We Need Efficiency, Choice, Not Relic of Central Planning Medicare at the crossroads CON

July 30, 1995|By JOHN C. LIU

Today marks the 30th birthday for one of the federal government's largest and most costly programs -- Medicare, the huge national health insurance program that covers more than 37 million elderly and disabled Americans.

Created in 1965 as part of the "Great Society" expansion of domestic social programs, Medicare emerged as a compromise measure among members of Congress who wanted to establish a full-scale national health insurance system. Thus, at its inception, the basic design of the Medicare system was grounded in the presumed efficacy of central planning. Medicare was heralded by proponents as both "historic" and "fiscally responsible." Now, however, Medicare is essentially bankrupt, and its ability to maintain the quality of its services is in doubt. What is not in doubt is the harsh reality that liberals must face up to: Medicare is anything but a fiscally responsible program.

According to the 1995 report of the Medicare trustees, a federal government board composed of three Clinton administration Cabinet members and two private citizens, the hospitalization insurance trust fund is projected to be insolvent by the year 2002. Equally important, the cost of the Medicare Supplemental Medical Insurance program is exploding. And while recent surveys show that most elderly Americans are under the impression that they paid for their health benefits, the truth is that the system is already heavily subsidized by the taxpayers. Worse, unless there are significant changes in the Medicare program, the future taxation on working families necessary to sustain or restore the current level of Medicare benefits would be enormous.

In 1965, when Medicare was enacted, there were almost six workers for every retiree. Today, there are only four workers for every retiree. And by 2030, when the nation's 77 million baby boomers are well into their retirement, there will be only two workers for every retiree. The Committee for Economic Development, a Washington-based public policy institution, warns that future payroll taxes, not counting federal, state or local taxes, just to finance Medicare and Social Security, could consume up to 28 percent of a worker's paycheck by that time.

There's a solution to this looming crisis. A solution based on free-market principles allowing for consumer choice among competing plans offering different benefits. One prominent model for the reform of the Medicare program, recommended by Heritage scholars, is the Federal Employees Health Benefits Program, the system that currently serves 1.6 million retired Congress members and federal workers.

Members of Congress increasingly realize that the quick fixes for the Medicare system, including various types of caps on spending and cost shifting, will no longer work. Serious policy-makers in Washington realize that the mounting problems with Medicare, its economic inefficiency and exploding costs, are fundamentally and inherently structural. The Medicare trustees have declared, "The Medicare program is clearly unsustainable in its present form." Many members of Congress are searching for ways to save health insurance benefits for the elderly by changing the structure of the current Medicare program, changing it from the highly bureaucratic government program that it is today into a dynamic system based on consumer choice and competition.

Planning and price controls

While federal government officials have not been successful in accurately projecting the true costs of the Medicare program, they have had even less success in controlling them. Instead of relying upon price competition, consumer choice and market forces to control costs, members of Congress have relied on an array of complex price controls. Since the inception of the Medicare program, Congress has adopted 75 options to cut reimbursement to doctors alone. This system of controls has ranged from the merely crude -- such as freezes on physician reimbursement -- to the increasingly complex and even downright bizarre. But the eternal quest of government bureaucrats is to find the "right price" for thousands of different medical procedures and treatments or specialists and other providers. In some instances, Medicare pays doctors, hospitals and other health care providers too much; in other cases, too little. Such a system encourages doctors, hospitals and other medical providers to engage in more or less elaborate attempts to "game" the price control system. Despite often outrageous demonstrations of professional cleverness on the part of doctors and hospitals, Medicare's systems of price controls, no matter how elaborate, have proven largely ineffective in controlling the overall costs of the program. But, like all such systems of private controls, they have proven very effective in shifting rising Medicare costs over to the less regulated private health insurance system serving workers and their families.

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