Politics & Policy

Making Medicare Reform Work

Getting on with business.

Now that the Medicare bill has passed, it is time for conservatives to set aside their reservations and work towards even greater reform. As a reluctant supporter of the Medicare bill, I am well aware of its limitations and complexities. But the concern expressed by conservatives about the size of the prescription drug bill is misplaced. I write this as someone who has written extensively on the costs and benefits of prescription drugs, as well as the looming dangers presented by government price controls in this critical market. As much as anyone in the conservative-policy community, I remain committed to free-market principles, but I also believe that medical-policy debates should ultimately be driven by hard data and evolving medical science.

Conservatives like to point out that only a small percentage of seniors have a problem paying for prescription drugs. In fact, I was one of the first researchers to report that information. But let me also be the first to share some other relevant information: The percentage of seniors with extremely high drug costs is rising rapidly.

According to a study in the journal Health Affairs, the percentage of seniors with the highest share of drug costs increased nearly 600 percent from 1997 till 2000–and their percentage of the total senior population continues to grow by about 60 percent a year now.

That is the reality that our nation is facing, and the reality that this bill is meant to address. As medical progress continues, more and more seniors are going to be taking an increasing number of new drugs that will increase drug spending and make more seniors consumers of high-cost medicines.

Critics of the bill fail to note that most of the $400 billion will go to cover the costs of low-income seniors with no coverage and the growing portion of seniors that are in the high cost category. And for the first time in history, Medicare costs are shared by seniors according to their income. And that is true whether the money goes to sustaining existing private drug coverage or providing it through the more dubious stand-alone programs the bill seeks to create.

The truth is that we are facing massive unfunded liabilities for Medicare–and Social Security. What this bill does is buy us time to find a better way to manage the diseases of old age, and solve the overall challenge of shifting the cost and financing of Medicare to individuals rather than third-party payers.

But for conservatives to suggest that we shouldn’t add prescription-drug coverage until we solve those problems is just as bad as liberals arguing against welfare reform in 1996 because it didn’t end poverty at a single stroke. Conservatives can’t let ideological purity detract from the process of moving the whole program in the right direction.

In a perfect political world, additional money for prescription drug coverage would be in the form of tax credits or vouchers for seniors that they could use to select coverage from competing health plans. But the real virtue of this bill is that it is free of price controls and government mandated rationing. Conservatives have shown their commitment to the nation’s security through new investments in military technology. Investing in the war against disease and mortality in an aging population is as important as our ability to win wars and defeat terrorists.

Furthermore, the argument that a prescription-drug benefit will only add to Medicare’s sustainability woes only repeats a fallacy embraced by liberals assaulting drug companies. Drug treatment doesn’t increase overall health-care spending–it decreases it. In reality, drug spending will save money for Medicare by reducing total health-care spending for each senior by a factor of eight dollars for every one spent on new medicines.

Finally, conservatives see doom no matter how they look at Medicare reform. On the one hand it is a huge fiscal giveaway. On the other hand, they worry that seniors will construe the benefit as too small, and demand that their Democrat allies double or triple the size of program. Which is it? Skimpy or superfluous?

Conservative angst about this bill pits the perfect against the good. Here we have the first change in Medicare that does not include government price controls or rationing, that consists largely of giving people choices and plans tax credits, that means tests a benefit, that encourages competition–and the initial conservative reaction is that “liberals will turn this into a command and control entitlement.” Conservatives need to have faith in their own abilities and principles. This is the first salvo in a long struggle to remake the two largest government entitlements, and conservatives should view it as such.

I didn’t get everything I wanted in this Medicare bill. But we did get a targeted drug benefit, along with Medicare reform without price controls and rationing on critical new medicines for nearly a decade. I expect that Medicare reform will continue and hope that conservatives, now that the bill has passed, will put aside their disappointment that we had to spend more money on prescription drugs–the cutting edge of health care and medical progress–and work to made modern, market-based medicine a reality for all Americans.

Robert Goldberg is director of the Center for Medical Progress at the Manhattan Institute for Policy Research.


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