May 26, 2005

May 26, 2005 | Commentary on Health Care

Defusing the Medicare Time Bomb

Newly hatched deficit hawks in Congress publicly sweat at the thought of supporting personal accounts for Social Security. But they overlook the big-ticket elephant in the entitlement-spending room. As Washington Post columnist Robert J. Samuelson recently noted, when Congress approved a drug entitlement for Medicare, it approved the largest single spending increase since the Great Society, complete with massive deficit financing.

Lawmakers' desperate desire to look the other way is somewhat understandable. After 2003's two-semester push to pass a Medicare bill, most in Congress want to pretend they're done and never have to crack that textbook again.

But the bad news, which is becoming clearer every day, may leave them no choice. Medicare's trustees now say that the program is in the hole by $29.7 trillion. This represents unfunded Medicare benefits promised to current and future retirees. It's no great surprise that members of Congress don't want to discuss whether and how, precisely, they will sock young taxpayers with this big bill.

The latest Medicare trustees' report shows that the long-term cost of Medicare's unfunded promises jumped roughly $2 trillion in just one year. Indeed, the debt for the drug benefit alone jumped from $8.1 trillion to $8.7 trillion. So, in just one year, the long-term estimates of the drug entitlement increased a whopping $600 billion. At this rate, even before the benefit is in place, imagine what that number will be next year!

For now, Congress has turned its back on this mounting problem. If worse comes to worst, today's 20-somethings, who pay even less attention to entitlement costs than do members of Congress, will foot the big bills tomorrow.

Some lawmakers, however, see the Medicare drug benefit for what it is: a ticking time bomb set to wreak havoc on the budget and shoot future tax rates sky-high. But even among them, there seems to be only one adult, Rep. Jeff Flake (R-Ariz.), who recognizes that the Medicare problem is not just a matter of dollars, but major health-care policy.

Flake sees the problem as more fundamental. He knows that tinkering around the edges of the drug benefit -- say, by letting the government "negotiate" (i.e., "fix") drug prices -- won't fill much of Medicare's long-term fiscal hole and that it's dangerous to boot. What's needed instead is a return to the drawing board. And Flake has already sketched out a plan.

Flake's Medicare Prescription Drug COST Containment Act has three interlocking parts, but it can be explained in one easy sentence: Put off the hideously expensive and complicated drug benefit until Congress can figure out a way to pay for it. Flake's bill would 1) delay the drug benefit for one year, 2) extend the new Medicare prescription drug-discount card program, which was slow to take off but has proven effective at channeling aid to those who need it most, and 3) maintain funding for seniors today receiving coverage through Medicaid who would have been dropped into the new program.

So far, co-sponsors for the legislation are few, but that could change overnight. The federal and state bureaucracies have high hurdles to jump if they're going to be ready by Jan. 1, when the drug benefit is set to go into effect. Already, some large companies are beginning to notify their retirees to get ready to be dumped into the federal program, which provides poorer coverage in almost every case.

And word of the dreaded "doughnut hole" (a large gap in coverage that would leave many seniors with high drug bills unprotected) is starting to spread beyond Washington to seniors, who don't like the idea one bit. Members of Congress may soon find themselves searching frantically for a way out. If so, Flake's solution should meet their pressing needs.

More lawmakers need to wake up to the true cost of their irresponsible handiwork. A year's delay could give them the chance to avoid this mess, study the issue calmly, and -- this time -- get it right. Flake's got the right idea.

Robert Moffit is director of the director of the Center for Health Policy Studies at the Heritage Foundation, where Andrew Grossman is senior Web editor.

About the Author

Robert E. Moffit, Ph.D. Senior Fellow
Center for Health Policy Studies

Related Issues: Health Care

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