Commentary

A Poison Pill for U.S. Health Care?

By Tom Miller
July 15, 2003

In recent weeks, the Senate and House both approved their respective versions of Medicare “reform,” with the all but full-throated approval of the Bush White House. With only minimal Democratic support in the House, it took virtually an entire Republican Village to:

  • enact the largest expansion of the Medicare entitlement since its inception in 1965
  • increase the unfunded liabilities of current and future taxpayers by $6 trillion to $12 trillion
  • ensure that future generations face a legacy of compounding debt and economic stagnation
  • squander scarce resources on the discretionary, early-dollar drug expenses of upper- and middle-income seniors
  • top them off with a hefty hog’s helping of rural health care subsidies
  • fail to target assistance to seniors most in need and instead deliver a wide and thin layer of prescription drug benefits
  • encourage further erosion of employer-sponsored retiree health benefits
  • abandon all but the tiniest pretense of Medicare reform that is Market-based In Name Only (MINO)
  • launch a new round of complex regulation of health care services for seniors
  • supply the rope for an ever-tightening price control noose around the necks of research-intensive drug makers
  • reduce seniors’ health care choices, instead of expanding them
  • line up to be on the receiving end of seniors’ complaints in future years, once “sticker shock” and “buyer’s remorse” sink in
  • create irresistible political incentives to fill the “doughnut hole” of uncovered drug benefits in future years, and then face an endless round of “tough” votes in Congress to resist doing so

The spin doctors of Medicare policy on the Republican side of Congress are trying to assure balking conservative members that it’s important to keep the process moving and that the worst elements of the legislation can be “fixed” in a Senate-House conference. But they should check the list of repairs needed for this remodeled “lemon.”

Are there any other alternatives — either from a last-minute miracle in the conference committee, or perhaps during the next two years — as reality sinks in and the seeds of the full drug entitlement have not yet taken root?

Market reformers hold a limited hand of cards because of the way the political deck has been dealt. The best thing would be just to stop at the interim plans for a drug discount card and low-income cash assistance. We have two more years before the real prescription drug entitlement machinery fully kicks in. A simple combination of a limited discount card, additional protection for low-income seniors, and a modest catastrophic coverage benefit would solve the key problems of access to necessary drugs.

For the moment, the House bill clings to a sliver of real reform, through competitive bidding that would eventually involve both private plans and the traditional Medicare fee-for-service program. But both the Senate and the Bush White House have resisted this. Even the House approach is premised on phasing in real bilateral competition in 2010, well after first stuffing a lot of extra money into what remains of the surviving Medicare+Choice private plans.

But 2010 is far off. And then-President Hillary Rodham and like-minded opponents of real market reform would quickly snuff out this idea by 2009, if not sooner. Thus, Congress must accelerate the start of real competitive bidding to no later than 2007, when George W. Bush could still be president.

At another day and time, one could reconsider making it easier to swap Medicare benefits instead of putting more third party dollars on the table. If a senior wanted some more drug coverage, he would have to take less of something else in covered services. The best way to do this would be through greater and more flexible cost sharing.

Or one could try to stall until Congress runs out of the imaginary money that members think they are spending. It won’t be long before seniors experience the “sticker shock” of realizing what little they are receiving in new drug benefits for so much money. Growing anxieties about new, but limited Medicare drug benefits crowding out better employer-sponsored retiree drug coverage, along with new conflicts arising from further overreaching in trying to fill in the empty doughnut holes in promised benefits, could combine over the next two years to build momentum to reconsider at least the size and scope of this political scheme.

But maybe it’s time to end the pacifism in this one-sided inter-generational war. The desirable policy destination should remain D.C - not the District of Columbia, but rather “defined contributions” (essentially providing taxpayer subsidies to cover most, but not all, of the insurance premiums charged by insurers that compete to offer a core package of basic benefits to Medicare seniors).

Tom Miller is director of health policy studies at the Cato Institute.