Commentary

Medicare Expansion and the Mirage of Fiscal Responsibility

Passage of the budget-busting Medicare bill ends any illusion that there are two parties in Washington. GOP support for the largest expansion of the welfare state in 40 years demonstrates beyond any question — not that there really was any question — that Republicans are merely Democrats-lite when it comes to using taxpayer monies to buy votes. The measure further mortgages the future of young workers and will cost far more than the estimated $395 billion.

In fact, no one takes that figure seriously; if a private company certified $395 billion, its officers would be headed for jail. For one thing, that estimate stops before the baby boomer wave starts retiring, after which costs will explode.

Leonard Burman of the Urban Institute projects the second decade’s costs at $1 trillion, and even that number, given current cost trends, “is likely to be an underestimate,” he says.

More realistic are estimates that the legislation will increase the government’s presently unfunded liability by several trillion dollars: projections ranged from $6 trillion for the House bill to $12 trillion for the Senate measure, with the compromise legislation likely falling somewhere in between.

Even these numbers are uncertain. Federal benefits always increase demand for subsidized services and election-minded politicians always increase benefits. In this case the benefits have rightly been described as “a bit wacky” by the Brookings Institution’s Henry Aaron. Democrats can be counted on to routinely propose increases to “fix” the problem.

And who can doubt that most GOP congressmen would vote yes for such increases? Indeed, the Republican leadership would probably endorse any and all such measures, arguing that it was important for the GOP to retain control in the next election, after which the Republicans would — promises, promises! — fix everything amiss in Medicare. The cycle will never end.

Even if vote-minded politicians were not likely to further inflate benefits, the program would cost more than predicted. As Gail Wilensky, a health official in the first Bush administration, observes: “We have never been able to correctly estimate the cost of a new benefit, and this one is much bigger than most.”

In fact, every federal social program has cost far more than originally predicted. For instance, in 1967, the House Ways and Means Committee predicted that Medicare would cost $12 billion in 1990, a staggering $95 billion underestimate. Medicare first exceeded $12 billion in 1975.

In 1965, federal actuaries figured that the Medicare hospital program would end up running $9 billion in 1990. The cost was more than $66 billion.

In 1987, Congress estimated that the Medicaid Special Hospitals Subsidy would hit $100 million in 1992. The actual bill came to $11 billion. The initial costs of Medicare’s kidney dialysis program, passed in 1972, were more than twice projected levels.

The Congressional Budget Office doubled the estimated cost of Medicare’s catastrophic insurance benefit — subsequently repealed — from $5.7 billion to $11.8 billion annually within the first year of its passage. The agency increased the projected cost of the skilled nursing benefit an astonishing sevenfold over roughly the same time frame, from $2.1 billion to $13.5 billion.

And in 1935 a naive Congress predicted $3.5 billion in Social Security outlays in 1980, one-thirtieth the actual level of $105 billion.

Were there any reasons to support the Medicare drug bill? Certainly the proposed Health Savings Accounts are positive, but the GOP could have fought for them independently, forcing Democrats to oppose a tax reduction that also was good medical policy. The limited demonstration projects intended to create competition for Medicare will almost certainly be gutted and ignored, even if Republicans continue to control the Department of Health and Human Services, which is by no means certain.

Passage might relieve political pressure on the pharmaceutical industry, currently being demonized for attempting to recover its expensive investment in the provision of life-saving products to people the world over. But this effect is likely to be only temporary, especially if seniors are dissatisfied with the benefits voted by Congress. And as Medicare drug spending spirals out of control, as it inevitably will, legislators are likely to turn to the good old standbys of arbitrary price cuts and formularies.

Finally, it has been argued, if this bill had failed, Congress was likely to vote something worse next year. That was possible only if the Republican leadership and President George W. Bush had chocolate éclairs as backbones.

Anyway, it would have been better to fight with some chance of success than to yield on the basic issue: the massive expansion of an unreformed, financially unsustainable social welfare program. Voting for the proposed bill was pre-emptive surrender.

Republicans no longer believe in limited constitutional government; their primary role in Washington is to enact Democratic programs veiled in conservative rhetoric. Americans might as well vote Democratic: then, at least, they would benefit from truth in advertising.

Doug Bandow is a senior fellow at the Cato Institute and a syndicated columnist.