Save Medicare, Too

Commentary by Pete du Pont

Let us hope that in the rush to fix Social Security's long-term problems, we also note that Medicare is already in crisis -- and the Medicare situation promises to get worse and worse. Giving all our attention to Social Security and ignoring Medicare is comparable to setting a patient's broken arm while ignoring his ruptured appendix.

Both Medicare and Social Security are pay-as-you-go programs, using today's payroll taxes to pay benefits to today's retirees, so that there are no real assets in either program's so-called trust funds. But Medicare has four other problems that Social Security doesn't have:

Medicare is already spending more than it takes in, whereas Social Security won't reach that point until about 2013.

Medicare payments go for the most part to service providers, with the government trying to control how the money is spent, whereas Social Security payments go to the beneficiaries, who control how the money is spent themselves.

Despite attempts at controls, there is no specific cap on individual or total Medicare payments, whereas there are specific limits on Social Security payments.

Every Medicare beneficiary has his or her own definition of medical care needs, whereas every Social Security beneficiary has the same definition of what money is.
The future of Medicare promises escalating conflict between taxpayers and the elderly, and between government regulators and hospitals and doctors, and resentment by the elderly whose health care will be severely rationed by both medical and governmental bureaucrats.

If Medicare isn't reformed, by the time today's 18-year-olds retire, the Medicare trustees estimate that Medicare Part A (which pays hospital bills) will take 6.9 percent of workers' pay. Add in another 5.2 percent for the part of Medicare Part B (which pays doctor bills) financed from general taxation. Then add 3.9 percent for Medicaid and other government health care programs for the elderly. That's 16 cents out of every dollar workers earn -- before we even consider Social Security or taxes for anything else.

This forecast, by the way, is based on intermediate assumptions. The forecast based on pessimistic assumptions is even worse -- about 20 percent of all taxable payroll for Medicare alone. If young people are skeptical about ever collecting Social Security benefits, should they be even more skeptical about the future of Medicare?

The government exercised almost no control over health care costs in the early years of Medicare, but for some years now has tried to control costs with a top-down, command-and-control basis. Squeeze the doctors, hospitals, and other providers of health care. Force them to cut their rates. Encourage managed care. Write volumes of regulations.

This approach overlooks -- and harms -- the most important element: the patient.

To illustrate what's wrong, let's imagine the government provides you, an elderly person, with groceries the same way it provides Medicare. Initially, with few restrictions, you will probably select high-cost items without regard to the price, since you're not paying. When the government realizes that it needs to cut costs, instead of asking you to change buying habits and offering some incentives to do so, it tells the grocer that reimbursements will be reduced, and dictates the exact reimbursement for each food item. The grocer reduces the variety and selection of goods sold. And you are not allowed to drop out of the program and buy groceries elsewhere with your own money because you're elderly.

That whole scenario is ridiculous, of course. Nevertheless, that is exactly how the government deals with Medicare.

Meanwhile, the wonderful advances in medical science that ought to be reason for rejoicing are viewed with alarm because they potentially will raise Medicare costs. As medicine presents more and more possibilities for treatments, including very expensive treatments, choices must necessarily be made between spending money for medical care and for other things. Under the command-and-control system, government will make the choices through rationing. The government will set guidelines and establish quotas, and patients who are not denied care altogether go on waiting lists. A bureaucrat, not you or your doctor, will make what may be life or death decisions.

The way to avoid these pitfalls is to move to a system of fully funded retirement health care. The elderly should be able to buy real health insurance -- that is, insurance against the risk of catastrophic illness instead of simply prepaying for health care. A vastly scaled-down Medicare program could be the insurer of last resort. Health care decisions should be in the hands of the patients themselves, aided by their doctors. Now is the time to begin reform, so that today's 18-year-old will not retire into a world of overtaxed workers and underserved retirees.

The National Center for Policy Analysis is a public policy research institute founded in 1983 and internationally known for its studies on public policy issues.