Commentary

The Latest “Magic Bullet” for Medicare — More Sugar Pills

By Stephen C. Miller
April 17, 2002

Every year, the Medicare trustees report that the health care program’s long-term finances are unsustainable. Reform is necessary and “something” must be done about it. But instead of fundamental reform, our political leaders offer us new ways to dodge that bullet and swallow sugar pills. The administration should focus on structural changes to the system and stop offering seniors costly something-for-nothing promises.

In March, Health and Human Services Secretary Tommy Thompson told guests at a lunch forum in Washington, D.C. that two new measures would reduce the projected growth in health care costs that make Medicare’s future finances so precarious: diets and bar-coding. How many task forces did it take to come up with that?

Thompson’s first idea is to “put America on a diet.” This is an HHS campaign to inform the public of the risks of obesity. If everyone can lose 15 pounds of extra weight, Thompson claims, “billions of dollars” can be saved in health care costs, and ultimately help improve Medicare’s long-term budget as well.

The secretary’s second idea is an echo of former House Speaker Newt Gingrich’s past call for bar-coded bracelets for patients in clinics and hospitals. The basic idea is that, with a flick of a switch, updated technology will significantly reduce medical errors and their costs.

Thompson was careful to say that our Medicare system needs serious reform, including overhauling a misguided payment structure that prompts private insurers to avoid the Medicare Plus Choice program. He also suggested that many Medicare rules prevent those insurers from offering more competitive options to seniors. But he barely mentioned those issues. And he suggested no real solutions. He spent his time selling magic bullet programs.

Perhaps the bar-codes and diets serve as distractions from the true problem: Politicians want to give more benefits away without ending the ineffective and costly programs already in place.

The problems Medicare faces are not just those of rising prices for health care services and drugs. Even if health care price growth were to be reduced to general inflation levels, Medicare itself would still face rising costs. The number of Medicare beneficiaries will grow dramatically in the decades ahead, as the large Baby Boom generation ages, then remains on the Medicare rolls for longer life spans. Fewer and fewer workers will be paying for the health care of more and more retirees under Medicare’s intergenerational, pay-as-you-go entitlement.

Medicare expenditures are likely to more than double as a share of GDP by 2040, from 2.45 percent currently to 5.38 percent. And a significant portion of the increased spending will be funded by general revenue transfers, which are also predicted to increase, from 0.7 percent of GDP to 1.8 percent over the same period. Without any change in benefits promised under current law, these transfers will require a combination of tax increases on younger workers, spending cuts in most other government programs, or federal budget deficits.

Medicare’s benefit structure is a major factor force-feeding its bloated budget. The program uses a “defined benefits” approach that guarantees seniors an all-you-can-eat buffet of comprehensive benefits, regardless of cost. The tendency with such an offering is to fill up on what’s available, and to forego the healthier alternatives. A better approach would be to convert Medicare’s benefit structure to a “defined contribution” model, which lets seniors direct a fixed amount of Medicare assistance to buy more of their insurance coverage, medical devices, and prescription drugs à la carte. The result would be a more balanced and sensible pattern of health care consumption under Medicare.

No bar-coding scheme or diabetes commercial will decrease the number of retirees who will depend on Medicare. Nor will they lessen beneficiaries’ appetites for the latest and most expensive medical services. But we can at least free seniors from the empty promises of new cure-all fads and fabrications.

Medicare really does need to go on a diet, one that transforms assistance to seniors into defined contribution payments instead of hollow defined benefit promises. Political fat cats should have their performance “bar-coded,” so that we can ring up the full price of their new quick-fix programs and delay tactics where structural reform is needed. Otherwise, they’ll continue to swipe the debit cards of younger workers and future generations until the funds run dry.

We certainly don’t need to provide more excuses for delay from the difficult, but necessary, choices required. Political placebos are placeholders for procrastination. From time to time, the Bush administration drops the cutesy gimmicks and voices the rhetoric of reform. More decisive leadership is needed to deliver the reality of long-overdue policy change.

Stephen C. Miller is a health policy research assistant at the Cato Institute.