Commentary

Medicare Shortfall Needs President’s Attention

This article originally appeared in the Monterey County Herald on March 6, 2005.

President Bush has shown remarkable foresight and courage in tackling Social Security’s problems. Would that he showed the same foresight and courage when it comes to Medicare.

Social Security is the world’s largest government program, and currently promises future retirees about $10 trillion more than the federal government can deliver. Since there is no way the existing program can keep these promises, the Bush administration’s decision to face this problem head-on — by creating personal accounts that earn beneficiaries a higher rate of return — is the least-costly and most responsible path.

Which makes his administration’s handling of Medicare seem born of schizophrenia. According to current projections, Medicare spending will surpass Social Security by 2024 and will double Social Security by 2078. Medicare also has promised future generations more than it can deliver. Its unfunded promises total six times those of Social Security — a cool $62 trillion.

One would never know that Medicare presents the greater threat to taxpayers by the way the Bush administration seems determined to increase the program’s obligations. In 2003, the administration enacted a drug benefit within Medicare. The measure amounted to the greatest expansion of the welfare state in 40 years. Yet during the legislative debate, the administration hid from the public its estimates that the program’s additional costs would be more than one-third higher than it claimed. It released the higher cost estimate only after the program became law.

Since then, the Bush administration has unilaterally made taxpayers responsible for additional questionable expenditures under Medicare, including coverage for obesity treatments and erectile dysfunction, without producing cost estimates for either. A few weeks ago, the administration released updated cost projections for the drug benefit that raised the ire of friend and foe. These slightly higher projections also looked at the benefit’s first 10 years of operation, as opposed to previous “10-year” projections that really only counted eight years. The new projections put the cost at $725 billion over the first 10 years of operation, with costs growing at 11 percent annually.

As the drug benefit’s full cost began to sink in, some Republicans began to talk about revisiting the measure before it becomes operational in 2006. One was Senate BudgetCommittee Chairman Judd Gregg, R-N.H., a Bush loyalist who may have done more than anyone to secure passage of the president’s education reforms.

Such sensible talk inspired a rare veto threat from the president. Unfortunately, it was issued against an attempt to limit government spending — not quite what supporters of limited government had in mind.

Even without the drug benefit, Medicare promises future generations $45 trillion more than it can deliver. President Bush’s drug benefit accounts for the remaining $17 trillion. That is, President Bush added unfunded promises to Medicare well in excess of what he says constitutes a crisis in Social Security.

Critics of Social Security reform may debate whether that program’s unfunded promises constitute a “crisis,” but there is hardly room to argue that Medicare does not. As Rep. Rahm Emanuel, D-Ill., noted, “If you’re looking for a crisis, I would suggest you look at a crisis that was self-made in just (the) last year, because the crisis exists in what’s happened to Medicare by weighing it down.”

The same President Bush who valiantly confronts Social Security’s fiscal crisis himself created an even larger crisis in Medicare, hid the cost until it was signed into law, and now threatens to veto any attempt to defuse this time bomb. All of which raises the question, how can an administration that behaves so responsibly when it comes to Social Security also behave so unbelievably irresponsibly when it comes to Medicare?

The best possible spin is that the administration is reforming Social Security as a warm-up to reforming Medicare along the same lines: through an investment-based system of personal accounts. “There’s no question that there is an unfunded liability inherent in Medicare that Congress and the administration (are) going to have to deal with over time,” the president acknowledged recently. “Obviously, I’ve chosen to deal with Social Security first, and… once we modernize and save Social Security for a young generation of Americans, then it’ll be time to deal with the unfunded liabilities of Medicare.”

Let’s hope the president’s remarks mean that he considers reforming Medicare a personal obligation. The president has added $17 trillion to the unfunded obligations of future taxpayers. He’ll have to do more than simply reform Social Security to break even with them.

Michael F. Cannon is director of health policy studies at the Cato Institute.