Expanding Regret
Bad Medicare prescription on a fast track to law.


Writing in the Daily Telegraph, columnist Mark Steyn offers a shrewd summary of George W. Bush’s presidency: “He decides on his goal…the received opinion says it’s never gonna happen, and somehow by the end of the day the chips have all fallen his way.” That observation summarizes well his attempt at Medicare reform. Having cleared the House by the narrowest of margins Saturday morning, the Senate is slated to vote on (and approve) the bill this afternoon. For months, it seemed unlikely that Congress would act; today, it looks inevitable that a bill will go to the White House for approval. But on this issue, the president will soon regret his success.

Many are poised to celebrate the passage of the Medicare bill, both for political and policy reasons. The Washington Times editorializes that this legislation will help cement the Republican party as the majority party. Former Speaker of the House Newt Gingrich suggests that “if you are a fiscal conservative… there may be no more important a vote in your career than one in support of this bill.” Tom DeLay, House Majority Leader, opines that the Medicare legislation “represents not only a new chapter in American health care but also a historic opportunity to put a conservative imprint on a major entitlement program in need of reform.” This enthusiasm is shared by an impressive posse of lobbyists representing pharmaceutical, insurance, and business interests. Even the AARP has swallowed its partisanship and signed on.

But the currently proposed prescription-drug benefit is bad medicine for Medicare. Even if the legislation serves the short-term political interests of Republicans, it will create policy and political woes for the GOP for years to come, because it fails to address the program’s fundamental flaws. Consider:

It’s a massive solution to a small problem. 76 percent of American seniors already have prescription-drug coverage. And of those without coverage, only 2 percent of those 65 or older have minimal income and maximal drug expenses (greater than $4,000 per year). That’s far too many Americans, but it doesn’t justify the largest single expansion of a federal entitlement in three decades. Like trying to kill a mosquito with a machine gun, the approach overreaches.

It’s the money, stupid. Since Congress hopes to offer something for everyone, the program is slated to cost $400 billion over ten years. Incidentally, the National Center for Policy Analysis estimates that just 1 in every 16 dollars will go to help American seniors purchase drugs that they presently cannot. Furthermore, the $400 billion figure is a lowball estimate–no government entitlement has ever come in on budget.

It misses the big issue. Asked to summarize the biggest three problems facing Medicare, a health economist responded: “sustainability, sustainability, sustainability.” The costs associated with Medicare will grow dramatically over the coming decades as our population ages. The White House Office of Management and Budget estimates the unfunded liability of the program at $13 trillion over the next 75 years. Far from helping this unsustainable situation, a prescription drug benefit will increase this liability by more than 50 percent.

There aren’t any meaningful market reforms. Instead of offering support to private plans–a small but important first step toward introducing choice into the program–”premium support,” as it’s termed, will kick in only in 2010, and only as a demonstration program limited to a handful of urban centers. Writing in Friday’s Wall Street Journal, former House Majority Leader Dick Armey observes: “I was in Congress long enough to know how demonstration projects really work…On meaningful needed reforms, demonstration projects mean a quiet, obscure death.” Armey doesn’t list any examples in his article, but there are plenty of dead demonstrations he could have mentioned, including the last set of Medicare competition projects.

Overall costs aren’t really contained. There has been much ooh-ing and ah-ing over a late addition to the Medicare bill that, supposedly, will help cap Medicare’s spiraling costs. But the actual language is weak–the bill has a “trigger” that causes action after a certain threshold is reached (i.e., when the spending from general revenue exceeds 45 percent of program spending). But overspending merely triggers “congressional response.” In other words, Congress proposes to grant itself a power it already has–to do something one day about Medicare costs.

It offers liberals two great opportunities for exploitation. First, Republicans enthuse that they’ve just stolen a liberal issue and made it their own. That may prove optimistic. Consider the structure of the benefit: After meeting a $250 deductible, insurance pays 75 percent of drug costs up to $2,250, but then there will be no coverage for drugs between $2,250 and $3,600. Over $3,600, there will be 95-percent coverage. Policy analysts label this gap “the donut hole,” and it will hardly prove popular with American seniors. Second, this bill makes the federal government the largest funder of prescription drug purchases in the world. Medicare already has price controls for physician fees and hospital reimbursements; will it be long before Washington wants a better deal on pharmaceuticals? Both provisions set the stage for even greater government expansion.

There is one good thing buried deep in the Medicare bill: The creation of health savings accounts allows Americans to accrue tax-free health dollars. Give credit where credit is due: Congressional Republicans did well to incorporate this provision into the bill.

Newt Gingrich suggests that this may be the most important vote for fiscal conservatives in their careers. I’d beg to differ–expanding a federal program is hardly unique or revolutionary; it’s just unfortunate.

Dr. David Gratzer, a physician, is a senior fellow at the Manhattan Institute.


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