mostly needy program beneficiaries.

The great weakness

of the Adminsitration's budget proposals in Function 550 is the failure to lead the system toward a more rational, affordable, accessible health care system for all our people.

With these standards in mind, the Administration's major proposals to cut Medicare may be evaluated as follows:

Establish Medicare eligibility at the beginning of the first full month after attaining age 65. (Savings: $215 million in 1984)

Under current law, eligibility for Medicare begins on the first day in the month on which an individual's 65th birthday occurs. This proposal would defer eligibility to the first day of the month following the month of the 65th birthday. This proposal could significantly prejudice those who are age 65 and need medical care but are not yet into the month following their 65th birthday. Such a penurious proposal does nothing to address health care inflation but instead places the elderly at risk of being without coverage.

italiza

Increase in Hospitalization Out-of-Pocket Costs (FY 84 Savings: $710 Million)

Under current law, Medicare Part A pays for all covered hospital services from the 2nd through the 60th day of hospital confinement after payment of the first day deductible of $304.

Under Part A of Medicare, the Administration proposes that beneficiaries pay the following new costs:

This is on top of the rise in the Part A deductible automatically scheduled from $304 to $350. Since the average Medicare hospital

stay for an elderly Medicare beneficiary is 11 days, total out-of-pocket expenses for an average hospitalized Medicare beneficiary would increase 107% in FY84

just under Part A.

Medicare recipients, already hard hit by huge increases in Part A and Part B deductibles and co-insurance, simply cannot absorb another precipitous increase in out of pocket costs for Medicare.

The Administration is attempting to sell this "health care incentive proposal by adding a "catastrophic" stop loss provision that would indemnify Medicare beneficiaries for all covered hospital costs beyond 60 days of hospitalization in a single spell of illness. The stop loss protection proposal would benefit only two percent of elderly Medicare patients requiring long term, acute care hospitalization. It does not provide any benefit to the

98 percent of Medicare patients who will be paying huge, addi

tional out-of-pocket costs for hospitalization.

Indeed, someone would have to be hospitalized for 77 days

before they break even under this scheme compared to current

policy.

Medicare Vouchers

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Estimated Cost $50 million in FY 1985

The Association is rather cautious about proposals to institute a Medicare voucher system. While we believe that the underlying capitation concept has merit, we are deeply concerned that it will be used merely as a means of budgetary relief. Under the voucher proposal, Medicare beneficiaries would

be given a fixed sum or credit with which to purchase their
health insurance in the private insurance market.
The purpose

of the proposal is to restrain the inordinate rate of increase
in health care cost by injecting a degree of competition in
the choice of a health plan and by making the consumer more
sensitive to rising cost by asking them to assume a greater
portion of such costs out-of-pocket. As a sweetener, the Medicare

voucher proposals usually include a catastrophic stop-loss provision that insures beneficiaries against out-of-pocket losses above a certain amount. However such stop-loss protection means little to Medicare beneficiaries, because it applies only to acute care services and ignores the major source of catastrophic health care cost for the aging long-term (nursing home) care.

The key to the success of any voucher proposal is informed consumer choice among competing qualified plans. If consumer "cost-consciousness" or cost-sharing is to be an effective means of developing competition and containing cost, consumers must be informed.

It is essential, therefore, that any Medicare voucher plan contain provisions requiring extensive and specific information on the terms and conditions of coverage provided by participating qualified plans. We recognize that this would entail greater promotional and educational costs

which would have to be borne by insurers as higher

administrative costs.

However the success of any voucher

rests on wise consumer choice.

Perhaps the most difficult element of a Medicare voucher proposal is establishing a realistic voucher amount. The Associations believe that the health status of the individual must be considered in determining a realistic voucher benefit level so that adequate health care coverage can be purchased. Conversely the Association does not support the use of individual health status in setting premiums because those elderly that would have the highest premiums

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the elderly with are the elderly

the greatest need for health care services with the least ability to pay. It is unrealistic to expect the poorest, most vulnerable elderly to pay the highest health care premiums.

The Association is also concerned about the potential problem of adverse selection by insurance providers which could lead to the most vulnerable elderly obtaining the least amount of coverage. Explicit safeguards against this practice must be

a part of any voucher proposal.

22-020 0-83--10

Freeze physician reimbursements for one year ($700 million savings in FY 84, 41 percent of total Medicare savings)

Under the proposal, physician fee screens, i.e. reasonable, customary and prevailing charges, would not be updated in fiscal 1984 as usual. The update in fiscal 1985 (July 1) would only cover the period 1984-1985, hence physicians would lose one year of inflation protection. The effect of this proposal will likely: erode the number of physicians willing to accept assignment; and

(1)

(2)

increase Medicare beneficiaries out-of-pocket
costs for health care.

Under existing law, Medicare beneficiaries have substantial responsibility for the cost of physician services.

Beneficiaries

must pay the annual Part B deductible of $75, plus 20 percent coinsurance on all reasonable, customary and prevailing physicians' charges.

Moreover, beneficiaries are liable for all charges associated with unassigned physician bills. In 1981, more than a third of all physician charges to Medicare beneficiaries ($3.4 billion) was paid by beneficiaries themselves because physicians charged more than what Medicare paid.

Currently, approximately 52 percent of physicians accept assignment. A freeze on Medicare physician reimbursements will have a serious negative impact on the rate of assignment, resulting in greater out-of-pocket costs to the elderly. In 1971 (fiscal 1972) President Nixon froze wages and prices under the Economic Stabilization Act (ESA). Between August, 1971 and April, 1974, while