May 17, 2006

May 17, 2006 | Commentary on Health Care

Medicare mess guaranteed to grow

Yesterday was the last day for seniors and the disabled to enroll in the new Medicare drug program without penalty. Today, official Washington is congratulating itself on another successful entitlement expansion - the largest single entitlement expansion since the Great Society.

 

Sadly, the news reports have obsessed on various government foulups during the signup process. The real problem is that this program will eventually replace existing public and private spending for drugs with new taxpayer financing - at a time when entitlement costs are already growing much more rapidly than the tax reciepts that are supposed pay for them.

Roughly three quarters of all seniors already had some form of prescription drug coverage even before the hugely expensive Medicare drug bill was passed in 2003.

The real problem was much simpler and much easier to resolve: targeting assistance to low-income seniors who needed the most help. But Democrats and Republicans in Congress joined to reject that option - and the Bush administration, which originally focused on helping the needy, acquiesced.

Most of the Medicare beneficiaries enrolled in the drug program were enrolled automatically, whether by employers (getting generous taxpayer subsidies) or through the new Medicare Advantage plans.

The roughly 6.4 million Medicare beneficiaries also eligible for Medicaid had no choice at all in the matter: They were simply transferred, en masse, into the new Medicare drug program. That's where the predictable and well-publicized glitches, such as computer matching foul-ups, were greatest.

In a huge drug entitlement governed by more than 1,100 pages of mind-numbing regulation, it is difficult to get all the details right.

But the enrollment numbers reached yesterday are irrelevant over the long run. Congress created a universal entitlement - and a universal entitlement will eventually crowd out most alternative coverage, including employer-based coverage.

The dynamics are in motion. When the costs increase, as they surely will, so will the congressional pressure to impose some form of price-control regime on prescription drugs. (That will be the ultimate prescription for lower-quality medical care for American seniors: You can't get more of anything by paying less for it. )

Meanwhile, the Medicare trustees are reporting that the longterm (75-year) unfunded liabilities of the Medicare program - the benefits promised but not paid for - have reached $32.4 trillion, $8 trillion from the drug entitlement alone.

The bigger costs are going to hit heavily when the first of the 77 million Baby Boomers start to retire in 2011. No one in Congress has unveiled a plan to pay for it. The tacit consensus seems to be: Stick the 20-somethings with the big bills.

Those 20-somethings may not realize it now, but they have a lot of taxpaying to do - Medicare, plus larger Medicaid and Social Security bills. What will it cost to fully fund the Big Three? My colleague, Heritage federal budget expert Brian Riedl, points to cautious, mainline predictions of the federal budget picture - which show that, absent serious entitlement reform, the cost will boost federal spending from 20 percent of gross domestic product to almost 38 percent of GDP by 2050.

Riedl says the real figures may be much worse - leaving Congress the choice of hiking taxes until they are $11,000 higher per household than now, or eliminating virtually all other federal programs, including defense and veterans benefits, by 2045.

Congress must grapple with entitlement spending. One option is means-testing the benefits.

Starting next year, wealthy seniors (singles making above $80,000, couples above $160,000) will be asked to pay a little more of their Medicare Part B premium costs - 28 percent, rather than the 25 percent that all now pay.

That small increase for a few marks a significant change in the Medicare program. The next step should be to start transforming Medicare from a defined-benefit program into a defined-contribution one.

Baby Boomers should be able to carry private health insurance coverage into retirement with them, and get a government contribution to offset its cost. The government contribution itself should reflect market conditions, but be capped at an annual dollar amount. And any retiree should be able to buy more expensive coverage, above the amount of the government contribution, if they wished to do so.

Congress can delay taking action, but every delay raises the tab for taxpayers.

Robert Moffit is director of the director of the Center for Health Policy Studies at the Heritage Foundation.

About the Author

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

First appeared in the New York Post (Online Edition)