"Susan" is hardly the person you'd pick out as the face of Medicare. She isn't collecting benefits. She isn't retired. She isn't even elderly. But her financial and personal decisions are being driven by a mounting pile of medical bills: her dad's. Susan's father, "Sam Jones," a retired hard-scrabble rancher in West Texas, eked out enough of a living to put his children through college. But now his body is slowly withering like the harvest in a West Texas drought, the protracted process of death by cancer. Dying is expensive nowadays, and although Sam Jones worked hard all his life, he can hardly afford the high price that most Americans must pay the ferryman-a cost his Medicare insurance only begins to cover. True, if he were absolutely unable to pay his bills, Medicaid would take care of them; but before he could qualify, Sam would have to spend himself into poverty. To help her family avoid this, his daughter Susan, a 27-year-old public-relations specialist in Washington, D.C., is putting her career plans on hold. She's taking a high-paying but unfulfilling job in a distant city she doesn't like, simply for the money. "I can live frugally on about $20,000 a year," she says, "and have a whole lot of money left over to help pay my father's doctor bills. That will really make a difference."With medical advances allowing most of us to extend significantly our lifespans, a long and (thanks to the same medical advances) costly decay like Sam Jones's is what virtually everyone can now look forward to. And although the rising cost of run-of-the-mill medical expenses is also a major concern, what worries many people most is the prospect of a catastrophic illness wiping out their savings and leaving them or their families financially strapped. The fear is well-founded. Even Medicare, the government program specifically designed to address the elderly's medical needs, is not structured to meet the growing challenge of catastrophic end-stage expenses. More importantly, Medicare itself is now threatened by the spiraling costs of everyday bills being run up by an elderly population that is about to explode. And virtually all plans to rescue it put the burden right back on the Sam and Susan Joneses of the world.THE MEDICARE CRISISInstituted in 1965 as Title XVIII of the Social Security Act, Medicare was, until recently, viewed as perhaps the most successful government program in history-as well it should. Not many today remember an America where the old were largely left to live-or, rather, to die-in poverty. Poverty rates were far higher for the elderly than for the population as a whole, perhaps by as much as 50 percent before the New Deal. Social Security helped, but what really began to lift large numbers of older Americans out of this hole was Medicare. Prior to that, half the aged population in this country had no medical insurance, and the coverage that many seniors did have was inadequate.Medicare has achieved its results through a combination of approaches to the two major sources of medical bills: hospitalization and non-hospital doctor care. The first of these is addressed through Medicare Part A, known more descriptively as Hospital Insurance (HI), whose purpose is to defray some of the cost of hospital stays. Part B, Supplemental Medical Insurance (SMI), covers a portion of everyday expenses like doctors' bills, outpatient services, lab fees, and durable medical equipment.Unfortunately, the structure of Medicare coverage does little to help the increasing number of people who die after a protracted illness requiring long-term hospital stays. After an initial deductible of $736-roughly equal to the cost of one day in the hospital-Part A picks up all hospitalization costs for the next 60 days. Beyond that, the patient is increasingly on his own for the remainder of that particular "spell of illness"; after 150 days, Medicare can stop reimbursing the patient altogether. If he gets better and leaves the hospital, he then becomes eligible for a new round of Medicare payments (after the deductible) for any subsequent "spell of illness." But if instead that original spell of illness requires hospitalization beyond 60 days-in other words, if the illness is catastrophic-well, that just isn't Medicare's problem. Neither are the mounting co-payments and drug expenditures for those who don't just go quietly into that good night.Meanwhile, Medicare faces catastrophic expenses of its own, for reasons with which many of us are by now familiar. Part of the problem is demographic: The elderly population is increasing dramatically and living significantly longer. In the next three decades, the number of Americans over 70 will double, and those over 85 represent the fastest-growing segment of our society. As people grow older, they need more-and more expensive-care. Those over 65 see a doctor or enter the hospital about twice as often as younger Americans and spend about four times what the non-elderly spend on care.The situation is made worse by the rising cost of health care itself. The astounding advances in medical science that allow us to alleviate pain, make life more livable, and extend or save lives in ways previously unimaginable are also terribly expensive. Just about everyone wants these new technologies, and when someone else-the government or insurance companies-is footing the bill, just about everyone chooses them.Together, these developments have taken quite a toll on Medicare's financial health. Part A (HI) is paid for, like Social Security, through a "trust fund" fed by a payroll tax on all current workers. And, like Social Security, the fund operates on a pay-as-you-go system: The money current retirees paid in was used long ago to care for the prior generation of retirees, and seniors today are spending the money coming in from the payroll taxes of current workers.Unfortunately, they are spending it faster than the working populace can replenish the fund. Cash flow in Medicare Part A, which provided $103 billion for 36 million patients last year, turned negative for the first time in 1996, and by 2001 (or sooner), its $134 billion in reserves will be exhausted. At that point, Medicare won't have the money to pay the benefits currently promised.Part B (Supplemental Medical Insurance), constitutes more of a traditional insurance program. Subscribers pay a monthly premium of about $43.80. In turn, after they've exceeded a low annual deductible of $100, Medicare covers 80 percent of their everyday medical bills. Though a purely voluntary program, Part B is held by 99.9 percent of those who are eligible. Small wonder: Thanks to large government subsidies, it's a good deal. The premium paid by beneficiaries covers only 31.5 percent of program costs-for which seniors have the politicians to thank. Over the years, Congress has found it much easier to promise higher benefit levels than to enact a means to pay for them. Thus, although the Part B deductible has doubled over Medicare's 30-year existence, to keep pace with actual medical inflation it should have octupled. As a result, the percentage of program costs paid by Part B beneficiaries has fallen from its original 50 percent, to as low as 25 percent. The rest is paid by the government out of general revenues. In other words, since there's no trust fund, SMI itself can't go "bankrupt"; instead, the rest of us can go bankrupt because nearly three-quarters of the program's cost comes out of general tax revenues each year. And these costs-like the costs of medical care-keep going up.(Second part of Schnurer article)The result of all this is that the Medicare program now costs more than $200 billion a year, accounting for more than 10 percent of all federal spending, and ranking behind only defense, Social Security, and interest payments on the debt. And still the cost continues to rise-to the tune of 10 percent each year. Catastrophic PoliciesClearly, someone must undertake radical surgery to stop Medicare's hemorrhaging-as well as to protect the elderly and their families from being bankrupted by long illnesses. Preferably, this would be done in a way that didn't ask fixed-income elderly of modest means to shoulder more than their fair share. Unfortunately, none of the plans offered during the last Medicare debate in Congress would have done the job.In 1995, President Clinton proposed a slight reduction in overall Medicare spending, that, nonetheless, would have allowed per-patient expenditures to rise at a rate just below the private sector's 7.1 percent annual growth rate. In addition, the plan would have cut Part B premiums and actually created new benefits. Even the administration admitted that its proposal would have ensured the solvency of Medicare-Part A only through 2011-a safety-valve, but hardly a solution.The GOP took a tougher stand. As part of their 1995 deficit reduction plan, House Republicans-under the banner of "saving Medicare"-passed legislation to cut the projected increase in Medicare spending from 10 percent a year to 6.4 percent. Though unsuccessful, this move by the House led to a heated partisan debate (which Democrats were all too happy to continue into the election year) over whether the GOP's approach constituted a heartless "cut," as the Democrats insisted, or a responsible "slowdown in the rate of growth," as Republicans claimed. In fact, it could be honestly portrayed as both: The increase in Medicare spending must be slowed, which means reducing either the number of beneficiaries or the level of spending per beneficiary. And since the number of beneficiaries is largely beyond policymakers' control (the eligibility age could be raised but not by enough to make a real difference), the amount spent on each person must be cut. Period. Gingrich and company deserve some kudos for having the guts to tell that to the American public.But the kudos end there. The $270 billion that Republicans sought to cut from Medicare was double what was actually needed to stabilize the trust fund, feeding suspicions that the real intent of this cut was to help pay for the GOP's $245 billion tax break proposal-which would mainly benefit the affluent. Moreover, the mechanism by which Republicans proposed to reduce spending would have disproportionately hurt the poor and sick, while leaving the wealthy and healthy largely unscathed.To begin with, the Republican plan would have doubled the Part B premium. By the year 2000, this would have cost the average older person about $500 out-of-pocket annually to maintain the level of coverage they currently receive. If you're living on $100,000-a-year, that's $500 you'd rather not spend, but you can afford it; if you're living on $10,000, you are looking at a 5 percent cut in real income. The Republicans also proposed giving the elderly a choice between traditional "fee-for-service" Medicare and a managed-care version of Medicare. But recent studies suggest that seniors fare better under fee-for-service care. In February 1994, a government-funded study by the Center for Health Policy Research in Denver found that seniors who depended on Medicare to pay their doctor bills received superior home care to those using an HMO. In addition, the seniors least likely to find managed care enticing-or courting them-are those with the biggest medical needs. Thus, the poorest and neediest would remain in the fee-for-service system while the private sector "cherry-picked" healthier, wealthier seniors who already consume fewer medical services. Such an arrangement, by itself, would actually increase government outlays for Medicare (see sidebar).But the most radical change Republicans want to offer seniors is the option of investing their Medicare benefits in a Medical Savings Account (MSA). The GOP passion for the MSA may have something to do with the fact that it is an insurance product pioneered by the Golden Rule Insurance Co., a major contributor to Newt Gingrich and his congressional proteges. All the same, the plan has its merits. Every year seniors would receive a cash benefit with which to pay their medical expenses. At year's end, any amount they hadn't used would be theirs to keep, providing the perfect incentive for recipients to cut back on needless health-care spending. Combine this with a plan to cover all medical expenses above a very high deductible-$3,000 per year is the amount usually bandied about-and voila! you have a recipe to encourage health-care consumer consciousness, while ostensibly providing protection against bankruptcy.MSA proponents estimate that by making patients pay their own bills for a change, the share of GNP going to health care would drop by anywhere from 25 to 50 percent-thereby lowering medical costs and making health care more affordable for everyone. It's hard to argue with: Medical inflation due to over-consumption of expensive care has become a national problem. That, as much as unavailability of care, was the focus of the Clinton health plan-just as it is with these conservative counterparts.Republicans claim that under the MSA plan seniors would get a sweet deal. Medicare beneficiaries would be given a voucher equal to 95 percent of the value of their current Medicare Part A, which, together with the premium they currently pay for Part B, would have come to $4,848 last year. And because they would no longer need to spend the average $1,178 on "Medigap" premiums-extra insurance that most seniors carry to handle costs not covered by Medicare-most would start out with $6,026 in extra cash. Out of this, they would pay a premium of about $2,740 to receive their new catastrophic coverage with the $3,000 deductible. This would leave them with $3,286 in their MSA. So even if poor health necessitated their spending the full amount up to the deductible, they would still end the year with an additional $286 in the bank. Not bad.The trouble is, for the 30 percent of seniors too poor to purchase additional insurance (and who therefore don't currently set aside $1,178 of their own money each year for "Medigap"), the MSA plan would represent only $4,848 in extra cash. Once they'd paid the $2,740 premium for catastrophic coverage, they would have only $2,108 left in their MSA-meaning that, if they fell seriously ill, they would have to pay an additional $1,000 out of their own pocket before satisfying the $3,000 deductible.So, besides returning us to the pre-Medicare world in which medical inflation and waste-and government involvement and taxes-were lower, the MSA plan would also return us to the pre-Medicare world in which those seniors with enough money got all the medical care they wanted and those with too little money got too little care. Not all health care spending is frivolous, and those people who have necessary and costly medical expenses wouldn't get to save much out of their MSA allotment. Healthier old people-who also tend to be wealthier old people-would be able to use MSAs to build up their portfolios while less healthy (i.e., less wealthy) elderly would not. Poor seniors would face difficult choices if necessary care cost more than their cash benefit, but less than the deductible. In essence, the risks of higher costs would be borne more onerously by those more likely to fall ill and those for whom high costs loom proportionately larger. Think of it as means testing in reverse.Even conservatives concede-albeit grudgingly-that the MSA plan needs to be made more equitable. Cato Institute economists Doug Bandow and Michael Tanner have suggested that "if necessary, vouchers could be provided to low income elderly, sufficient to enable them to cover part or all of the added deductible." Well, many Americans believe that it is "necessary" to make access to medical care available to all on some basis other than their wealth. But we need not jury-rig a means-tested voucher onto an independently crafted catastrophic coverage system. In fact, distributing separate vouchers for the needy is so obvious a welfare device that it would be unlikely to survive more than a few years if it were ever enacted to begin with. A better idea: borrow the "catastrophic coverage" concept from the MSA plan, and from that build a program that is universal, but makes allowances for beneficiaries' particular financial situations.THE SOLUTIONThe key to establishing fair, catastrophic Medicare coverage is to recognize that a "catastrophic illness" is defined in terms of an economic calamity, not a medical one. Certainly it is a tragedy when a serious, or even fatal, illness strikes you or a family member, but that is not what health care economists and policymakers mean when they call an illness "catastrophic." And, of course, what constitutes an economic disaster for a Brooklyn cab driver might run about the same as a night at the Met for a Manhattan lawyer. The best way to address this economic reality is to develop a plan that makes the dollar level at which a household qualifies for "catastrophic" coverage a function of income, thus creating a benefit that is both universal and targeted.So how exactly would a "means-tested" catastrophic Medicare plan work? In its simplest form, a family's deductible (the initial amount it must pay out-of-pocket before Medicare takes over the bills) could be set as a flat percentage of household income, say, 10 percent. If our Upper East Side lawyer with his $200,000 a year income were over 65, once he spent $20,000 on health care, his catastrophic coverage would kick in and Medicare would handle the rest. Such a system would address the need for "market discipline" in controlling medical costs (most consumers would pause before sinking a tenth of their income into unneeded tests and treatment) as well as the desire of most Americans for protection against overwhelming expenses. And since everyone, not just the poor, would be covered when their medical bills became "catastrophic," the plan is less likely than a voucher system to be labeled-horror of horrors-a "welfare program."In real economic terms, however, 10 percent hits recipients differently depending on whether they make $15,000, $50,000 or $500,000, since the percentage of income normally devoted to medical expenses, or needed for other necessities, declines as income rises. The system could therefore be refined by decreasing the percentage cap amount as income declines. So, instead of spending up to 10 percent of his income, our cab driver making $20,000 a year would only have to spend, say, 5 percent of his annual earnings before his catastrophic coverage was activated. This percentage could, in fact, decline to near-zero-retaining some minimal deductible to deter utterly frivolous use of medical resources-at some income near the poverty line.An alternative would be to vary not the percentage of income where catastrophic coverage kicks in, but the co-payment rate on all medical expenses below this cap-the percentage of the bill borne by the patient instead of the insurer-so that the out-of-pocket cost for care below the catastrophic threshold would pose a reasonable deterrent to frivolous consumption but would nonetheless be manageable on the patient's budget.In either case, this extra subsidy component is more obviously a "welfare" program-but less obviously so than current social welfare programs, which are not integrated in any fashion with efforts to benefit the middle-class or the well-to-do. Under the new system, every older American would receive protection against catastrophic medical expenses and be given responsibility for intelligent management of medical resources below that catastrophic level. But what "catastrophic" means would be recognized to vary from family to family as, in fact, it does in the real world.LIEN ON MEOne further refinement: Some analysts object to catastrophic coverage because once a patient has met the high deductible and is completely covered by Medicare, he has no incentive to control spending. After all, why not order up that sixteenth CAT scan if dear ol' Uncle Sam is signing the checks?To re-inject fiscal discipline, a means-tested lien could be placed on a person's estate for recovery of expenditures that exceeded his total contribution to Medicare. (As veteran health care specialist Barbara Boyle Torrey put it, such a system would truly be "pay as you go.") The clear advantage of this arrangement is that it would allow Medicare to tap beneficiaries' assets-the better measure of ability to pay, especially among the elderly, who tend to be relatively income-poor but asset-rich. And as with the catastrophic deductible, the lien would be means-tested so that it bore a reasonable relationship to the size of any estate left behind. Furthermore, collection could be postponed until after the death of both the patient and the surviving spouse so as to avoid the specter of yanking away a sick old woman's house upon her husband's passing. Nonetheless, if people knew that part of the cost of their health care was to be deducted from their estates, they would choose their treatments more judiciously. And, as one former OMB analyst notes, "If they didn't, at least some of the costs of inefficient use would be recovered."What would all of this mean for people like Sam Jones and his daughter Susan? Most prominently, it would mean that Susan and the rest of her family could stop worrying about how to pay for Sam's illness. When expenses reached a catastrophically unaffordable level, as they did long ago for Sam, they would be assumed by Medicare. The bills would not continue to mount threateningly. Then if Sam were to die with substantial assets, a portion of those-keyed to the size of his estate and the level of Medicare benefits he received in excess of the amount he paid into the system over the years-would be reclaimed. But not until after his wife's death. In any event, the Jones's ability to provide for Sam's care and still maintain their own lives would be secured.Where would the money for this security come from? Some from the post-mortem recoupment of assets. Most from asking Medicare beneficiaries to assume a larger out-of-pocket burden (compared to what they currently pay) during those years in which their medical expenses were significant, but not catastrophic. Most years, of course, Jones-and any other senior-would not incur higher medical costs, because the majority of beneficiaries use few resources in any given year. Some years, however, even moderate income elderly-not to mention the wealthy-might have to pay more than under the current program. This greater potential exposure is the price of not only salvaging the program, but changing it to provide coverage against even greater outlays-the coverage most families most want-and making the level of that exposure more equitable for most Americans.In 1988, Congress actually tried to add a catastrophic care component to Medicare, but had to repeal it within a year in the face of an uprising of the affluent elderly. At that time, however, the change was being sold as an "improvement" to a system that was thought to be in good working order. As soon as some influential seniors-including retired employees of the federal government, for whom Uncle Sam pays most "Medigap" costs-figured out that the system then under consideration would increase their premiums, they launched a revolt.Today, however, we aren't talking about improving Medicare, but about saving it. The impending bankruptcy of the trust fund looms large, and-for all of its partisan posturing-last year's campaign squabbling over Medicare spotlighted the issue even further. So although attempts to overhaul the system might necessitate certain concessions (such as grandfathering in federal retirees), much of the voting public recognizes that, unless something changes, the program soon won't be around for any of us to rely on.An income-sensitive catastrophic program would provide a measure of hope, not so much for the growing elderly population, but for the younger Americans who are increasingly asked to assume the burden of our current system. The health care that younger people like Susan Jones received might be substantially cheaper-as suggested by the estimates upon which conservative catastrophic plans are based-because greater consumer discipline would be injected into day-to-day health-care spending decisions. And if such a scheme were extended to cover all Americans, there just might be simple, affordable, and relatively non-bureaucratic national health insurance that would lower costs for all, and make care accessible for those currently without coverage. So, one day, when Susan had children, they could grow up with the same promise of medical attention that we currently reserve only for the rich and the aged.SIDEBAR 1: HMO Rip-OffDepending on your point of view, HMOs are either the greatest advance since sliced whole-grain bread or the worst threat to human health since smallpox. But everyone agrees on one basic point: HMOs, with their enforced efficiencies and limited-access approach to specialized care, are a terrific means to cut health care costs. It takes the U.S. government, through the antiquated Medicare system, to actually lose money when beneficiaries switch over to HMOs.The basic problem is simple. Medicare is reimbursing HMOs at too high a rate. Essentially, the system works like this: For each Medicare beneficiary they treat, HMOs receive a flat fee, called capitation, based on the average cost of Medicare's fee-for-service patients within the same geographic area. Currently, that fee is set at 95 percent of fee-for-service patients' costs. Using simple arithmetic, that ought to translate into a 5 percent savings every time a Medicare beneficiary signs up with a local HMO-which, multiplied by the 38 million people now covered by Medicare, could mean an annual savings of $10 billion. Unfortunately, the government's 5 percent solution fails to take into account one important fact: Medicare beneficiaries who opt for HMOs tend to be healthier than average. That's because enrolling in a managed care plan usually means switching primary-care doctors, an unattractive prospect for chronically or critically ill patients who have longtime relationships with their physicians. That means the HMO option appeals primarily to the healthy elderly, who are less interested in doctor choice than in avoiding the 20 percent co-payment demanded under Medicare's fee-for-service system. "They're the Centrum Silver crowd," says Mark V. Pauly, professor of healthcare systems at the University of Pennsylvania's Wharton School.So, instead of saving 5 percent on these HMO enrollees, the government actually spends 5.7 percent more on these healthy oldsters than if they had received exactly the same medical care under the fee-for-service plan. And some economists estimate that the 95 percent reimbursement rate may be 36 percent higher than the HMO's actual cost of providing care to those hale seniors.The HMOs, recognizing the potential silver mine in the Medicare population, are using some of those bonus dollars to offer healthy elderly patients enticing extra benefits, such as free prescription drugs and discount eyeglasses. That's great for the HMO patients, whose out-of-pocket costs are kept to a minimum. But it's hardly fair to ask the rest of the Medicare population-especially those whose high-risk medical histories make them unattractive to HMOs and or those who live in underserved rural areas-to pay full price for their expensive cardiac drugs while HMO enrollees get them for free. It's also not fair to taxpayers, who are funding benefits for HMO enrollees far beyond Medicare's original intentions. "That probably isn't what taxpayers would say they want to do, to help out healthy old people and not sick old people," Pauly says. "I guess I'm in favor of evening things up."SIDEBAR 2: The Truth About FraudPresident Clinton has a simple answer when you ask him how to balance the budget. He looks stern, and in the tone of a small-town newspaper editor, declares that: "Something"-dramatic pause here to pound the podium-"must be done about government fraud and abuse."Increasingly, in the current penny-wise frenzy to balance the budget, politicians are proclaiming that a crackdown on fraud and waste in government programs is the answer to their budget-cutting nightmares. Recently Clinton added to the chorus, hailing fraud reduction as the salvation for the endangered Medicare and Medicaid programs. In late March, the President urged Congress to pass the "Medicare and Medicaid Fraud and Abuse Prevention Act," which would allow administrators to bar unscrupulous health care providers from the programs.On the surface, the plan sounds like a winner. After all, no one stands up for fraud-at least in public. Problem is, this simple solution collides head-on with reality. Medicaid regulators are already required to bar fraudulent providers, and a General Accounting Office review of Medicaid fraud and abuse shows they're having enough difficulty dealing with the current case loads. Tough talk is cheap in the era of limited government, and in a mirror-image of the accepted rhetoric, the Medicaid program is currently wasting your tax dollars because of a lack of bureaucracy. Politicians need to acknowledge that the only realistic way to approach the problem of Medicaid fraud is to pay up or shut up.Speaking before a House subcommittee last September, GAO Associate Director Leslie Aronovitz made the not-so-shocking announcement that Medicaid has a serious problem: Health-care providers who should be out of the program stay in, costing the government millions-maybe even billions-every year. (The full GAO report was due out in late April.)Fiscal horror stories include: A pharmacy expelled for overbilling Medicaid $117,000 remained on the rolls for 15 months without any explanation. The file was lost on a dentist accused of using general anesthesia on patients who did not need it, and, before anyone could locate the file, the dentist racked up another $12,000 in bills at taxpayer expense. "[This failure to quickly oust fraudulent providers from the system] puts at risk the health and safety of beneficiaries and compromises the financial integrity of Medicaid, Medicare, and other federal health programs," Aronowitz told the committee. The reasons Aronovitz gave for such program problems sound suspiciously like typical bureaucratic excuses: inconsistent policies, missing case files, long processing delays. The solutions Aronovitz recommended: Provide more consistent guidance to field offices, prepare more documentation, and explore ways to work quicker. Translated: There are gaps. Fix them.But in order to do the double- and triple-checking that the GAO recommends, there need to be people to fill those gaps. Patrick Jennings is the lead prosecutor for the Illinois Medicaid Fraud Control Unit, which investigates and prosecutes fraud. Jennings refers his catches to the federal government for exclusion, but isn't surprised that they are often not handled in, as the GAO delicately put it, a "timely manner.""One of the problems in dealing with HHS, because of the personnel shortage, is the delay in follow-up," Jennings explains. "This HHS region covers five or six states. I'm not criticizing the people for the work they do, but the manpower isn't there." Robb Miller, inspector general for the state's Department of Public Aid, faces Medicaid fraud at the front line. He runs the Illinois Office of the Inspector General (OIG), the agency charged with getting Medicaid freeloaders off the gravy train. Much of Aronovitz's testimony sounds like criticism of his work and that of other state OIGs.Miller doesn't dispute the holes in the current system; in fact, he provided much of the information Aronovitz cited in her testimony about Illinois. But the GAO's suggestions to improve OIG's effectiveness seem to understate the scope of the problem Miller deals with daily. "In Medicaid fraud, you don't have a single victim," says Miller. "The problem you know about is never all of the problem, and it can change at a moment's notice." Right now, he says, all his department can do is plug the leaks as they become visible. Generally speaking, there are two types of Medicaid fraud: fee-for-service and managed-care. In fee-for-service fraud, Miller explains, the idea is to bill Medicaid for as many procedures as possible. "An office visit might be $15, but the provider bills us for a full physical, which might be $40," he says.In managed-care fraud, the aim is to do the opposite. Providers are paid a flat, "capitation" fee per patient, regardless of how high or low the patient's medical bills run. To maximize profit, a fraudulent provider tries to devise as many ways as possible to keep patients out of their facilities. This type of fraud is tough to verify. "It can be things like a doctor not having enough office staff or phone lines, so the client can't get through to make an appointment," Miller says. "Then, when we ask the provider about it, he can say, 'Hey, I never got the call.'"Some managed-care providers also use hard-sell techniques, like recruiting non-English-speaking immigrants, who don't fully understand what they're signing up for, and so never make proper use of the system. "We're even investigating several cases where [managed-care providers] apparently forged the client's signature," Miller says. "The clients didn't even know they were supposed to be in the program."Sometimes, the so-called providers don't even exist-except on paper. Miller refers to the case of an Illinois facility that steadily billed Medicaid about $2,000 a month through the program's electronic filing system. These small amounts didn't attract attention, so there were never any site visits or audits from program administrators. Suddenly, the company "spiked"-its billings went to $1.3 million in four months. State investigators went to the offices and found that the fraudulent filers had been running a shadow corporation: the office doors were locked and the facility was empty. The Medicaid claims staff caught $1 million before it went out the door, but the owners of the facility still got away with over $300,000.Those losses add up for taxpayers, but exactly how much is anyone's guess. "Nobody knows," Miller says. "The standard figure given is about 10 percent of the total budget, but nobody knows for sure." Even so, if that rough estimate is accurate, Medicaid fraud cost us about $15.9 billion in fiscal year 1995 alone.It's easy to see how politicians can look at that number as a potential cash cow. What isn't easy is rounding up the offenders and collecting the bill.Illinois's fraud control unit brought in $1 million in civil recoveries last year, plus $230,000 from a criminal judgement. Prosecutor Jennings would like to do more, but the resources aren't there. "If we had more people, we could bring more prosecutions and more [providers] would be banned," he says. "With the existing resources, we're doing what we can: We notify the feds and they go on their way. But it takes time."That's the real dilemma of Medicaid fraud and abuse. If politicians want to recover more of that $15.9 billion, they're going to have to pony up a down payment on more auditors, more investigators and prosecutors, and more research and planning for fraud prevention. Miller can defend auditors on a cost-benefit basis. "For every $1 we spend on an auditor, we get $6 back," he says. But prosecutors and investigators are not always cost-effective, he concedes, and although research on better ways to operate saves money in the long run, Miller can't quantify it yet.Regardless of their probable benefits, all three types of enforcement cost money, and Miller isn't holding his breath. Even with the increased funding available in the Kennedy-Kassebaum bill, he knows money is tight in the current political climate. "You can't increase regulations without proportionately increasing staff to deal with them," he says. "Then you get people talking about rising taxes and bureaucrats. I'm sure our investigators and auditors don't think of themselves as bureaucrats. I think they're just doing their jobs, slogging against the tide."