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Delay Caused by Y2K Bug Will Cost Most Medicare Recipients

By William Branigin
The Washington Post

A delay in implementing a key provision of a plan to save Medicare will cost the nation's elderly more than half a billion dollars over a 15-month period, according to an internal government memo.

The Health and Human Services Department memo, dated Aug. 7, contradicted administration testimony before Congress less than a month earlier that the cost of the delay would be "minimal."

The revision has incensed Republicans on the House Ways and Means Committee and congressional aides said it risks undermining support among senior citizens for the Medicare plan, which was part of the Balanced Budget Act of 1997. Under that law, the administration was required to implement, starting Jan. 1, 1999, a new "prospective payment system" for hospital outpatient services under Medicare.

The aim was to gradually reduce the seniors' coinsurance payments, bringing them in line with the 20 percent that is the standard copayment for most other Medicare services. Now the seniors' share is about 50 percent of total payments for hospital outpatient services.

But in July, the head of the HHS Health Care Financing Administration, Nancy-Ann Min DeParle, told the Ways and Means subcommittee on health that the new payment system could not be implemented on time because of problems in fixing the Year 2000 computer bug. She said the agency's actuaries project that "the cost, if any, of these delays will be minimal."

However, in the Aug. 7 memo, addressed to Richard S. Foster, chief actuary of the Health Care Financing Administration, the deputy director for Medicare and Medicaid cost estimates, Carter S. Warfield, said revised estimates showed a "major impact" on Medicare beneficiaries' coinsurance payments during the delay. The agency now calculates that between January next year and April 2000, when the new payment system is currently expected to start operating, senior citizens will have to pay an extra $570 million in higher copayments. A copy of the memo was obtained by the health subcommittee.

"Frankly, I do not consider more than half a billion dollars to be a 'minimal' cost and I am outraged that the administration's failure to manage its operations will be carried on the backs of our seniors," subcommittee Chairman Bill Thomas, R-Calif., wrote in a letter to DeParle last week. He asked why other federal agencies were able to handle the Year 2000 computer problem without harming the elderly and charged that "mismanagement" in the Health Care Financing Administration was "undoing" the bipartisan plan to save Medicare and "taking money out of the pockets of our nation's seniors and disabled citizens."

In response, DeParle said in a statement, read by a spokesman, that the Medicare system must deal with the Year 2000 problem "aggressively to ensure there is no interruption in our services and claims payments." She added, "Unfortunately, this critical priority has forced us to delay reforms that we proposed to fix an unfair outpatient coinsurance system. Beneficiaries will see only a temporary impact from the necessary delay. As soon as we start our new outpatient payment system in 2000, their coinsurance rates will drop to the intended levels."

According to James Mathews, a policy analyst at the Medicare Payment Advisory Commission, a nonpartisan agency created by Congress, the "vast majority" of Medicare's 38 million beneficiaries receive some sort of hospital outpatient service every year. In fiscal 1997, he said, expenditures for hospital outpatient services under Medicare totaled $15.1 billion, of which $7.1 billion consisted of coinsurance payments by beneficiaries or "third-party payers," such as Medigap insurers.

Most Medicare beneficiaries have some sort of third-party coverage for the costs that Medicare does not pay, so they will not have to shoulder the full brunt of the higher coinsurance payments directly themselves, Mathews said.