COMMENTARY/OP-ED
Refundable tax credits
When Republican politicians start thinking about health care, their IQs tend to fall about 15 points. And that's a shame. Clearly, the voters want changes in our health care system. Seniors especially want changes in Medicare. Congressional Democrats, by and large, have no answers other than more spending and more socialism. So Republicans are in a unique position to deliver.
The question is: Why don't they?
So far, the Bush Administration's approach to Medicare is a mixed bag with some good and some bad. The problem is, the good is so good that the Democrats will resist it mightily; while the bad is so bad, it has a good chance of passing.
On the plus side, the Bush administration is proposing the most sweeping reform of Medicare since the program's inception in 1965. These changes would increase seniors' choices, reduce their financial risk and help rein in escalating costs. However, the administration is also proposing an expansion of senior entitlements (and thus taxpayer burdens) averaging more than $1,000 per year per beneficiary over the next 10 years. This cost is far more than reform requires. Moreover, the expense of additional entitlements will grow over time, and threaten to completely offset almost all of the long-term benefit the administration hopes to achieve through Social Security reform.
The plan has three elements. First, seniors who remain in traditional Medicare would receive a prescription drug discount card that could reduce out-of-pocket costs by 10 to 25 percent. They also would receive protection against catastrophic drug expenses. Second, seniors could choose among private sector plans offering more generous benefits in a program modeled after the current health plan for members of Congress and other federal employees. Finally, seniors could enroll in managed care plans that provide still more benefits, continuing an option many have today.
So far the plan is only an outline, giving those who fill in the details considerable discretion. House Ways and Means Chairman Bill Thomas has one approach. Senate Majority leader Bill Frist has another. Taxpayers, hold on to your wallets.
Case for Reform. The case for fundamental change is strong. Despite its political popularity, Medicare violates almost all of the principles of sound insurance. It pays too many small bills the elderly could easily afford themselves while leaving them exposed to thousands of dollars of potential out-of-pocket expenses, including drug costs. For instance, each year about 750,000 Medicare beneficiaries spend more than $5,000 out of pocket.
To prevent financial devastation from these medical expenses, about two-thirds of Medicare beneficiaries acquire supplemental insurance through a former employer or direct purchase. However, most of these "Medigap" policies do not cover prescriptions and coverage is often incomplete among those that do. Moreover, having a second health plan to fill the holes in the first is wasteful. Seniors with Medigap insurance spend 30 percent more on health care than those without it.
Dollar for dollar, drugs offer a better return on health care spending than other major therapies. Yet Medicare's practice of covering very few prescription drugs encourages doctors and their patients to choose physician and hospital services instead of less costly, more appropriate drug therapies. Ironically, Medicare will pay to treat a stroke victim in a hospital, but will not pay for the drugs that would have prevented the stroke in the first place.
Medicare's benefit structure has failed to keep pace with modern medicine in other ways. Medicare will pay to amputate the leg of a diabetic, but not for the chronic care that could have made amputation unnecessary. About 28 percent of all Medicare spending is for patients in the last year of life. Yet, while spending billions on patients who are about to die, Medicare will not pay for the common-sense care that would prevent many premature deaths.
Solution: One Premium for One Plan. Seniors are the only people in our society who routinely buy a second health plan to fill the gaps in the first. But, as noted above, paying two premiums to two plans is wasteful and inefficient. Paying a third premium to a third plan, as some have suggested, would be even more so.
In a study for the National Center for Policy Analysis, Milliman & Robertson estimated that combining the average Medicare expenditure with the average Medigap premium would provide enough money to enroll seniors in the same type of health plans other Americans have - including HMOs and Medical Savings Account plans - assuming the private plans pay Medicare reimbursement rates. In other words, we do not need more money. We need structural change.
In many urban areas, seniors have the option of enrolling in private managed care plans, as part of the Medicare+Choice program. Critics say the program is a failure because so many private plans have withdrawn from the market. But the withdrawals have been in response to too much bureaucracy and too little reimbursement. From the patient's point of view, the program has been a great success.
Privately managed plans have disproportionately attracted low-income seniors without Medigap insurance. After collecting about $250 in additional premiums from each enrollee, the plans have provided about $1,000 in extra annual benefits, including coverage for prescription drugs. (Note that this $1,000 figure is the amount taxpayers will have to pay if the GOP caves and grants a drug benefit with no reform!) Medicare+Choice shows that even those seniors most in need of financial help can enroll in plans that meet their health care needs with little if any additional federal spending.
Danger: New Federal Entitlements. The Bush budget allocates more than $400 billion over the next 10 years to Medicare reform. If these funds are spent on new elderly entitlements, they will do much more than transfer resources from poorer taxpayers to wealthier seniors. Through time they will set a baseline from which spending will soar.
Even without the largesse, we are already on an unsustainable path. By mid-century, Medicare and Social Security deficits will claim more than one-half of federal income taxes, (compared to a zero net claim today). This means government will have to eliminate more than one-half of all federal services or increase tax collections by that amount.
Enter Medicare reform. A bill passed last year by House Republicans creates a long-term unfunded liability equal to two-thirds of the outstanding national debt. A more generous House GOP plan proposed recently would cost more than the national debt.
Nor is this the worst that could happen. If House Democrats get their way, spending will be twice what Republicans propose. In that case, by mid-century deficits in the combined programs will claim more than two-thirds of all federal income taxes.
An administration that admirably came to office promising a better future for young voters could actually leave office having made that future less secure.
Updated June 24, 2003
Back to Clip Highlights.