Medicare Fraud

Reforming our way to bankruptcy


This is what the Bush administration has reduced me to: The other day, I was rooting for a Ted Kennedy filibuster.

Of course, the Massachusetts senator and I had different reasons for opposing the Medicare bill championed by President Bush and Republican leaders. Kennedy claimed the bill "cynically uses the elderly's need for prescription drugs as a Trojan horse to reshape Medicare," calling it "a calculated program to unravel Medicare, to privatize it and to force seniors into the cold arms of HMOs."

I wish the Republicans were that smart. If the Prescription Drug and Medicare Improvement Act of 2003 is a Trojan horse, it's made of solid titanium, with a tiny opening through which the soldiers of reform are unlikely to escape. The essence of the Medicare bill is a reckless expansion of a program that was bound for bankruptcy even before the Republicans decided to steal an issue from the Democrats by pushing a huge new prescription drug entitlement.

The official price tag for the law is $400 billion over 10 years, but it will ultimately cost far more. To begin with, the estimate hinges on the number of Medicare recipients who enroll in the drug plan, which in turn depends on various assumptions. The latest Congressional Budget Office estimate , for example, says 23 percent of retirees with employer-provided drug coverage will lose it once the Medicare benefit is available. If the actual percentage is higher, the cost of the program will be too.

n The cost is also likely to rise because of demands to close the drug plan's weird gap in coverage: After a $250 deductible, it will pay 75 percent of prescription drug expenses, up to $2,250 a year; but between $2,250 and $5,100, the point at which the plan starts paying 95 percent of costs, there will be no coverage at all. This "donut hole" will outrage retirees, and the AARP, whose endorsement of the bill was crucial to its passage, promises it will push Congress to close the gap.

And not to be rude, but what happens after the first 10 years? As a November 25 Washington Post editorial noted, "the director of the Congressional Budget Office recently told Congress that in its second decade, the measure could cost between $1.7 trillion and $2 trillion."

Congress has a long history of dramatically underestimating Medicare costs. "At its start, in 1966, Medicare cost $3 billion," wrote Steven Hayward and Erik Peterson in a 1993 Reason article. "The House Ways and Means Committee estimated that Medicare would cost only about $12 billion by 1990 (a figure that included an allowance for inflation). This was supposedly a 'conservative' estimate. But in 1990 Medicare actually cost $107 billion."

This fiscal year, a recent Cato Institute report notes, Medicare is expected to cost $244 billion ($172 billion in 1990 dollars). Not only are the real costs of Medicare constantly rising; the ratio between the workers who pay for the program and the retirees who benefit from it is falling. "The number of elderly will soar 116 percent by 2040," says the Cato study, "while the number of workers supporting them will grow just 22 percent."

Economists Jagadeesh Gokhale and Kent Smetters estimate that the long-term imbalance between Medicare costs and revenues under existing law is something like $36 trillion, more than five times the current national debt. Given a problem of this magnitude, the gestures toward reform in the Medicare bill—limited medical savings accounts, higher premiums for beneficiaries making more than $80,000 a year, and a six-city experiment with private competition that's supposed to begin in 2010—are pretty pathetic.

Especially since the price of getting these meager changes was a drug benefit that will add trillions to Medicare's fiscal imbalance while taking from the poor and giving to the rich. As the Heritage Foundation's Robert Moffit notes, the drug plan "will guarantee that low-income working people pay the drug bills of rich retirees with six-figure incomes." Sen. Judd Gregg (R-N.H.), one of the few Republicans who placed principle above politics by voting against the bill, called it "the largest tax increase that one generation has put on another generation in the history of the country."

After the Senate approved the bill, President Bush bragged that "year after year the problems in the Medicare system were studied and debated," and finally "we got something done." Sometimes nothing is better than something.