COLUMN RIGHT : Resist a Compromise on Medicare : The budget negotiators’ $60-billion cut is a necessary start to curb our insatiable demand for health care.
By offering $60 billion in Medicare savings, last week’s budget agreement made a credible start at tackling one of the nation’s greatest challenges in the 1990s and beyond: how to rein in the explosive increase in entitlement spending in an aging society that is both hooked on early retirement and evinces an insatiable demand for health care.
It is regrettable that the most farsighted initiative in the budget accord proved to be its chief obstacle in the House. If it is to be defensible, any new budget deal cobbled together in the days ahead must leave the Medicare savings largely intact.
Although $60 billion is a relatively modest sum in the context of Medicare’s dizzying growth (the Congressional Budget Office anticipates $200 billion in extra federal outlays between 1990 and 1995), a cut of this size would take a substantial bite out of the budget deficit. With Social Security off-limits, it is difficult to imagine where policy-makers could even look for comparable savings on the domestic side of the budget, since Social Security and Medicare together will account for about two-thirds of all increases in non-defense spending, excluding interest payments, over the next five years.
The negotiators’ Medicare proposal is well-crafted because half of the savings are to be realized through greater beneficiary cost-sharing. This creates the right kinds of incentives for additional cost-containment in the future. The phased-in hike in the Part B deductible from $75 to $150 would foster prudent purchase of physician services. It also preserves Medicare’s primary insurance function: protection against large, out-of-pocket expenses. The parallel increase in the Part B monthly premium to around $55 would create an incentive for the elderly to take a more active political interest in slowing the growth in national health-care spending. Such action has enormous potential, since older Americans now account for about one-third of all health-care spending, more than two-thirds of which is financed through heavily subsidized government programs. Under Medicare Part B, for instance, premiums that the beneficiaries pay cover just one-quarter of costs. Under Part A, whose hospital coverage is financed entirely through payroll taxes, pay-backs on elderly beneficiaries’ prior contributions average about 10-to-1.
Sensible as the original Medicare initiatives are, they are in jeopardy. A coalition of major elderly advocacy groups endorsed a Democratic alternative, now part of the new House resolution, which features emasculated cost-sharing incentives and $20 billion less in savings. As debate continues, every politician will have to take into account the regrettably predictable threats with which many senior-lobby spokesmen greet anyone who questions their priorities. “We want to make it clear that those who wage a budget war against seniors shouldn’t expect pacifism on Election Day,” warns Ron Pollack, executive director of Families USA.
Claims of a budget war being waged against seniors are groundless and should be resisted by budget policy-makers.
In the first place, substantial savings in Medicare are a cornerstone of any credible budget deal. If programs that benefit older Americans must bear a large share of cuts in domestic spending, it is because they are the biggest and fastest-growing entitlements. Although Americans aged 65 or over make up just 12% of the population, they receive about 60% of all federal benefits, a share that rises every year.
Second, the proposed changes do not burden those least able to pay. The poor (as well as many near-poor) elderly will be eligible to have the bill for extra costs picked up by Medicaid. As for middle-income seniors, aggregate statistics which show that large numbers are reduced to poverty by out-of-pocket medical expenses are misleading; most of that problem relates to nursing-home care.
Finally, a decision to jettison real reform today would miss an important opportunity to realign America’s entitlement systems with the next century’s emerging realities. Under current policies, the cost of Social Security and Medicare will climb to between 10% and 16% of GNP over the next 35 years, up from not much over 6% today. At the low end of this range, these costs will become intensely controversial; toward the high end, they will not be sustainable without robbing other generations or other priorities.
Critics of every political stripe were quick to find reasons to hate the budget accord. Objection to its Medicare provisions, however, is the least justifiable. In the scramble to fashion a new compromise, congressional leaders and the President should stand their ground on the key features of their Medicare proposal.
