UNIVERSAL COVERAGE GUARANTEED

ACCESS RISK ADJUSTMENT COST CONTROL BENEFICIARIES INFORMED CHOICE STANDARD

COMPREHENSIVE BENEFITS QUALITY ACCOUNTABILITY UNIVERSAL COVERAGE GUARANTEED

ACCESS RISK ADJUSTMENT PRIVATE INSURANCE PLANS COST CONTROL INFORMED CHOICE

STANDARD COMPREHENSIVE BENEFITS QUALITY ACCOUNTABILITY UNIVERSAL COVERAGE

HEALTH CARE PROVIDERS GUARANTEED ACCESS RISK ADJUSTMENT COST CONTROL INFORMED

CHOICE STANDARD COMPREHENSIVE BENEFITS QUALITY ACCOUNTABILITY GOVERNMENT QUALITY ACCOUNTABILITY UNIVERSAL COVERAGE GUARANTEED ACCESS RISK ADJUSTMENT GOVERNMENT

Can Competition Improve Medicare? A Look at Premium Support

URBAN INSTITUTE COST CONTROL BENEFICIARIES INFORMED CHOICE STANDARD COMPREHENSIVE BENEFITS ACCOUNTABILITY 2

CONTENTS Preface ...... 3

Essay ...... 4

Conference Agenda ...... 21

Conference Participants ...... 22

Conference Volume Preview...... 23

About the Urban Institute ...... 24 UNIVERSAL COVERAGE GUARANTEED ACCESS RISK ADJUSTMENT PRIVATE INSURANCE PLANS COST CONTROL 3

PREFACE On April 16, 1999, a distinguished group of health economists, policy analysts, and journalists met at the Urban Institute to explore the details of a premium support approach to Medicare reform. The daylong conference was sponsored by the Urban Institute’s Retirement Project, with generous support from the Andrew W. Mellon Foundation. An overview paper, “Reforming Medicare: A Framework for Comparing Incremental and Premium Support Approaches,” by Beth Fuchs of Health Policy Alternatives, Inc., and consultant Lisa Potetz, provided the framework for panel presentations, commen- taries, and discussion by participants. A conference volume containing this background paper and five additional papers based on the conference discussion will be published in early 2000. This booklet provides an overview and synthesis of the major issues discussed at that conference. We hope that both the shorter guide and the full volume will help frame future policy discussions and clarify reform options under consideration.

Marilyn Moon, Urban Institute September 1999 INFORMED CHOICE STANDARD COMPREHENSIVE BENEFITS HEALTH CARE PROVIDERS UNIVERSAL COVERAGE 4

CAN COMPETITION IMPROVE MEDICARE? A LOOK AT PREMIUM SUPPORT

Medicare’s financial future is under siege from rising health care costs The goal of premium and the impending retirement of the baby boom generation. If no changes are made, this venerable federal health insurance program— support is to replace the which today covers 39 million elderly and disabled persons at a cost current Medicare program of $220 billion—will face a crisis within the next 20 years. Its hospital insurance trust fund is projected to become insolvent even sooner, with managed competition by about 2015. Not surprisingly, Medicare reform is high on the nation’s domestic policy agenda. that would rely on market The most extensive reform currently on the table is premium forces to deliver quality support, a proposal under which the government would contribute some share of the premium Medicare beneficiaries pay for basic health care in a way that maximizes services. The goal of premium support is to replace the current Medicare program with managed competition that would rely on cost-effectiveness and market forces to deliver quality care in a way that maximizes cost- beneficiaries’ choice effectiveness and beneficiaries’ choice of plans. Thus, premium support would elevate the private insurance industry to equal status of plans. with the other interested groups in the existing Medicare mix—health care providers, the federal government, and beneficiaries. The National Bipartisan Commission on the Future of Medicare recently came out in favor of one version of premium support. Presi- dent Clinton’s new Medicare reform proposal also stresses expanded competition, but with key differences. Since premium support is almost certain to be a major option in the Medicare reform debate in the 106th Congress—and since tracing the specifics needed for such a system to succeed will help clarify the wider debate about Medicare reform—premium support merits careful attention. To contribute to such an examination, the Urban Institute gathered a small group rep- resenting a broad range of expertise, experience, and points of view to spend a day formulating the questions that will need to be answered in order to assess adequately the merits and practicality of premium support. Conference discussion confirmed that designing and implementing premium support—particularly since it would have to alter significantly the current Medicare program—is much more complicated than proponents have recognized. RISK ADJUSTMENT GUARANTEED ACCESS GOVERNMENT UNIVERSAL COVERAGE ACCOUNTABILITY QUALITY 5

LEGISLATIVE CONTEXT OF MARKET-BASED REFORMS. Under current policy, Medicare is projected to become financially unsustainable sometime within the next 20 years. With this and related concerns in mind, Congress established, in the Balanced Budget Act of 1997, the National Bipartisan Commission on the Future of Medicare. Among other duties, the Commission was charged with making recommendations to Congress by March 1, 1999, on a comprehensive approach to preserving the program. The Commission held numerous hearings and meetings from which two paths emerged. The co-chairs, Senator John Breaux (D-LA) and Representative William Thomas (R-CA), as well as the majority of the Commission members supported a comprehensive overhaul of Medicare based on a premium support structure. The Commission did not consider an alternative to the Breaux-Thomas proposal, but members opposed to the majority approach voiced support for a variety of incremental and “modernizing” Medicare reforms. These changes would involve: retaining the current financing structure while continuing to restrain spending growth in fee-for-service (FFS) Medicare, updating the cost-sharing requirements for the FFS program, instituting policies to make FFS Medicare a more prudent buyer of health care services, and making improvements to the Medicare+Choice program. Supporters of this alternative contend that, together with reform of supplemental insurance (Medigap), sufficient savings could be achieved to enable the inclusion of outpatient prescription drug coverage in the Medicare benefit package. The Breaux-Thomas premium support approach is modeled loosely after the Federal Employees Health Benefit Program (FEHBP). As Medicare+Choice, the government would pay part of the premium for an approved health plan selected by the beneficiary. The difference would be that traditional Medicare, “the government-run, fee-for-service option,” would compete for enrollment on the same basis as any approved private plan. If the beneficiary selected traditional Medicare, then the government would pay a portion of the cost of providing traditional Medicare. If the beneficiary opted instead for an approved private plan, then the government would pay a portion of that plan’s premium. Under the Breaux-Thomas proposal, a new Medicare Board would be established to administer the program in place of the Health Care Financing Administration. The Board would be given broad powers to oversee and negotiate with private plans and traditional Medicare and to approve plan service areas. The Board would have the authority to ensure quality standards, protect against adverse selection, approve benefit packages, negotiate premiums, compute payments to plans (including risk and geographic adjust- ments), and provide information to beneficiaries. The premium support approach is in many ways similar to managed competition, which was the basis for numerous national health care reform proposals debated in Congress in 1993–1994. The main difference is that those managed competition proposals were targeted primarily at the insurance market for the under-65 population rather than for Medicare.

Excerpted from “Reforming Medicare: A Framework for Comparing Incremental and Premium Support Approaches,” by Beth Fuchs and Lisa Potetz, presented at the Urban Institute’s conference “The Details of a Premium Support Approach to Medicare Reform,” April 16, 1999. PRIVATE INSURANCE PLANS UNIVERSAL COVERAGE GUARANTEED ACCESS RISK ADJUSTMENT COST CONTROL 6

HOW MIGHT PREMIUM SUPPORT WORK IN THEORY? Premium support is based on the same principle as the managed competition proposals for the under-65 population debated in Congress a few years ago. As applied to Medicare, it would set the government’s share of the premium in advance, say at a fixed portion of the average premium for a basic set of services. Under some versions, public costs and their rate of growth would be known and under government control. Traditional fee-for-service Medicare would compete with private plans in offering this basic set of services. Beneficiaries would choose the plan that best suits their needs and pay any difference between the cost of the plans they choose and the government’s premium contribution. Thus, beneficiaries would have a choice of plans, along with a financial incentive to choose the plan with the best value.

MEDICARE’S PRIVATE HEALTH To avoid giving plans a financial incentive to select only the PLANS AND COMPETITIVE PRICING. healthiest beneficiaries, the government or its agent would have to Currently, Medicare pays health plans adjust the amount of its premium contribution to allow for the high- according to an administrative formula er costs of serving sick or disabled beneficiaries. Plans would not be based on the average local costs in fee- required to have caseloads with the same average risk profile; they for-service (FFS) Medicare. There is would simply be prevented from benefiting financially by discrimi- considerable evidence that this payment method gives plans more than nating against beneficiaries with predictably higher health care costs. their beneficiaries cost. Plans return If this new structure works as designed, plans would have a part of this surplus by providing extra financial incentive to offer the best-quality care at the lowest price. benefits to beneficiaries at low or zero Thus, plans offering the best value would benefit most from the com- out-of-pocket premiums. This overpay- petition, ensuring maximum efficiency in the delivery of Medicare ment has created an alliance of services. beneficiaries and health plans in high FFS cost areas (e.g., Miami), where benefits exceeding the basic Medicare package have become the norm. The HOW MIGHT PREMIUM SUPPORT payment system has also created WORK IN PRACTICE? resentment in low FFS cost areas Advocates of premium support are putting it forward, first and fore- (e.g., Minneapolis), where extra bene- most, as a way to generate savings for Medicare. Some proponents fits require substantial out-of-pocket favor premium support as a way of making the Medicare market oper- costs. Thus the current system of ate more efficiently, even if it does not generate overall savings. At paying Medicare health plans is both bottom, however, this is savings in another form. A more efficient inefficient and unfair, but some benefit from it and naturally oppose change. system will cost less for a given set of services, and the difference can continued on next page INFORMED CHOICE STANDARD COMPREHENSIVE BENEFITS BENEFICIARIES QUALITY UNIVERSAL COVERAGE 7

be either saved or used to provide more comprehensive services, higher-quality care, or both. The allure of premium support is that the same structure that promises to save Medicare dollars will achieve other reform goals as well—wider beneficiary choice, higher-quality care, and less continued micromanagement of Medicare by Congress. How well such a To make Medicare more like other proposal will work depends on several key issues that need to be care- buyers, the Health Care Financing fully addressed and on new policies that are as yet untested. Administration has recently tried to initiate two different competitive bid- Competition As a Way of Generating Savings ding demonstrations, one in Baltimore Premium support seeks savings by requiring beneficiaries who choose and one in Denver. In both cases, higher-cost plans to pay substantially higher premiums. The theory is health plans and beneficiaries generat- that beneficiaries will become more price-conscious and shift to ed political pressure to stop the lower-cost plans, thereby rewarding the private insurers who hold demonstrations before they started. down costs. There is some evidence from the Federal Employees Health plans opposed competitive pric- Health Benefits Program (FEHBP) and the California Public ing because they feared lower prices Employees Retirement System (CalPERS) that varying plans and would result, and lower government premiums in this way has disciplined the insurance market to some payments would require them to extent, but there is no evidence as to whether this will work for reduce the amount of extra benefits they currently provide at zero extra Medicare beneficiaries.1 premium to beneficiaries. Beneficiaries Unless some beneficiaries each year are willing to shift plans opposed the demonstrations since their (requiring many to change providers and all to learn new plan rules), zero-premium benefits might be reduced. insurers will get no reward for increased efficiency and there will be Given the active and bipartisan inter- no savings. Two factors suggest caution in predicting how much can vention of the legislators in both states, be saved. it is reasonable to conclude that Con- First, retirees seem to be relatively insensitive to changes in plan gress is more supportive of bringing price. Analysis of retirees in the federal employees high-option Blue market forces to Medicare in the Cross plan and the University of California retirement system suggests abstract than in practice. However, the that, even when plans become very expensive, Medicare beneficiaries only way to channel market forces to will be much less likely to switch than younger groups and much serve Medicare beneficiaries in the more likely to end up in expensive plans that do not necessarily offer future is to reduce reliance on formula- a better package of benefits.2 It is also likely that the most flexible ben- based payments, and this will require eficiaries will be the healthiest ones, who have less at stake in trying a some form of competitive bidding. new system. If so, the sickest and most vulnerable may end up being Excerpted from “Competitive Pricing by Medicare’s Private Health Plans: concentrated in plans that become increasingly expensive over time, Be Careful What You Wish For,” by Len Nichols, presented at the Urban setting off a vicious spiral. Even if these plans hold the line on per Institute’s conference “The Details of a Premium Support Approach to beneficiary cost, the premiums beneficiaries must pay are likely to rise Medicare Reform,” April 16, 1999. STANDARD COMPREHENSIVE BENEFITS HEALTH CARE PROVIDERS INFORMED CHOICE UNIVERSAL ACCESS 8

over time, because the lower-cost plans entering the market will push down government’s contribution to the premium price. Second, switching plans does not necessarily save money. Indeed, some evidence indicates that having one physician over a long period may actually reduce the cost of care, other things being equal.3 Thus, promoting plan switching among the Medicare population may use up any savings that might result from greater continuity of care. There are other reasons to be cautious about predicting large- scale savings from competition. One is that a private Medicare would not necessarily be more efficient than current Medicare fee-for-service. In the 1970s, per capita costs in private health plans and Medicare grew at similarly exorbitant rates. In the 1980s, Medicare had a much better cost record than the private sector. In the 1990s, the private sector began to narrow the gap, but as of 1997 it had a considerable way to go to catch up.4 In the long run, private- and public-sector costs may increase more or less in tandem because the rapidly growing costs of new technology are likely to affect both WILL MEDICARE BENEFICIARIES RESPOND TO PRICE? The premium equally. Most of the savings in both sectors have come from slowing support model offers an attractive growth in the prices paid for services, with only preliminary inroads approach to the cost-control problem, in reducing the use of services and almost no headway in addressing but a key question that has largely not the costs of technology.5 been addressed is how well it will An essential building block of premium support and similar translate to the Medicare program. If competitive approaches is to establish a process for getting bids from Medicare beneficiaries are significantly private health plans. The Health Care Financing Administration less price-sensitive than active employ- (HCFA) is attempting to experiment with competition and has found ees (say, because they face higher switching costs), the expected expendi- that perfecting a bidding process may easily take 5 to 10 years. To ture savings and efficiency gains of make the process manageable, HCFA will leave traditional Medicare moving to a competition-based system out of the picture for now.6 may not be fully realized and, in fact, Medicare’s administrative costs are considerably lower than those may be less than the additional admin- of private plans, in part because they do not reflect the costs of com- istrative and regulatory cost required to petition. As private insurers develop their bids and market their plans, “manage competition.” administrative costs are virtually certain to rise. Projections of such continued on next page costs would be valuable in helping assess the cost-saving potential of introducing wide-scale competition among plans. QUALITY ACCOUNTABILITY GOVERNMENT UNIVERSAL COVERAGE GUARANTEED ACCESS RISK ADJUSTMENT 9

Choice and the Benefit Package For premium support to produce cost-saving competition, beneficiaries must be able to select from a variety of plan options the one that best fits their needs at the lowest price. How should these benefit plans be set? On the one hand, encouraging competition would suggest a system that lets plans offer a wide variety of benefit options. continued On the other hand, plans must be standardized enough to make price Research suggests that Medicare comparisons meaningful. beneficiaries are significantly less price-sensitive than nonelderly work- One way to do this would be to set a “standard” benefit package ers. What is not clear is exactly how and allow plans to offer that package and clearly specified alternatives sensitive consumers must be on aver- to it. What should that standard package include? Critics of Medicare age to induce the type of price point out that the inadequacy of the current benefit package has led competition and cost control envi- to a variety of supplemental, or Medigap, insurance arrangements. sioned by premium support advocates. These alternatives create confusion for beneficiaries, who have to It may be that while price matters less rely on more than one plan to meet their needs. Beneficiaries have to retirees than to younger consumers, generally expressed a preference for more simplicity and more it matters enough to generate the comprehensiveness, rather than more choice. Moreover, the existence desired effects. Moreover, the behavior of a parallel market providing Medigap coverage is in itself inefficient. of Medicare beneficiaries in a premium The only way to eradicate the parallel market is to make Medicare support setting will likely vary across comprehensive enough to eliminate the need for additional coverage. different socioeconomic groups and There are two key benefits that a reformed Medicare system most geographic areas, and will depend on likely would include: coverage of prescription drug costs and a limit the exact way the premium support on the annual out-of-pocket costs any individual must pay. Under model is implemented. premium support, unless specified by Medicare rules, more compre- Excerpted from “The Price Sensitivi- ty of Medicare Beneficiaries in a hensive benefits can only be obtained through high-benefit plans, ‘Premium Support’ Setting,” by Thomas Buchmueller, presented at which offer them to beneficiaries at higher prices. So in this context, the Urban Institute’s conference “The Details of a Premium Support choice means that a beneficiary must pay more for better plans. It also Approach to Medicare Reform,” April 16, 1999. means that low-income individuals may be left with no option but to go into the least-generous plans. Insurers know that benefits like prescription drugs can attract a sicker population, so they may be less inclined to offer the most comprehensive benefits. The greater restrictions that plans are now putting on their prescription drug offerings7 suggest that a purely voluntary set of additional benefits may not be adequate to meet the needs of this population. GUARANTEED ACCESS UNIVERSAL COVERAGE ACCOUNTABILITY QUALITY BENEFICIARIES COST CONTROL 10

Thus, it is highly unlikely that premium support would yield large expansions in benefits without any further public contributions. Price competition will encourage plans to offer fewer benefits, not more. Standardized and expanded Medicare benefits will add Premium support requires substantially to the costs of the program.

some means of ensuring Quality and Risk Adjustment In a world where health care plans compete for beneficiaries, it is that plans compete on the crucial to consider the basis on which they will compete. Will they basis of quality and price seek to improve services or will they use marketing and other tools to attract healthy people? There is a delicate balance between giving rather than risk selection. plans enough flexibility to offer various benefit combinations and giving them so much leeway that they can use benefit packages to attract from the general population those who are at less risk of becoming sick. Premium support requires some means of ensuring that plans compete on the basis of quality and price rather than risk selection. To achieve this, a risk-adjustment mechanism must be found or developed that puts—and is seen to put—plans serving sicker beneficiaries on a level playing field with plans serving healthier ones. Progress is being made in developing such a mechanism, and many analysts argue that it need only be as good as the plans’ ability to select favorable risks. But others are skeptical that a mechanism like the ones developed thus far, which adjust for only a small share of the differences in health care costs, will in fact be able to prevent plans from manipulating the system. Much more research and development has gone into ways to attract particular types of health risks than into how to adjust for differential risk. Beneficiaries are pretty effective at sort- ing themselves by risk as well. The risk-adjustment mechanism must be stable over time. Insur- ers need such stability if they are to play in a competitive Medicare environment, so they can develop their plans with confidence that the sands will not shift under them. The insurance industry has raised concerns, for example, about a very modest risk-adjustment mechanism to be introduced by HCFA early next year.8 This does not mean PRIVATE INSURANCE PLANS STANDARD COMPREHENSIVE BENEFITS COST CONTROL UNIVERSAL COVERAGE 11

RISK ADJUSTMENT, COMPETITION, AND PREMIUM SUPPORT. Risk adjustment is an important and controversial part of the Medicare program. Although large-scale experience with it is limited, analysis by the Health Care Financing Adminis- tration (HCFA) indicates that risk adjustment should improve the correspondence between payment rates to each Medicare+Choice plan and the relative cost of its enrollees. Better techniques are being developed and better data are expected to become available as the system evolves over the next several years. Risk adjustment promises to become substantially more important and controversial with increasing emphasis on competition as a method of allocating Medicare’s resources. Under the current system, risk adjustment affects the amount that Medicare+Choice plans receive, but the traditional Medicare program, which covers the vast majority of beneficiaries, is unaffected. Under a competitive Medicare system such as that discussed by the National Bipartisan Commission on the Future of Medicare, an accurate risk-adjustment mechanism would be essential. Without it, plans (such as traditional Medicare) that attracted disabled or less healthy enrollees would be at a competitive disadvantage and subject to financial losses, while beneficiaries that might be expected to require more care would face higher premiums and severe access problems. The technical means exist to implement a risk-adjustment mechanism in the context of a competitive Medicare system. The real question is whether the available methodologies are adequate to appropriately adjust plan payments and avoid the adverse incentives that otherwise would result. HCFA is just now preparing to risk adjust payment rates for the first time in a much more limited context, using an approach that it intends to modify as it collects and examines additional data, with a four-year phase-in period. As this approach is implemented and evaluated, we will learn much more about how well risk adjustment works in a Medicare context.

Excerpted from “Risk Adjustment in a Competitive Medicare System with Premium Support,” by Stuart Guterman, presented at the Urban Institute’s conference “The Details of a Premium Support Approach to Medicare Reform,” April 16, 1999.

DISTRIBUTION OF MEDICARE EXPENDITURES, 1994 Per Beneficiary Spending Category Average Spending Per Beneficiary Percentage of All Beneficiaries $0 $0 18.6 $1 to $99 $43 10.9 $100 to $499 $269 21.8 $500 to $999 $717 11.3 $1,000 to $1,999 $1,423 9.2 $2,000 to $4,999 $3,260 10.3 $5,000 to $9,999 $7,102 6.7 $10,000 to $14,999 $12,305 3.5 $15,000 to $19,999 $17,335 2.2 $20,000 to $24,999 $22,346 1.5 $25,000 and over $44,281 3.9 Source: Urban Institute calculations of Health Care Financing Administration data (1996), 1999. UNIVERSAL COVERAGE ACCOUNTABILITY GOVERNMENT QUALITY GUARANTEED ACCESS RISK ADJUSTMENT 12

that Medicare can never go to a competitive system. Rather, an effective risk-adjustment mechanism needs to be in place before plans are allowed to carve up the market. It also raises questions about the role of the traditional fee-for-service portion of Medicare, which will be the default plan for the foreseeable future. No one understands yet how to measure quality effectively. To make substantial progress in this area requires investment in out- comes research and disease management. If this research is to yield maximum dividends, it must focus on people with substantial health problems—precisely the population many private plans seek to avoid. Further, systemwide quality improvements require full dissemination of such research. Competition demands the reverse, treating information on innovations as privileged and proprietary. Some private plans might be willing to specialize in individuals with specific needs, but this is unlikely to happen in an environment of price competition and ADMINISTRATIVE ISSUES IN THE barely adequate risk adjustment. Innovative plans are almost bound DESIGN OF PREMIUM SUPPORT. to suffer in such a context. The key administrative issues in designing a premium support system— who will administer the program and Accountability and Control what degree of flexibility will the Advocates of premium support often specify that an independent administrator have—are to a consider- board, not Congress, be responsible for managing Medicare. able extent questions about how much The first question is how much power would be vested in this should be left to “experts,” as opposed board. A useful image here is the iron fist versus the invisible hand. to the political process on one hand Since the competition is explicitly designed to be managed, the hand and the free market on the other. These certainly cannot be invisible. Indeed, there are compelling arguments questions are largely philosophical that to manage competition effectively, the hand should be a fist with ones that cannot simply be answered by reference to existing competitive considerable power. But this concept may be at odds with the idea of programs. deemphasizing the role of government. Much has been made of the Medicare is much larger than these virtues of the FEHBP as a control mechanism, but that analogy needs other programs; its policies affect the careful scrutiny. The FEHBP is an employer-sponsored benefit, as continued on next page opposed to a program that currently serves one in eight Americans and will soon be serving one in five. CalPERS is also brought up as a model of what a system can do when allowed to make decisions that are at least somewhat insulated from the political process. CalPERS GUARANTEED ACCESS UNIVERSAL COVERAGE ACCOUNTABILITY HEALTH CARE PROVIDERS INFORMED CHOICE 13

may manage better than Congress and HCFA, but will Congress let any entity be independent and flexible enough to approach what CalPERS does? Another important question is to whom the independent board would be accountable. If not Congress, should the board answer to the “people”? If so, there must be some mechanism for choosing continued members that reflects this responsibility. Will the people protect the operations of nearly every health care rights of insurers? Under some scenarios, the insurers seem to be in provider and the economy of every greater danger of losing protection than the beneficiaries. community. Because adoption of a premium support system might repre- Monitoring and oversight pose questions as well. Some markets sent a major departure from the current need much less oversight than others, but are such differences system, and could pose real risks for sustainable in a national program? There is a legitimate concern, for beneficiaries and the health care system example, that an unmonitored market will leave some areas of the as a whole, it may be important that country with no real choices. Would the board be able to compel administrators have the ability to plans to move into some regions as a requirement for doing business respond rapidly to unforeseen develop- in others? Then there is the issue of monitoring plan performance. ments during the transition. This Must Medicare take all plans that want to bid? Will it be able to would argue for maximum flexibility exclude those known to perform poorly? There is no precedent for and independence. At the same time, this kind of selectivity in Medicare, but there may be no other way to however, precisely because Medicare control the system. affects so many stakeholders so deeply, The biggest question of all is whether Congress will in fact lessen its administration will inevitably con- its dominant role in shaping and managing Medicare. Can a board be tinue to involve political judgments insulated from the political process any more than HCFA is? Congress and some degree of bureaucracy. has shown little patience in allowing changes in Medicare to be imple- Excerpted from “Administration of a Medicare Premium Support Pro- mented. For example, Congress passed an extensive set of changes in gram,” by Mark Merlis, presented at the Urban Institute’s conference 1997, and already there is a strong push to repeal, modify, or relax “The Details of a Premium Support Approach to Medicare Reform,” 9 many of them. Medicare is expected not only to be efficient but also April 16, 1999. to care about the profitability of the businesses with which it deals. These goals are often contradictory and are likely to get more so in a system built on managed competition. A final accountability question is how much insulation is really desirable for the board, given that it will be overseeing benefits and premium prices for a program that affects all Americans—as retirees, family of retirees, or future retirees. ACCOUNTABILITY PRIVATE INSURANCE PLANS STANDARD COMPREHENSIVE BENEFITS RISK ADJUSTMENT 14

The Special Issue of Beneficiary Protection Medicare entitles all elderly and disabled Americans to health insurance, regardless of their ability to pay or their health status. These protections derive from three principles: universal coverage within a

ACUTE HEALTH CARE SPENDING redistributive framework, the pooling of risks, and the entitlement BY ELDERLY AS A PERCENTAGE nature of Medicare. OF INCOME Universality within a Redistributive Framework. Before 1966,

35% many elderly Americans could not afford health insurance; others could not obtain coverage because they were poor health risks. All that changed with the passage of Medicare, which redistributed the

30% high costs of insurance across the elderly population and to some 28.6% extent the population as a whole. Although there is substantial variation in the ability of beneficiaries to supplement Medicare’s basic

25 % health care benefits, those benefits are available to all who carry a Medicare card. Hospitals, physicians, and other providers accept the card without question. Once people are on Medicare, illness or high

20% medical expenses no longer place them in fear of losing care or bat- 19.1% 18.6 % tling to retain coverage. Developing a major illness or chronic condition is not grounds for losing coverage; in fact, disability is grounds for getting coverage—a different philosophy from that 15 % 14 .3 % underlying the private sector’s approach to health insurance. 12.3% Will reforms that rely on the market retain Medicare’s emphasis 11.0 % 11.2% on equal access to care and plans? This question is of concern on at 10 % least two grounds. First, the differential premiums that are the foundation of managed competition’s approach to cost control could undermine the redistributive nature of Medicare, particularly if the 5% traditional fee-for-service program is priced out of reach of many beneficiaries. Second, if the states are given more power to deal with beneficiaries who are also eligible for Medicaid (the dual eligibles), 0% 196 5 1970 1978 198 4 1987 1998 2025* financing changes may lead such beneficiaries to be treated as less Source: Urban Institute calculations using Health Care desirable than “regular” Medicare patients. Financing Administration’s National Health Expenditures, Consumer Price Index, and Current Population Survey, 1999. *projection INFORMED CHOICE BENEFICIARIES COST CONTROL RISK ADJUSTMENT GUARANTEED ACCESS ACCOUNTABILITY 15

AREAS OF LIMITED COMPETITION. Another factor that affects access to health care is geography. The problems faced by rural and inner-city Americans in obtaining adequate access to physician and hospital services have been an enduring problem for our health system as a whole. Studies of Medicare beneficiaries have indicated that in general, few problems of access exist. However, difficulties in obtaining needed medical care in a timely manner are faced by some groups of beneficiaries. These include, for example, the oldest old, those in poor health, and beneficiaries living in rural and poverty areas. Basic to the theory of competition is the idea that costs will be controlled because health plans will have to compete for enrollment (and thus income) by offering attractive prices and quality services. For competition to exist, however, there has to be more than one plan in the area marketing coverage to Medicare beneficiaries. Too few competitors could lead to anti-competitive tendencies. On the other hand, if there are too many plans, each individual plan might exert less market power over individual providers, reducing their leverage in bargaining for better prices. This could lead to higher prices for plan enrollees. Also, too many plans could lead to consumer confusion and imprudent purchasing in which buying decisions might be guided more by name recognition than information on price and quality. The critical number of plans to support competition is, in fact, contested by the experts. Data on current Medicare managed care indicate that for many areas of the country, managed care options are limited or not yet available. In March 1998, for close to two-thirds of all beneficiaries, the foundation for a competitive private market was in place. But for the remaining beneficiary population, such a foundation had not yet been established. Moreover, rural areas were especially slow in attracting HMOs and other managed care plans. For January 1999, Medicare+Choice plans were available to 86 percent of beneficiaries living in metropolitan areas but only 24 percent of beneficiaries living in non-metropolitan areas. It is the case that the number of areas without managed care plans for Medicare beneficiaries has been declining. For example, in June 1996, only 54 percent of beneficiaries had two or more risk plans available to them. As noted above, by 1998, 62 percent had a choice of Medicare+Choice plans. But even in areas with managed care plans, it is not clear that such plans are accessible to all enrollees. They may have few providers conveniently located to residents living in the inner city or accustomed to providing services to inner-city areas. Some believe that such areas could remain unattractive to managed care plans because the residents are on average poorer, or the medical resources (such as primary care physicians) needed to support the delivery system are inadequate. More generally, it may be years before effective competition arrives for some portion of the beneficiaries living in areas that are not yet served by any Medicare+Choice plans.

Excerpted from “Reforming Medicare: A Framework for Comparing Incremental and Premium Support Approaches,” by Beth Fuchs and Lisa Potetz, presented at the Urban Institute’s conference “The Details of a Premium Support Approach to Medicare Reform,” April 16, 1999. COST CONTROL ACCOUNTABILITY UNIVERSAL COVERAGE GUARANTEED ACCESS HEALTH CARE PROVIDERS 16

Pooling Risks. One of Medicare’s most important achievements is the pooling of risks among healthy and sick beneficiaries. Even among the oldest beneficiaries, there is a broad continuum of need for care. Some risk is totally unpredictable, but about one in three Medicare beneficiaries has severe mental or physical health problems that are known to be expensive to treat.10 If the costs of their care were segregated from the pool, they could easily expand beyond what even well-off individuals could afford over an extended period. The healthy and relatively well-off (incomes of over $32,000 a year for singles and $40,000 a year for couples) make up less than 10 percent of the Medicare population.11 Anything that puts the sicker at greater risk relative to the healthy changes what has been a basic tenet of Medicare, to protect the most vulnerable. The more the Medicare beneficiary risk pool is split up, the greater the burden on the risk- adjustment mechanism to protect universal access. PAYMENT CONCERNS OF HEALTH PLANS. [Health] plans would like to Medicare as an Entitlement. Medicare rules apply consistently have prices limited exclusively by across all beneficiaries and ensure that everyone in the program has marketplace competition, not by govern- access to care. Medicare has sometimes fallen short in this area ment price controls and oversight. because of regional differences in interpretation of coverage decisions Currently, for the Medicare+Choice and in the way medicine is practiced, but in general it meets substan- program under which Medicare con- tial quality standards and accountability requirements designed to tracts with health maintenance protect beneficiaries. Premium support, in order to eliminate govern- organizations (HMOs), the HMOs compete on the premiums that they charge ment micromanagement and allow plans to make competitive enrollees with large numbers of patients decisions, would place oversight of day-to-day care in the hands of and on the benefits that they offer. private insurers. How will this affect entitlement? What will happen However, the government also exercises to beneficiaries if, for example, a plan fails to meet requirements or oversight on these premiums and bene- leaves a region abruptly (as a number of HMOs did in 1999, leaving fits. Depending on one’s perspective, almost half a million beneficiaries to find new arrangements)?12 What oversight is an important aspect of con- about plans that go bankrupt without paying benefits? What recourse sumer protection and is necessary for a will patients have if they are denied care? One advantage of premium purchaser as large as Medicare. Alterna- tively, it can be regarded as ineffectual support and similar proposals is the flexibility they give plans to inter- and administratively expensive… vene more quickly when they believe too much care is being …health plans are generally willing delivered. But which is more alarming, too much care or care denied to be judged on criteria such as that cannot be corrected later? consumer satisfaction, patient care out- There will need to be careful oversight of activities within plans, comes, and whether access standards of the right to appeal decisions, and of marketing information. Plans are met, but not on whether profits are judged to be excessive by some external continued on next page STANDARD COMPREHENSIVE BENEFITS GOVERNMENT RISK ADJUSTMENT UNIVERSAL COVERAGE QUALITY 17

should be monitored for any practices that discourage beneficiaries from enrolling and for collusion in setting prices. If one plan leaves an area abruptly, for example, those that are left have enormous leverage to insist on higher premiums or looser control as a condition of stay- ing in the market. continued The Place of Traditional Medicare standard. From a health plan perspective, profitability should not be a Intimately intertwined with the issues of beneficiary protection is the consideration short of it being so low as question of what will happen to traditional fee-for-service Medicare. to raise a concern with the plan’s financial Is it to be just one of many plans that beneficiaries choose among, or viability. will it remain the basic default option, with private plans playing a Another issue for health plans is comparable or larger role than they do now? Private insurers want being able to operate in a stable busi- traditional Medicare to compete on the same basis as every other plan ness environment, including some level participating in Medicare. Otherwise, the beneficial effects of compe- of predictability in payment. Unfortu- tition on medical price inflation will be lost. nately, government is limited in its What would it mean to put Medicare on the same footing as ability to respond to this concern, since private plans? Given that about one-third of beneficiaries currently neither the administration nor Con- have no alternative to traditional Medicare, this is not a trivial gress can bind its successors. On the question.13 other hand, regulatory policies that are For traditional Medicare to compete on an equal footing, HCFA unclear or poorly considered can gener- would have to do all the things insurance companies are required to ate avoidable uncertainty, as can sudden do, such as have reserves. It would also have to be allowed to keep shifts in policy. Finally, in regard to the residual gov- the same proportion of excess revenues from efficient management ernment-administered Medicare program that other plans are allowed to keep, to plow back into enriched plan envisaged under premium support, pri- offerings. Further, HCFA would have to be allowed to purchase ser- vate health plans regard payment parity vices aggressively. But if all this were permitted, traditional Medicare as essential for a viable system. If the might dominate the market, especially in some parts of the country, residual program were financially becoming a threat to the very competition that premium support is advantaged, it would result in unfair based on. competition. Although the concept of If Medicare is not allowed to do all these things—if it is the last parity is easy to articulate, achieving it resort for beneficiaries who have no other option—it may be priced is complicated by the technical difficul- out of the market with a caseload that has a substantially higher risk ties in measuring enrollee health risk in profile than other plans. Congress may feel forced to exempt tradi- the various participating health plans, tional fee-for-service Medicare from competition, but under premium an issue at the heart of the debate on support this exemption would threaten the goal of achieving savings risk adjusters. for the federal government. Excerpted from “Health Plan Issues,” by Peter Fox, presented at the Urban Institute’s conference “The Details of a Premium Support Approach to Medicare Reform,” April 16, 1999. RISK ADJUSTMENT INFORMED CHOICE STANDARD COMPREHENSIVE BENEFITS PRIVATE INSURANCE PLANS 18

WHAT ARE THE CHALLENGES TO IMPLEMENTATION?

Market-based Medicare reform affects four major parties: private insurance plans, direct providers of care (doctors, hospitals, thera- pists, nursing facilities), government (both as protector of the public purse and protector of the public good), and beneficiaries. A brief review of what each group needs from a premium support system provides a useful summary of the design and implementation challenges inherent in moving Medicare in the direction of market-based reform.

PRIVATE INSURANCE PLANS NEED: • A reasonable financial return on their investment, • Sufficient flexibility in packaging and providing care to enable them to effectively compete in attracting beneficiaries to “the best plan at the best price,” and • Program rules and regulations that are (1) designed and inter- preted by persons who understand the principles of health insurance as well as the plan administrators do and (2) reasonable in the compliance costs they entail.

DIRECT PROVIDERS OF CARE NEED: • Enough autonomy in treatment decisions to preserve access to quality care, and • A narrow enough range of plan choices to keep the administrative complexities of interpreting different treatment, coverage, and payment rules for different patients to a manageable level.

GOVERNMENT NEEDS (AS PROTECTOR OF THE PUBLIC PURSE): • Enough plan choice to create competition that effectively controls health-sector costs, • Enough premium variation to ensure that beneficiaries have a sufficient financial incentive to make (and change) plan decisions on the basis of price, and • A standard Medicare benefit package comprehensive enough to eliminate the need for supplementary insurance. QUALITY ACCOUNTABILITY UNIVERSAL COVERAGE GUARANTEED ACCESS RISK ADJUSTMENT GOVERNMENT 19

GOVERNMENT NEEDS (AS PROTECTOR OF THE PUBLIC GOOD): • A risk-adjustment mechanism that provides sufficient financial incentive for plans to seek out sicker, higher-cost beneficiaries, • A monitoring and enforcement system that makes plans accountable for the services they provide and to whom, and • Guaranteed access to care, irrespective of geography.

BENEFICIARIES NEED: • Guaranteed equal access to affordable care, • Simple plan rules that are sufficiently comparable across plans to allow informed choice, • A comprehensive benefit that removes the need for multiple plans, and • A Medicare plan of last resort in case of plan failure or malfeasance. Obviously, many of these needs conflict. How the trade-offs to resolve these conflicts are made will have a major impact on the cost and equity of the new program. These decisions will also affect which groups support a particular reform package and, in consequence, the likelihood that market-based reform in any form will come to Medicare. Finally, the concerns of each of these groups underscore the care and effort needed to develop and implement any major reform option under consideration. GUARANTEED ACCESS UNIVERSAL COVERAGE ACCOUNTABILITY QUALITY BENEFICIARIES COST CONTROL 20

ENDNOTES

1U.S. General Accounting Office. 1993. “California Public Employees’ Alliance Has Reduced Recent Premium Growth.” GAO/HRD-94-40. Report to the chairman, Subcommittee on Health, House Committee on Ways and Means; Merlis, Mark. 1999. Medicare Restructuring: The FEHBP Model. Menlo Park, Calif.: Henry J. Kaiser Family Foundation. 2Buchmueller, Thomas C. 2000. “Price Sensitivity of Medicare Beneficiaries in a Premium Support Setting.” In Competition with Constraints: Challenges Facing Medicare Reform, edited by Marilyn Moon. Washington, D.C.: Urban Institute Press. Forthcoming. 3Weiss, Linda, and Jan Blustein. 1996. “Faithful Patients: The Effect of Long-Term Physician-Patient Relationships on the Costs and Use of Health Care by Older Americans.” American Journal of Public Health 86: 1742–47. 4Moon, Marilyn. 1999. Beneath the Averages: An Analysis of Medicare and Private Expenditures. Menlo Park, Calif.: Henry J. Kaiser Family Foundation. 5Center for Studying Health System Change. 1997. “Patients, Profits and Health System Change: A Wall Street Perspective.” Washington, D.C. 6Nichols, Len. 2000. “Competitive Pricing by Medicare’s Private Health Plans: Be Careful What You Wish For.” In Competition with Constraints: Challenges Facing Medicare Reform, edited by Marilyn Moon. Washington, D.C.: Urban Institute Press. Forthcoming. 7Gold, Marsha, Amanda Smith, Anna Cook, and Portia Delilippes. 1999. “Medicare Managed Care: Preliminary Analysis of Trends in Benefits and Premiums, 1997–1999.” Washington, D.C.: Mathematica Policy Research. 8American Association of Health Plans. 1999. “An Evaluation of the Medicare+Choice Program.” Testimony by Karen Ignani before the Subcommittee on Health and the Environment, House Committee on Commerce, August 4. 9U.S. General Accounting Office. 1999. “Progress to Date in Implementing Certain Major Balanced Budget Act Reforms.” Testimony by William Scanlon before the Senate Committee on Finance, March 17. 10Moon, Marilyn. 1999. “Will the Care Be There? Vulnerable Beneficiaries and Medicare Reform.” Health Affairs 18 (1): 107–17. 11Ibid. 12Center for Health Plans & Providers, Health Care Financing Administration. 1999. “Medicare+Choice.” Testimony by Robert A. Berenson before the Subcommittee on Health and the Environment, House Committee on Commerce, August 4. 13Medicare Payment Advisory Commission. 1997. Medicare Risk-Plan Participation and Enrollment: A Chart Book. Washington, D.C.

The views expressed in this publication do not necessarily represent the views of the Urban Institute, its trustees, or its sponsors. GUARANTEED ACCESS UNIVERSAL COVERAGE ACCOUNTABILITY HEALTH CARE PROVIDERS INFORMED CHOICE 21

CONFERENCE AGENDA

THE DETAILS OF A PREMIUM SUPPORT APPROACH TO MEDICARE REFORM Urban Institute, April 16, 1999

9:30–10:00 Overview Marilyn Moon, Urban Institute Beth Fuchs, Health Policy Alternatives 10:00–12:00 Setting up the structure Marilyn Moon Administering the program Mark Merlis, Institute for Health Policy Solutions Julie James, Health Policy Alternatives How Medicare would pay plans Bidding, negotiating Len Nichols, Urban Institute and geography Risk adjustment Stuart Guterman, Urban Institute Insurer issues Peter Fox, PDF, Incorporated 1:00–2:15 Key details Lauren LeRoy, Grantmakers in Health The role of traditional Bill Scanlon, Health, Education, Medicare and Human Services, U.S. General Accounting Office Benefits and role of Lisa Alexcih, The Lewin Group supplemental insurance 2:30–3:45 How would Judith Feder consumers respond? Institute for Health Care Policy and Research, Georgetown University School of Medicine Would they play? Tom Buchmueller, University of California, Irvine Special protections Shoshanna Sofaer, Baruch College 3:45–4:00 Wrap up— Marilyn Moon How does it all fit together? PRIVATE INSURANCE PLANS ACCOUNTABILITY STANDARD COMPREHENSIVE BENEFITS RISK ADJUSTMENT 22

PARTICIPANTS

THE DETAILS OF A PREMIUM SUPPORT APPROACH TO MEDICARE REFORM Urban Institute, April 16, 1999

Joseph Antos, Congressional Budget Office Jeff Lemieux, Progressive Policy Institute Joseph Baker, Medicare Rights Center Jane Loewenson, Office of Senator Thomas Daschle Jill Bernstein, National Academy of Social Insurance Sandy Max, Office of Senator John D. Rockefeller IV Cybele Bjorklund, Committee on Health, Education, Labor, Kathleen Means, Senate Finance Committee and Pensions Carolyn Merck, Congressional Research Service Jonathan Blum, Senate Finance Committee Mark Merlis, Institute for Health Policy Solutions Linda Blumberg, Urban Institute Mark Miller, Office of Management and Budget Kathy Buto, Health Care Financing Administration Marilyn Moon, Urban Institute Deborah Chollet, Alpha Center Karen Nelson, Office of Congressman Henry Waxman Gary Claxton, U.S. Department of Health and Human Services Patricia Neuman, Kaiser Family Foundation David Colby, Robert Wood Johnson Foundation Jennifer O’Sullivan, Congressional Research Service Geraldine Dallek, Georgetown University Robert Pear, New York Times Joyce DuBow, AARP Rudolph Penner, Urban Institute Neleen Eisenger, Office of Senator Kent Conrad Lisa Potetz, March of Dimes Judith Feder, Georgetown University Susan Raetzman, The Commonwealth Fund Linda Fishman, Subcommittee on Health, Uwe Reinhardt, Princeton University U.S. House Ways and Means Committee Julie Rovner, Congress Daily Robert Friedland, National Academy on an Aging Society Diane Rowland, Kaiser Family Foundation Barbara Gage, Urban Institute Marilyn Werber Serafini, National Journal Mary Jo Gibson, AARP Felicity Skidmore, Urban Institute Paul Ginsburg, Center for Studying Health Systems Changes Brenda Spillman, Urban Institute Michael Gluck, National Academy of Social Insurance Bridgett Taylor, Commerce Committee David Gross, AARP Deborah Veres, Subcommittee on Health, John Hoadley, U.S. Department of Health and Human Services U.S. House Ways and Means Committee John Holahan, Urban Institute Timothy Waidmann, Urban Institute Katie Horton, Senate Finance Bonnie Washington, Health Care Financing Administration Edward Howard, Alliance for Health Reform Marina Weiss, The March of Dimes Foundation David Kendall, The Progressive Policy Institute Carlos Zarabozo, Health Care Financing Administration Kathy King, Health Care Financing Administration Stephen Zuckerman, Urban Institute Jeanne Lambrew, The White House INFORMED CHOICE COST CONTROL BENEFICIARIES RISK ADJUSTMENT GUARANTEED ACCESS ACCOUNTABILITY 23

CONFERENCE VOLUME PREVIEW

COMPETITION WITH CONSTRAINTS: CHALLENGES FACING MEDICARE REFORM Edited by Marilyn Moon Urban Institute Press, forthcoming, early 2000

CONTENTS: “Reforming Medicare: A Framework for Comparing Beth Fuchs and Lisa Potetz Incremental and Premium Support Approaches” “Competitive Pricing by Medicare’s Private Len Nichols Health Plans: Be Careful What You Wish For” “Price Sensitivity of Medicare Beneficiaries Thomas Buchmueller in a Premium Support Setting” “Risk Adjustment in a Competitive Stuart Guterman Medicare System with Premium Support” “Health Plan Issues” Peter Fox “Administration of a Medicare Mark Merlis Premium Support Program” COST CONTROL ACCOUNTABILITY UNIVERSAL COVERAGE HEALTH CARE PROVIDERS GUARANTEED ACCESS 24

ABOUT THE URBAN INSTITUTE

The Urban Institute is a nonprofit policy research organization established in Washington, D.C., in 1968. It seeks to sharpen thinking Board of Trustees about society’s problems and efforts to solve them, improve govern- Joan T. Bok ment decisions and their implementation, and increase citizens’ Chairman, NEES Companies awareness about important public choices. Originally focusing on Carol Thompson Cole Special Advisor to the Director of the Office of urban problems, its research agenda now includes the study of Management and Budget for the D.C. Task Force national issues that reflect, respond to, and at times anticipate the John M. Deutch Institute Professor, Massachusetts Institute changing needs of our society. Recently, this mission has expanded to of Technology include the analysis of similar problems and policies in developing Richard B. Fisher, Chairman Institutional Securities and Investment Banking countries, Eastern Europe, and the Russian Federation. Group, Morgan Stanley Dean Witter & Company Joel L. Fleishman (Vice Chairman) RETIREMENT PROJECT President, The Atlantic Philanthropic Service Company, Inc. The Retirement Project assesses how current retirement policies, William Gorham demographic trends, and private-sector practices affect the well-being President, The Urban Institute of older Americans and the economy. The project also analyzes pro- Katharine Graham (Vice Chairman) Chairman of the Executive Committee, posed retirement policies, with a focus on both the income and health The Washington Post Company needs of the elderly. Richard C. Green, Jr. Chairman, President, and CEO, UtiliCorp United Directed by Urban Institute senior fellow Rudolph Penner, Fernando A. Guerra, M.D. former head of the Congressional Budget Office, the project draws on Director, San Antonio Metropolitan Health District Urban Institute expertise in Social Security, Medicare, Medicaid, tax Robert S. McNamara Former President of the World Bank and budget policy, and microsimulation modeling. Other senior Robert C. Miller fellows contributing to the project include Eugene Steuerle, Lawrence Chairman of the Board, Clarity Systems, Inc. Thompson, and Marilyn Moon. Lucio Noto Chairman, Mobil Corporation The project is committed to providing objective, nonpartisan Hugh B. Price information and guidance to help policymakers and the public face President and Chief Executive Officer, National Urban League, Inc. the challenges of an aging population. Sol Price A multiyear research effort launched in 1998, the project is made Founder, The Price Company possible by a generous grant from the Andrew W. Mellon Foundation. Robert M. Solow Professor of Economics, Massachusetts Institute For more information, contact the Office of Public Affairs: of Technology Phone: 202-261-5709 Dick Thornburgh Fax: 202-728-0232 Kirkpatrick & Lockhart; former Attorney General of the U.S.; former Governor of Pennsylvania E-mail: [email protected] Judy Woodruff Web site: www.urban.org Senior Correspondent, Cable News Network Copyright © Urban Institute 1999 QUALITY ACCOUNTABILITY UNIVERSAL COVERAGE GUARANTEED ACCESS RISK ADJUSTMENT

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