December 1, 2012
By Nina Owcharenko and Robert E. Moffit, Ph.D.
Far from coping with the explosive costs of Medicare, the Obama Administration’s latest fiscal cliff offer is laughably inadequate.
The proposal remains stubbornly uninformed by the serious thinking of a variety of Medicare experts over the past several years. These experts—ranging from the Simpson- Bowles Commission to former CBO Director Alice Rivlin of the Brookings Institution, former Senator Pete Domenic (R-NM), Rep. Paul Ryan (R-WI), and Sens. Ron Wyden (D-OR), Joseph Lieberman (I-CT) and Tom Coburn (R-OK)—have produced several responsible reform proposals that already hold bipartisan support. There is simply no excuse for the president or Congress to blow yet another historic opportunity to at least make an initial down-payment on the huge task of reforming the Medicare program.
First Steps. Full scale structural reform of Medicare is doubtless a step too far in this hurried debate to avoid the “Fiscal Cliff”. But there are some tangible, and yet again bipartisan, first steps in changing the existing Medicare program that could easily be part of a broader deal. With a view toward the unfinished business of structural Medicare reform, the Heritage Foundation has already outlined several critical changes to the existing Medicare program that are compatible with long-term Medicare reform.
These first steps would significantly improve both the functioning and the fiscal outlook for the program. But they are just a start. Ultimately, for the program to be sustainable over the long haul, Medicare should be transformed into a defined contribution program (premium support), which would unleash the productive powers of choice and competition, controlling costs and delivering high quality care. It is the only long-term solution that can meet Medicare’s enormous challenges. They are:
A demographic challenge. With the flood of Baby Boomers retiring, the program--unchanged—will not be able to absorb the demographic shock. Medicare enrollment will jump from nearly 50 million to 80 million seniors by 2030.
An absence of modernized insurance. Traditional Medicare is defective as insurance, evident in the absence of even basic catastrophic coverage. Roughly 90 percent of seniors enrolled in the traditional Medicare program must depend on supplemental coverage to fill in the gaps where it falls short. Moreover, Medicare’s payment system still rewards volume rather than quality of care.
Massive debt. Medicare’s long term unfunded liability—benefits that are not paid for—approaches $37 trillion. While current seniors paid into Medicare, they didn’t pay in enough for the benefits they now receive. This forces current taxpayers to finance 85 percent or more of Medicare’s costs.
Some, like Washington Post blogger Ezra Klein, argue that Republicans do not have a plan for Medicare reform. This is absurd. The Republican House twice passed budgets that transition Medicare from its outdated model into a new and better premium support model. It’s the Senate leadership that has done exactly nothing. Despite the political foot-dragging, premium support as the basis of long-term reform is gaining more traction not less. Meanwhile, Congress can get this reform process underway before Christmas.
Owcharenko is director of The Heritage Foundation’s Center for Health Policy Studies. Moffit is senior fellow in Heritage’s Center for Policy Innovation.
First appeared in Real Clear Policy.
Director, Center for Health Policy Studies and Preston A. Wells, Jr. Fellow
Read More >>
Request an interview >>
Please complete the following form to request an interview with a Heritage expert.
Please note that all fields must be completed.
Robert E. Moffit, Ph.D.
Heritage's daily Morning Bell e-mail keeps you updated on the ongoing policy battles in Washington and around the country.
The subscription is free and delivers you the latest conservative policy perspectives on the news each weekday--straight from Heritage experts.
The Morning Bell is your daily wake-up call offering a fresh, conservative analysis of the news.
More than 200,000 Americans rely on Heritage's Morning Bell to stay up to date on the policy battles that affect them.
Rush Limbaugh says "The Heritage Foundation's Morning Bell is just terrific!"
Rep. Peter Roskam (R-IL) says it's "a great way to start the day for any conservative who wants to get America back on track."
Sign up to start your free subscription today!
The Heritage Foundation is the nation’s most broadly supported public policy research institute, with hundreds of thousands of individual, foundation and corporate donors. Heritage, founded in February 1973, has a staff of 275 and an annual expense budget of $82.4 million.
Our mission is to formulate and promote conservative public policies based on the principles of free enterprise, limited government, individual freedom, traditional American values, and a strong national defense. Read More
© 2014, The Heritage Foundation Conservative policy research since 1973