Politics & Policy

The Right Rx

Reforming what you can when you can.

Today, President George W. Bush will sign a historic Medicare-modernization bill that adds a prescription-drug benefit to Medicare. This is supposed to be a major political victory. But some of my conservative friends are grumbling. Economist Bruce Bartlett calls the bill a “massive expansion of the welfare state” and a “serious policy error.” Steve Moore of the Club for Growth: “The plan will dump roughly $2 trillion in added unfunded liabilities into the laps of our children and grandchildren, on top of the $21 trillion in unfunded debt already baked in the cake.” (Question for Steve: When did we supply-siders begin obsessing about the national debt and deficits?)

Conservatives have long had an uneasy relationship with health policy. Outside of their efforts to defeat “Hillary-care” and other Democratic initiatives to socialize our health-care system, the conservative movement rarely addresses health-care policy–a failure that has resulted in the issue being virtually monopolized by liberal Democrats in the eyes of both the media and voters.

The Medicare bill is not a perfect statement of conservative philosophy, to be sure. The cost is huge. But it does contain some good, meaningful, conservative policy reforms.

Conservatives will finally have an alternative to liberal arguments that the only way to cover the uninsured is by government fiat. This bill dramatically expands Medical Savings Accounts, now renamed Health Savings Accounts (HSAs). These accounts are owned and funded by individuals, just like IRAs, and are used to pay nearly any medical expense–all in tax-free dollars.

With these accounts, employees will have tax-advantaged money to pay for routine health-care costs, such as lab bills, out of their own pockets. Meanwhile, employers will be able to focus on protecting employees from major medical risk, or so-called “catastrophic coverage.” This division of responsibility will bring more people health-care coverage for worst-case scenarios without burdening employers with the responsibility of covering all health-care costs–a primary policy goal of liberals.

And since the ongoing value of HSAs will depend on health-care spending, individuals will have reason to see the doctor only when necessary, use generic drugs instead of brand-name versions, and even adopt healthier lifestyles by exercising and eating right, so they avoid the long-term health costs associated with obesity. One of the central tenets of conservative thought is that people respond to incentives; HSAs will make those incentives abundantly clear.

And incentives will soon matter–for the first time–in the entire Medicare system.

For one thing, the bill will give low-income seniors a $600 annual subsidy on special drug-discount cards. Since the dollars are fixed, low-income seniors will have great reason to think like consumers, not government dependants, and use the dollars sparingly.

And beginning in 2006, Medicare-approved private health plans will begin to compete in the marketplace for the business of our seniors; by winning that business of our seniors, these private plans will receive the Medicare subsidies that would otherwise have gone to the Medicare bureaucracy.

By definition, conservatives believe a market is preferable to a monopoly–and for the first time, a government entitlement program is losing its monopoly. While the legislation rejected the broad idea of all-out competition pushed by House GOP conservatives, it does provide for limited competition starting in 2010. Conservatives would be wise to support and protect this reform, because you can be sure liberals will try to kill it before it is even born.

Another way to defeat liberalism is to make sure the citizenry understands its costs. Again, this bill brings us closer to that goal. Upper-income seniors–those earning $80,000 or more–will have to pay higher premiums for Medicare prescription-drug coverage starting in 2007. Liberals are apoplectic about this proposal; they fear that upper-income seniors will drop out of Medicare for cheaper and better private coverage, depriving the government monopoly a stream of revenue and a base of support. They are right to be afraid; that is precisely the point.

The liberals certainly get it. Senator Ted Kennedy called many of the above-mentioned reforms “destructive changes in Medicare” that were driven by “a right-wing ideology that says government insurance is bad and private insurance is good.” Senator Hillary Clinton called the legislation a “privatization scheme.”

The rhetoric is overblown, but the sentiment is real. The Democrats hate this the reform and will attempt to resurrect their idea for a $1 trillion government-run drug benefit, complete with controls over drug prices and drug research. They will do this not only because they support massive health-care spending by the government, but also because this is a major victory for the president: No one thought you could bring reforms to a government entitlement program. President Bush did. His success with Medicare will surely embolden him and his allies as they consider reforms to Social Security. Conservatives do not yet appreciate this point, but Democrats clearly do.

Conservatives may grumble about the cost of this Medicare bill. But it is not the “vast expansion of the welfare state” they fear. Instead, this Medicare law strengthens our private health-care system, creates incentives for competition and a consumer-driven approach to health care, and gives our seniors the full measure of modern medicine that has been promised to them. We need not make the perfect, or near perfect, the enemy of the good.

Cesar Conda, formerly assistant to Vice President Cheney for domestic policy, is a board director at Empower America.

Cesar Conda — Mr. Conda, formerly assistant for domestic policy to Vice President Cheney, is a founding principal of Navigators Global, a Washington, D.C.–based public-affairs firm.

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