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A Poison Pill
Medicare "reformers" stop making sense.


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During the post-midnight hours last Friday, the Senate and House both approved their respective versions of Medicare “reform” legislation, with the all but full-throated approval of the Bush White House.

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With only minimal Democratic support in the House, it took virtually an entire Republican village to:

enact the largest expansion of the Medicare entitlement since its inception in 1965;
increase the unfunded liabilities of current and future taxpayers by $6 trillion to $12 trillion;
ensure that future generations face a legacy of compounding debt and economic stagnation, instead of a healthier and more prosperous future;
squander scarce resources on the discretionary, early-dollar drug expenses of upper- and middle-income seniors;
top them off with a hefty hog’s helping of rural health-care subsidies;
fail to target assistance to seniors most in need and instead deliver a wide and thin layer of prescription-drug benefits that taste bad and are less filling;
encourage further erosion of employer-sponsored retiree health benefits;
abandon all but the tiniest pretense of Medicare reform that is Market-based In Name Only (MINO);
launch a new round of mind-numbingly complex regulation of health care services for seniors;
supply the rope for an ever-tightening price control noose around the necks of research-intensive drugmakers;
chill, if not choke off, future rounds of pharmaceutical innovation;
fumble away the last best chance to reacquaint Medicare with the better practices of private-sector health care;
reduce seniors’ health care choices, instead of expanding them;
set up stand-alone drug coverage destined to “fall back” toward administration by subsidized price-takers at best and by federal bureaucrats at worst; rather than “leap forward” to value-adding private competitors;
get in position to be on the receiving end of seniors’ complaints in future years, once “sticker shock” and “buyer’s remorse” sink in;
create irresistible political incentives to fill the “doughnut hole” of uncovered drug benefits in future years, and then face an endless round of “tough” votes in Congress to resist doing so.

The spin doctors of Medicare policy on the Republican sides of the aisles of Congress are trying to assure balking conservative members that it’s important to keep the process moving and that the worst elements of the legislation can be “fixed” in a Senate-House conference. But they should check the list of repairs needed for this remodeled “lemon” and also check to make sure they have enough gas left in their political getaway cars to handle the rocky road ahead.

Are there any other alternatives — either from a last-minute miracle in the conference committee, or perhaps during the next two years, as reality sinks in and the seeds of the full drug entitlement have not yet taken root?

Market reformers hold a limited hand of cards because of the way in which the political deck has been dealt. The best thing would be probably just to stop at the interim plans for a drug discount card and low-income cash assistance, and then get out of town. We have two more years before the real prescription-drug entitlement machinery fully kicks in. Although Congress remains highly unlikely to renege quickly on the full package that’s approved to start in 2006, it would be fine if it did just that. A simple combination of a limited-discount card, additional protection for low-income seniors, and a very modest catastrophic-coverage benefit actually would solve the key problems of access to necessary drugs.

For the moment, the House bill valiantly clings on to at least a sliver of real reform — through competitive bidding that would eventually involve both private plans and the traditional Medicare fee-for-service program. But both the Senate and the Bush White House (the latter in its most weasel-like moments of political calculation) have resisted this. Even the House approach is premised on phasing in real bilateral competition in 2010, well after first stuffing a lot of extra money into what remains of the surviving Medicare+Choice private plans (to boost the initial price benchmarks used for bidding).

But 2010 is too far off. President Hillary Rodham and like-minded opponents of real market reform will quickly snuff out this fledgling fetus with a partial birth abortion by 2009, if not sooner. This Congress must accelerate the start of real competitive bidding to no later than 2007, when George W. Bush could still be President.

At another day and time, one could reconsider simply making it easier to swap Medicare benefits instead of putting more third party dollars on the table, either through reform of the Medigap supplemental-insurance market or a renovated set of traditional Medicare program-benefits options. If a senior wanted some more drug coverage, they would have to take less of something else in covered services. The best way to do this would be through greater and more flexible cost sharing.

Or one could simply try to stall until Congress runs out of the imaginary money that members think they are spending. And in about one more year’s time, that would probably do that trick. The sticker shock when seniors realize what little they are receiving, for so much money; growing anxieties about crowd-out of better employer-sponsored retiree drug coverage; and new conflicts arising from further overreaching in filling in the doughnut holes in promised benefits could combine to build momentum to reconsider at least the size and scope of this political scheme.

But maybe it’s really about time to end the pacifism in this one-sided intergenerational war. There have been a lot of raiding parties crossing the budgetary border from one side of the generational divide for decades. We haven’t heard or seen much return fire in voting booths from those on the other side — at least not yet.

The desirable policy destination should remain D.C., but not the District of Columbia. It stands for defined contribution, although we desperately need to start with at least the softer version, called premium support (essentially partial subsidies of insurance premiums charged by insurers competing to offer a core package of basic benefits).

In the meantime, I discovered that the best way to capture the essence of last week’s late-night debate was to tune it out by listening to a selection from one of my old record albums (yes, still on vinyl) from 1984. It was appropriately titled “Stop Making Sense” by the Talking Heads. Looking ahead to drawn-out battles in the House-Senate conference, and a future conference report’s precarious trip back for approval, keep your eye on replays of the classic tune, “Burning Down the House.”

Tom Miller is director of health policy studies at the Cato Institute.



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