Health of Medicare Might Hinge on Election Outcome.

YOU'VE read plenty about the dueling Bush and Gore plans for adding prescription drugs to Medicare. What you've heard less about is the candidates' view of Medicare itself, and how they'd want the program run in the years ahead.

As a country, we're going to have to pay more for medical care than we do today. The population is aging and people want help. (Today, it's drugs; tomorrow, it will be long-term care.) What's the most cost-effective way to make this work?

For 35 years, the answer has been the government's Medicare program. It operates efficiently, with standard forms, one schedule of benefits, super-low overhead and, mostly, a doctor of your choice.

Vice President Gore thinks that, at present, Medicare just needs touching up. He'd keep the program pretty much unchanged, except for adding the option of prescription drugs.

To save money, Gore talks about reducing waste and fraud. (The government has actually made some progress here in recent years.) He'd also encourage lower-cost competition from Medicare HMOs.

Governor Bush, by contrast, dreams of a new kind of Medicare. He wants two Medicare packages - one with drugs and one without. Private insurers would offer competing plans. They'd all have the same core medical benefits. But the plans could add options to appeal to different types of people.

In Bush's world, the government would still pay the bulk of the program's cost, as it does today. But the private health care market would set the price.

Each year, the plans - including original Medicare - would vie for members by touting their benefits and premium costs. The government would subsidize your chosen plan at some fraction of the average private-market price. If your plan costs more than the subsidy, you'd pay the extra amount yourself. Bush's intentions raise questions that the public hasn't begun to think about.

Would his price-driven market raise the cost of original, fee-for-service Medicare, forcing even unwilling seniors into Medicare HMOs (those are private plans that deliver Medicare services)?

What about the high cost of insuring people who switch to drug coverage only after they learn they'll need a lot of pills?

Will Medicare HMOs become a more dependable business than they are today? (Since 1998, nearly 1.7 million seniors have been temporarily stressed and stranded when their HMOs left the field.)

Once private insurers control the market, will they demand higher government subsidies to cover the Medicare population?

How much medical choice do seniors really want to pay for?

As a way of delivering benefits, Medicare HMOs are more costly to run than original Medicare. That's because the traditional system has such huge economies of scale. With the government, there are no marketing costs, sign-ups are automatic and the premiums are electronically paid. The Medicare bureaucrats that conservatives love to hate spend less than 2 cents out of every dollar on overhead.

By contrast, Medicare HMOs spend an average of 15 cents out of every dollar on administration, according to June Gibbs Brown, inspector general for the Department of Health and Human Services. The actual range is huge - anywhere from 3 percent to 32 percent.

The HMOs' costs include marketing, billing (still done substantially by snail mail), debt collection and decisions about medical treatments, not to mention salaries and profits.

An HMO's higher overhead can be justified, if it covers its costs with intelligent healthcare savings. As costs are squeezed out of the system, however, the private sector's high overhead becomes a drag. It represents money paid to private bureaucrats, rather than doctors and hospitals. It's money shunted away from care.

"There's not a lot of evidence that private insurers can make money on seniors," Patricia Neuman of the Kaiser Family Foundation in Washington, D.C. A high percentage of this population is acutely or chronically ill. Without a government subsidy, seniors couldn't be insured at all.

But private competition has a role in assessing cost, says Paul Ginsburg, head of the Center for Studying Health System Change in Washington, D.C. Instead of setting subsidies for Medicare HMOs, he says, Congress should let the plans set their own premiums for a given benefit package, and let the public choose. In other words, a touch of Bush.

But, Ginsburg adds, original Medicare has to be set apart. You can't expect it to match the HMOs on price. So there you have a touch of Gore.

Medicare can't turn down the sick, so only government can afford the price. But competition can help tell the government what the price should be.