When the managed care movement began in earnest in the 1970s, says Gail Wilensky, senior fellow at Project Hope and chair of the Medicare Payment Advisory Commission, the problems it was supposed to solve were clear: The financial incentives associated with the traditional third-party payment system were inflationary, and the delivery of care across the board was poorly coordinated.

What’s infinitely harder to pin down, Wilensky noted during a presentation March 3 at the Leonard Davis Institute Health Policy Seminar Series, is "where we go from here. We can really only be sure of one thing; given the amount of frustration out there, we haven’t gotten it right yet."

In addressing the future of both Medicare and managed care, Wilensky was critical of several aspects of the managed care system, including its very name. "As the term ‘managed care’ became more relevant for Medicare, I tried to get it labeled ‘coordinated-care’" she says. "People bridled at the idea that they had to be managed."

The name, however, stuck, and in some critic’s eyes has now become synonymous with a number of significant breakdowns in the health care system. "We are whacking at prices without integrating service delivery, which means continued overall lack of coordination in patient treatment," Wilensky says. "In an era of more and more high-powered therapeutics, it’s only going to get worse. No single physician knows all the care being provided to his or her patient.

"For providers, managed care is a mixed bag," she adds. "Sometimes it changes the incentives for doing more to doing less, but not often. And while the financial pressures on physician groups have been significant, there are few rewards for providing good health care."

During 1992, Wilensky was deputy assistant to President Bush for policy development, and for two years prior to that, administrator of the Health Care Financing Administration, overseeing the Medicare and Medicaid programs. Her talk at Wharton covered topics that ranged from employer-sponsored health insurance to the role of e-commerce in health care delivery to the need for consumers to be more actively involved in their health care plan options.

She also offered her opinions on various developments taking place in the managed care and Medicare arenas.

She says that Medicare, which was originally constructed in the 1960s to "mimic the Blue Cross/Blue Shield ‘mainstream medicine’ approach, needs to be changed. It is dominated by old-fashioned indemnity insurance but also by a 1960s benefits package that doesn’t, for example, include out-patient drug coverage."

At the same time, she notes that "Medicare payments are not intended to cover all of a senior’s medical needs. Nor do I think we, as a society, are willing to pay for all these expenses … With 78 million baby boomers en route to Medicare, the challenge increasingly will be one of growing needs vs. limited resources." Today, Wilensky adds, only 10% of seniors rely only on Medicare. The rest have Medicaid, supplementary insurance or some other form of coverage in addition to Medicare.

Medicare reform, she suggests, may happen after the presidential election in November, driven in part by the system’s exclusion of outpatient prescription drug coverage. "I also think some time in the next decade or two we may see increasing government contributions for low-income seniors and decreasing contributions for wealthier seniors. It’s a question of to what extent should individuals finance health care vs. how much should society finance."

On the topic of employer-sponsored insurance, Wilensky predicts that "we will be able to rely less and less in the future on companies as the only or the major source of insurance for employees. More and more individuals are likely to find themselves in situations – such as part-time entrepreneurial work or service sector jobs that traditionally don’t supply this coverage – where they will have to consider different options. Others simply might not like the insurance choices offered by their employer.

"The challenge is to structure an alternative to employer-sponsored insurance without killing it off. This could possibly mean offering individuals access to tax subsidized insurance so that they could use pretax dollars to pay for insurance, as they do now for employer-sponsored insurance. We should also consider mechanisms that would allow individuals to take advantage of group purchases and risk pooling."

Wilensky also discussed the proliferation of medical information on the web and how that can affect health care. "It’s obviously difficult for individuals to know if information on the Internet is up-do-date and accurate. But the fact that the information, in some form, is available means patients can get much more involved in their own health care. Insurance companies probably view this as a mixed blessing because it is likely to increase demand for new services and treatments. But it may also help disseminate information on evidence-based medicine, which can then be used by patients and physicians to better understand the outcomes of certain treatments."

Part of this issue concerns access to, and ownership of, medical records. "The more that individuals have ownership of their records, the more involved they are likely to be in their own health care decision-making. Technically, people have this ownership now, but many don’t know that. Nor do they know how to ask for it."

Wilensky does not suggest that she has the answers to the problems of our health care system. But she does advocate that people be more actively involved in the health care plans they choose. "A fundamental problem we have had in this country is that people view much of health care spending as spending someone else’s money, either their employer’s or the government’s. In a world in which someone else is paying the bills, and where there are always new technologies, therapies and procedures available, it is hardly surprising that we have periods of very rapid spending increases.

"People are going to have to use more of their own money, especially if they want the more expensive options. It’s hard not to feel the frustration towards managed care that is sweeping the country because it was never made clear to people that by restraining spending growth, things would have to work differently.

"That’s why a lot of people are so quick to turn to the legal system when it comes to dealing with HMOs. And they are being supported in this by physicians. To me, that’s especially frustrating because if there is one group who ought to know that the right to sue has had little effect on improving quality, it’s the physicians. And yet they have been leading the bandwagon in helping to bring liability to the HMOs."

Wilensky applauds certain aspects of health care reform, and has high hopes for others. For example, she is in favor of the concept of risk adjustment, providing you can use it without "encouraging bad behavior." Under risk adjustment, Medicare would pay more for predictably sicker seniors who join health plans than for predictably healthier seniors. The difficulty is operational – how to define sicker seniors. Under current law, the payment adjustment will be based on certain hospitalizations in the preceding year. The concern has been that defining "sicker" only in terms of a previous year’s hospitalization could encourage hospitalizations and penalize programs that attempt to reduce hospitalizations.

She is also interested in the idea of partial capitation. Under partial capitation, a fixed premium is replaced with a payment that combines a fixed payment with a payment that reflects actual use of services. The relative weights that would be attached to the fixed payment versus the variable payment are a matter of discretion or policy judgment. The advantage of such a measure is twofold: It acknowledges an important ability to measure health risk and it eliminates incentives to skimp on treatment by paying more for people who use more services.

And she likes the idea of perhaps the federal government paying more for better quality Medicare but recognizes that "we can’t yet measure quality well enough to do this financially in a responsible way."

Whatever happens, Wilensky says, "one thing I can say for certain is that we are not going back to an old-fashioned à la carte fee-for-service world." There is indeed a future for managed care," she adds. "We just have to figure out what it is."