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Big Problem Requires A Big Fix

Sun., Oct. 8, 1995

Congressional Republicans now have run into the same stubborn fact that tripped up President Clinton when he was in the health reform business two years ago: Americans are damned reluctant to give up the medical care they’ve got.

In last week’s Washington Post-ABC News Poll, two-thirds of those interviewed said they did not want to see Medicare changed - not to cut the budget deficit, not to help reduce taxes. Leave it alone, they say.

Unfortunately, the one thing that the country cannot do is leave Medicare alone. Everyone agrees that left unchanged, it will run out of money, or crowd out a lot of other important programs, or both.

The rhetoric from both parties is misleading. The Republicans claim they are changing Medicare in order to preserve it. The actuaries do say the Medicare trust fund will slip into deficit next year and could be exhausted by 2002. But that threat is perpetual. With people living longer and medical care becoming more expensive, the average Medicare recipient retiring this year will take $100,000 more in benefits out of Medicare than he or she paid in Medicare taxes. So every decade or so, the fund has to be replenished. The last such replenishment occurred in 1983, so we’re due. No big deal.

The Democrats claim that the Republicans are raiding Medicare to finance their proposed tax cut: $270 billion in Medicare savings to finance a $245 billion tax cut. It sounds plausible, because public funds can move from one account to the other. But the tax cut is a separate issue - not yet decided by Congress - and deserves to be dealt with on its merits.

The real problem is not the trust fund or the tax cut. It is that the growth in spending for health programs is devouring the federal budget. The presidential commission headed by Sen. Bob Kerrey, D-Neb., and former Sen. Jack Danforth, R-Mo., reported earlier this year that, unless current trends are changed, by 2010 or 2012 all federal revenues would be consumed by entitlement programs and interest on the national debt. Long before that point is reached, the country would face an agonizing choice between much higher taxes or vastly reduced government services.

Because the big health care programs - Medicare and Medicaid - are the fastest-rising entitlements, savings must be found there. The Republican approach is more serious than the Democratic in two respects.

The House Republican plan phases out taxpayer subsidies of Medicare Part B premiums for upper-income retirees. Part B is the optional program that insures seniors for their doctor bills. The GOP plan eliminates subsidies for individuals with incomes over $100,000 and couples over $175,000.

Democrats are suggesting no such plan, on the grounds they can get by without it. But that is doubly wrong. The Medicare B subsidy comes from ordinary taxes. And there is no good reason why a working couple making $40,000 a year should be subsidizing insurance for retirees living off three times as much. Besides, it is very important to establish now the principle of means-testing, because reducing the benefits for those who don’t really need them is an essential step to reining in the runaway costs of all the entitlements.

Second, the Republican approach comes closer to the scale of change the country needs. Congressional Democrats and President Clinton have suggested a $90 billion fix. That sounds a lot more comfortable and less disruptive than the Republican proposal, which is three times that size. But the modesty of the Democratic offer could have serious long-term consequences.

Rep. Bill Thomas, R-Calif., chairman of the House Ways and Means health subcommittee, points to some estimates given the committee recently by Guy King, formerly chief actuary for the federal agency that runs Medicare and Medicaid. The King figures were confirmed for me by current administration experts, with all the usual caveats about the uncertainty of trends.

King says the Democrats are correct in claiming that their $90-billion solution would keep the Medicare trust fund solvent until 2006. But in 2010, the last year the Republican plan would keep the trust fund in the black, he says, the Democrats would leave it $309 billion in the red.

That date is terribly important, because 2010 is the year the huge wave of baby boomer retirees really hits. Everyone acknowledges further changes in Medicare will be needed by then. But, as Thomas points out, it is one thing to be dealing with the retiree wave from a position of fiscal parity; it is much harder to do it when you are already $300 billion in arrears.

The Republican plan is far from perfect. But the Republicans are right to eliminate the subsidies for the affluent. And they are right in saying this is a big problem which requires a big fix - not a Band-Aid.


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