Dangerous Remedy

The other problem with extending Medicare

Bill Clinton has done some incredibly reckless, irresponsible things as president. But his campaign to expand Medicare entitlements has to rank among the worst.

Unexpectedly large tax revenues are burning a hole in Clinton's pocket. He doesn't want to return the overcharge to taxpayers--that would be "irresponsible," since we might spend the money on the wrong things. But neither is Clinton content to do the sort of one-time spending that might qualify as "responsible": fixing some roads and bridges, replacing the cruise missiles he's depleted over the past few years, sending a $1,000 check to every American baby born in 2000, buying everyone in Mississippi a computer, offering a $15 billion prize to anyone who can take people back and forth to Mars. You may find such ideas wasteful, but they have one big advantage: They're finite.

Not so Clinton's Medicare plan. Imagining that Washington will be awash in extra tax dollars for at least the next 15 years, he plans to stick a new entitlement into the budget bill: coverage of prescription drugs for Medicare recipients. This plan is not the sort of one-time discretionary expenditure that matches windfall revenue with windfall spending. It is an open-ended obligation designed to keep expanding federal spending well into Chelsea and Monica's middle age.

Clinton's drug entitlement would cover half of up to $5,000 in annual prescription expenses, with no deductible. To get the coverage, retirees would pay a monthly premium of $44. The plan also includes price controls by the back door, stipulating that Medicare recipients must get their drugs at the best prices negotiated by private insurers or large public employers.

The administration fantasizes that this open-ended commitment will be "responsibly" financed "mostly by savings from competition and efficiency," plus $45.5 billion in presumed budget surplus over the next 10 years. The wonks in the White House couldn't possibly believe this nonsense--while we're at it, let's add a few Army divisions financed by cutting back on Pentagon "waste, fraud, and abuse"-- but they know that once an entitlement is law, money will be found, one way or another, to keep funding it.

Anyone who thinks the plan will stay even this modest hasn't boned up on the history of Medicare. Back in 1965, when the program was new, expert projections were that it would cost $12 billion in 1990, after adjusting for inflation. It actually cost almost 10 times that much: $110 billion. If you offer people something for free, they have a tendency to demand more and more of it. As Robert Helms of the American Enterprise Institute has aptly commented, "If there is a lesson to be learned from the history of Medicare, it is that although government-financed health care has enormous appeal to most politicians, the popularity of a program does not repeal the laws of economics." (For more on the unheeded warnings of 1965, see "The Medicare Monster," January 1993.)

Clinton knows all this. As far back as his pre-inaugural Little Rock economic conference, he has repeatedly said that exploding medical entitlements are the biggest problem facing the federal budget. His ill-conceived, ill-fated national health insurance plan was in part an attempt to rein in Medicare. It involved not just universal coverage but price controls and rationing mechanisms.

That was then. This is now.

There's nothing left to the Clinton administration but pure political calculation. Unlike the recession years of 1991 and '92, when there was some genuine public demand for national health care, no one is screaming for new Medicare handouts. Rather, this campaign has been cooked up by smart political operatives to help Democratic congressional candidates bash Republicans and buy votes. The "greatest generation" of World War II believes in government largess as a matter of New Deal principle and personal interest--and votes in much larger numbers than its cynical children and grandchildren. So the House Democratic Caucus is ginning up "studies" of prescription drug prices in district after district, all designed to create discontent among Medicare recipients and make Democratic representatives look good when they promise half-price drugs and price controls to boot.

The administration calculates that the Republicans will be too afraid to say no to this new entitlement, especially if it means giving up their tax-cutting plans. So it's going to bargain hard at budget time, trading a short-term tax cut (aren't they all?) for an infinite commitment to socialized pharmaceuticals.

For the sake of our future health care, we can only hope that the Republicans don't blink--despite the significant political dangers. Runaway spending is the least troubling part of expanding Medicare.

Medicare is a monopoly, a central-planning bureaucracy grafted onto American health care. It exercises a stranglehold on the health care of all Americans over 65, and on the medical practices of almost all physicians. Medicare decides what is legitimate and what is not: which prices may be charged and which services may be rendered.

The 110,000 pages of Medicare regulations and paperwork--more than a quarter of them added since 1994--make the income tax system look simple. The system sets reimbursement prices according to a quasi-Marxian theory of value, the "resource-based relative value scale," that has nothing to do with supply and demand. Medicare is immune from the competitive pressures that force private insurers to pay attention to what patients and doctors want.

The Clinton administration boasts of its crackdown on "fraud and waste," and it plans to apply the savings to its new drug goodies. But what's "waste" to Medicare planners includes a lot of services that physicians recommend; nearly 20 percent of the physician and supplier claims denied in 1997 were for services that Medicare considered "medically unnecessary." Someone had prescribed those services. Maybe the treatments were necessary, maybe they weren't--but seniors have no alternative insurer to go to. And when Medicare denies a hospital claim, it takes nearly a year for a patient to get an appeal processed. The public and politicians scream about private managed care, while Medicare's equally cost-driven decisions get a free pass. The media ignore Medicare's operating details.

Meanwhile, doctors who regularly recommend services that Medicare won't cover--but that patients pay for themselves--can wind up in trouble with the law. The government can tell physicians to cut back on such "unnecessary" services, under the threat of imposing civil fines or kicking the offending doctors out of Medicare (and thus out of serving most patients over 65).

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