Prescription for Medicare Reform Could Have Unexpected Side Effects

Pull on a string and you never can tell where it will lead.

With a dramatic flourish, the Senate in late June approved a package of unprecedented reforms to rope in the rising cost of Medicare. But in the process, it tugged an end loose from the knotty old problem of expanding access to health care.

That conclusion takes a few steps to reach. What’s clear first is that the Senate has suddenly and powerfully changed the terms of debate on restructuring the giant federal health care program for the elderly.

To meet the balanced-budget deal’s target of $115 billion in Medicare savings by 2002, the House turned to familiar targets, primarily squeezing payments to doctors and hospitals. Led by Democratic Sens. Bob Kerrey of Nebraska and Daniel Patrick Moynihan of New York, the Senate rushed into uncharted territory: It voted to raise Medicare premiums for more affluent seniors, slap a $5 co-payment on home health care visits, and gradually raise the age of Medicare eligibility from 65 today to 67 by 2027.

This agenda aims at the right problem. If nothing is done as the baby boom grays, Medicare costs will rise from about 2% of the gross national product today to an unsustainable 7% by 2025. But in some areas, the Senate showed more courage than care.

The Senate’s best idea was raising Medicare premiums on the affluent. Today, all Medicare recipients pay $525 a year in premiums--enough to cover 25% of the program’s total cost for doctor bills and other non-hospital services. The Senate voted to demand higher premiums from elderly individuals earning at least $50,000 annually and couples earning at least $75,000; seniors with six-figure incomes would pay four times as much as they do now.

This change is long overdue. Since relatively few seniors earn that much, it actually raises only about $20 billion during the next decade. But it establishes an important standard of balancing service against need: As the elderly population doubles in the next three decades (from 34 million seniors today to a projected 68 million by 2030), Washington will probably have to impose higher Medicare premiums on retirees even lower on the income ladder.

The Senate’s plan to require co-payments on home health care visits is a more equivocal idea. The impulse is understandable: The program’s cost has been soaring, and the fee might make seniors think twice about using it.

But Marilyn Moon, a senior fellow at the Urban Institute, points out that most seniors could pass off the fee onto supplemental health insurance; those who lack that coverage tend to be those who can least afford the $5 tab. The co-payment may be necessary someday, but Moon says Washington should first see if the home health care program’s costs can be contained by proposals in both the House and Senate bills to move it more toward managed care.

The Senate’s most volatile idea was raising the eligibility age to 67 over the next 30 years. It’s already drawn strong criticism from the Clinton administration, the elderly lobby and, in polls, the public. Despite the uproar, there’s a good case for the change. When Medicare was created in 1965, the average life span was 70; today it’s 76. By 2025 it will be 78. “If we continue to live longer and longer,” Kerrey said, “one of the things you have to do is adjust the eligibility age.”

The problem is that pushing back Medicare eligibility to 67 might leave workers who retire at 65 temporarily without coverage. The commission on entitlement reform that Kerrey co-chaired in 1994 had a solution: raise the age for full eligibility, but allow people to buy into Medicare on a sliding fee scale as early as 62. Kerrey still backs that idea. It would put Medicare in precise parallel with Social Security, which is also pushing back full eligibility to 67 but provides partial benefits starting at 62.

This is where the debate over reducing Medicare rounds an unexpected corner--toward the issue that nearly sank President Clinton’s first term: increasing access to health care. Once you establish the principle that Americans as young as 62 can buy into Medicare, says Kerrey, why stop there? Why shouldn’t a younger working family lacking health coverage but paying taxes to support Medicare also be able to buy in?

“Once you say, ‘I can buy in early at 62,’ the question is going to occur, ‘Why can’t I buy in earlier, I’m paying for it now,’ ” Kerrey said.

That argument is likely to acquire increasing force with time. During the next quarter-century, the growth of the elderly population will inevitably demand reductions in Medicare services; but the number of seniors will grow so rapidly that relying on cuts alone to stabilize Medicare’s books is implausible.

“There is no way to keep a legitimate Medicare program over a long period of time without raising revenues,” Moon said. And if Congress sometime in the next decade is forced to raise the Medicare portion of the payroll tax (now at 2.9%), that will strengthen the equity case for allowing uninsured younger families to buy in.

The Senate Finance Committee, which drafted the Medicare package, looked at offering an early buy-in. But the senators decided that it raised too many issues and punted the question to a study commission the legislation would establish.

Kerrey says that since the eligibility age wouldn’t even begin rising for seven years, there’s plenty of time for Congress to come back and add the buy-in. But the administration and elderly groups would be naive to accept the eligibility delay without having the buy-in in hand. “It is irresponsible not to tie them together,” Moon said.

It would be equally irresponsible, however, to reject all of the Senate’s bold work. The answer may be for Congress and the administration to accept the means-testing as a mark of good faith--and then move rapidly toward more comprehensive reform, either through a commission or informal legislative task force.

In a detailed letter Thursday, the administration left the door open for that kind of compromise.

On a subject as complex as Medicare, there’s a risk in moving too quickly; but there’s just as much danger in letting the moment pass.

“We are the ones who are paid to make a decision,” says Kerrey pointedly. “When do we make a decision?”