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COULD SAVINGS SAVE MEDICARE?

It is ironic that Medicare, a health-care program, should be as financially sick as it is-and that the illness should be the result of its own extravagantly bad habits. Since Medicare, the part of the Social Security system left untouched in last year's "rescue," seems incapable of mending its ways on its own, some sensible remedies are being circulated.

David Swoap, the secretary of California's Health and Welfare Agency, has contended in a Wall Street Journal op-ed piece that Medicare's mounting budget problems cannot be solved without reforming the entire health-care system. He says that reforms should attack "the primary reason costs are out of control: a health-care industry in this country immune from the forces of the marketplace."

Among the reforms he proposes at the federal level are:

  • revoking laws still on the books in about 40 states that stand in the way of insurance companies negotiating special rates with physicians and hospitals;
  • gradually transforming Medicare's reimbursement system to a prepaid rate for the entire care of each beneficiary, similar to a private insurance plan (this would give the elderly the option of choosing any private plan that offered them the best mix of services);
  • phasing out "archaic, cumbersome regulations" of the medical market such as California's "certificate of need" program that puts a lid on hospital construction; and, .
  • granting waivers to states to experiment with new types of medical-service delivery models.

If Swoap's proposals are a shrewd sort of artificial resuscitation, a recent proposal by the National Center for Policy Analysis, a Dallas think-tank, is a kind of heart transplant. In a recently published study whose contributors included Richard Rahn from the federal government's Social Security Advisory Council, the NCPA recommended that workers be given tax credits for annual contributions to individual retirement accounts known as "Health Bank IRAs." Funds that would accumulate in these accounts would be used to pay for private health insurance and medical expenses during workers' retirement years.

The logic of the NCPA plan is clear enough. In 1983, the average American worker paid about $464 in payroll taxes for Medicare. If a 20-year-old worker were permitted to invest an equal amount of money in a private Health Bank IRA instead, his account would contain $476,519 by the time he was 65 and $575,419 by the time he was 67.

"Money put into Health Bank IRAs would be the private property of the owner," said NCPA president John Goodman. "This means it would be part of the worker's estate and could be passed on to his heirs."

Medicare is a system that has managed for years to live on snake oil and incantations. With an estimated deficit of $400 billion by 1995, its collapse may be imminent. Sensible proposals like Swoap's and NCPA's would minimize the damage.

Enterprising States

In Washington, enterprise-zone legislation has had rough sledding. It's been almost four years now since two congressmen proposed the designation of zones in which enterprise would be encouraged via tax and regulatory relief, on the theory that this will spur job creation and reinvestment in declining areas. But House Democrats are keeping a Senate-passed enterprise-zone bill bottled up in committee.

What has been stifled in Washington, however, has been blossoming in various states. As syndicated columnist Neal Peirce reported recently, "The exciting news is how fast, without a federal law, the states have already moved to set up enterprise zones." He cited a study by the Washington-based Sabre Foundation, which came up with a tally of 11 states that have created 200 active enterprise zones of their own, another 8 states that have passed enabling legislation, and 3 more states where passage of zone legislation seems imminent.

The Sabre study, Enterprise Zone Activity in the States, noted some of the results of enterprise zones. In Toledo, Ohio, a manufacturer of corrugated boxes, Owens-Illinois, hired virtually its entire new workforce from among a jobs-bank listing of a poor neighborhood's unemployed residents. In Louisville, Kentucky, a wood-products manufacturer in an enterprise zone hired 55 unemployed people to fill new jobs. Among other enterprise-zone ventures are a medical clinic in Capitol Heights, Maryland; a science park in a poor neighborhood near Yale University in New Haven, Connecticut; and a manufacturer of satellite communications dishes in Chanute, Kansas.

All told, the Sabre survey, based on questionnaires and follow-up phone interviews with local officials, identified 20,271 jobs saved, created, or planned, and $450 million in construction, expansion, and renovation in the zones-with local officials on average believing that zone incentives were a major factor in half of the new activity. And the study's authors note that these figures are conservative, because the average age of the zones surveyed was less than a year. Moreover, "states such as Kansas and Florida have made attempts to lighten paperwork requirements on zone-based companies, making it likely that the births of small, new enterprises in some instances have not been recorded by officials monitoring the enterprise zones," they said.

The Sabre study found that in some instances, incentives for enterprise-zone activity are broader than the reduced taxes and regulations envisioned in the federal legislation. Illinois's enterprise-zone statute encourages municipalities to transfer responsibility for delivery of public services within the zones to designated neighborhood organizations. In Norwalk, Connecticut, local governments have moved to involve neighborhood groups in activities such as block watches and fix-up programs.

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