Congressional bill is bad medicine

Legislation: The Breaux-Thomas proposal is based not on hardheaded pragmatism but on a foundation of myths

Medicare Reform

June 13, 1999|By Theodore R. Marmor and Mark A. Goldberg

WHEN THE bipartisan Commission on the Future of Medicare disbanded a few months ago, because its members couldn't agree on a proposal, some observers might have thought that the Medicare debate had been derailed. In fact, the debate is about to accelerate.

The commission's co-chairmen, Louisiana Democratic Sen. John Breaux and California Rep. Bill Thomas, weren't able to muster enough votes from commission members for their so-called premium support plan. But they have revived their proposal as a bill in Congress, where hearings have begun. This month, President Clinton -- no fan of the Breaux-Thomas bill -- will unveil his plan for Medicare reform.

A serious national discussion about how to improve Medicare is welcome, but the Breaux-Thomas plan is not a good starting point. The centerpiece of that proposal is what its supporters call premium support -- a fancy name for vouchers. Instead of receiving health coverage through the current Medicare insurance system, beneficiaries would be given set amounts of money to use toward the purchase of coverage from a dizzying array of private insurance plans or from Medicare itself. Beneficiaries who chose plans that cost more than the amount of the voucher would have to pay the difference. Advocates of this approach argue that it will encourage private plans to compete by lowering costs -- and that, as a result, beneficiaries will leave traditional Medicare in droves.

This proposal bears an uncanny resemblance to Clinton's erstwhile health-care reform plan, which aspired to achieve universal coverage while keeping costs in check through "managed competition" among private insurance plans. Ironically, the same coalition of Republicans and conservative Democrats that helped to defeat the Clinton plan is promoting managed competition for Medicare. They are apparently willing to to apply to the elderly and disabled a scheme that they considered risky, or worse, for the population as a whole.

Misguided approach

The Breaux-Thomas bill is meant to be hardheaded and pragmatic, but it is built on a foundation of myths:

Myth 1: Demographics require radical reform. Breaux and Thomas begin with an apocalyptic assumption that Medicare has to be overhauled because it cannot withstand the coming wave of aging Baby Boomers. They argue that demographics give us no choice but to rethink and redesign the program, that Medicare in its current form is unsustainable.

There are three basic problems with this proposition. The first is the odd assumption that an expansion of the program -- an increase in the number of Americans it benefits -- would be a sign, and even a cause, of failure. No doubt Medicare's enrollment will grow in the next few decades -- as it has in the past few decades -- and its budget will have to be increased. But that's natural and unsurprising. What is surprising is the notion that we should view this as an indictment of the program. In other realms of government activity -- education, for example -- we would not be expected to buy the notion that an increase in the number of people who benefit from a program means that the program is not working or that it has to be overhauled.

The second problem is that this view of Medicare rests on simplistic extrapolations from current program revenues and costs -- projections that purport to pinpoint numbers many decades into the future. Long-range forecasts of Medicare's finances are notoriously unreliable. They depend not only on demographic trends but on assumptions about revenues and costs per enrollee.

Projected revenues could easily change -- and should change. For example, the contribution levels, from employers and employees, that support Medicare's hospitalization coverage have not been increased since 1986, though both the number of enrollees and the costs of health care have risen since then. An adjustment is long overdue. Even a small boost could dramatically alter Medicare's fiscal future.

On the other side of the balance, the rate of increase in health-care costs per Medicare enrollee has dropped sharply during the past two years, confounding even recent projections of total Medicare costs.

The third problem with this assumption of demographic disaster is that many European countries, with populations older than America's, spend much less per capita on medical care than we do. Demography is not destiny. And we should note that not one of the countries that have been successful in moderating medical care costs has done so by using vouchers.

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