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Capitol Comment 172 – How the Balanced Budget Act Will Soon Cut Off Medicare Beneficiaries’ Choice of Doctors

Americans have always taken pride in being the freest people in the world. As recently as 1994, the American public recoiled at the thought of receiving health care through a socialist system similar to Great Britain’s. Among that system’s many horrors, “more than one million patients are waiting for surgery in Britain, for everything from tonsillectomies to heart bypasses to exploratory surgery for cancer.”1

Yet, America’s senior citizens will soon have less medical freedom than British seniors. Whereas British seniors may agree with their doctor to receive services privately and at their own expense, Medicare beneficiaries soon will not be able to do so, under a new law passed by Congress. Legislation in the House (H.R. 2497) and Senate (S. 1194) would reverse this law, and avert a disaster before it happens.

Government rate cuts. Medicare, the federal government’s health insurance program for elderly Americans, pays for doctor visits at a fixed rate. Congress has repeatedly cut that rate — most recently in the Balanced Budget Act (BBA) of 1997. This limits the quality of care Medicare patients receive. Thus, some seniors go outside the system to pay for Medicare-covered treatment themselves.

Enter the Health Care Financing Administration (HCFA), the federal agency that runs Medicare. In the late 1980s, HCFA tried to cut off this option. The agency threatened doctors with fines and jail time if they administered Medicare-covered treatment to Medicare beneficiaries without sending the bill to the government.

Outraged doctors and seniors took the HCFA to court. Their case was dismissed in 1992, however, because the HCFA had never issued a formal regulation barring contracting.2 In 1993, the HCFA finally published its policy barring Medicare beneficiaries from paying for covered treatment themselves, despite having no statutory authority to do so.3 Thus, the harassment continued.

The legislative fix and the poison pill. Earlier this year, Sen. Jon Kyl (R-AZ) proposed legislation as part of the BBA to overturn the HCFA rule and give Medicare beneficiaries the explicit and unrestricted right to receive Medicare-covered treatment outside the program. However, White House budget negotiators rejected this proposal and insisted that, starting January 1, 1998, doctors who provide such treatment be excluded from treating any Medicare patients for two years. Congress capitulated.

Most doctors rely heavily on their Medicare practice. Internists receive 36 to 48 percent of their revenue from Medicare.4 Because most doctors cannot afford to abandon their Medicare patients (and who would want them to?) this poison pill effectively prohibits Medicare patients from going outside the program for treatment. Many seniors are therefore worse off now than they were before. Whereas there used to be some question about seniors’ right to go outside Medicare — a question the courts might have decided in their favor — they now have had that right taken away.

Starting next year, Medicare beneficiaries who seek to pay for their own treatment outside Medicare cannot do so with their own doctor. Instead, they must find one of the four percent of doctors who treat no Medicare patients.5 The nearest may be hundreds of miles away.

Hurting the poor. Moreover, such doctors are likely to be specialists or live in wealthy communities. Specialists who are leaders in their field and have a few wealthy clients may be able to rely on outside-Medicare business entirely. Under the new policy, they will be shut out of the Medicare program and forbidden to treat less-affluent Medicare patients who will then be denied the best available care.

If this logic were applied to the school system, public school teachers who tutor students on the side would be banned from teaching in the public schools for two years. Tell that to the parents who have finally found a teacher who can reach their child.

The new law not only restricts seniors’ basic personal freedoms; it is pure nonsense from a budgetary standpoint. When seniors pay their medical bills themselves, they save the federal government money. Why would the Clinton administration oppose a practice that gives beneficiaries more treatment choices and lessens the financial pressures on Medicare? The only thing HCFA loses in the transaction is control over the lives of seniors. The new restrictions on private contracting should be rethought before seniors must travel to Great Britain to get the care they need.

1Sarah Lyall, “For British Health System, Bleak Prognosis,” The New York Times, January 30, 1997.

2Stewart v. Sullivan, 816 F. Supp. 281 (D.N.J., 1992).

3″ 3044. Effect of Beneficiary Agreements not to Use Medicare Coverage,” Medicare Carrier’s Manual, Part 3, Health Care Financing Administration, 1997.

4Martin L. Gonzalez, ed., Physician Marketplace Statistics 1996: Profiles for Detailed Specialties, Selected States and Practice Arrangements, Center for Health Policy Research. This figure excludes pediatricians and residents.