Medicare's Shifting Sands

In drafting a drug benefit, Congress shouldn't rush

Both houses of Congress passed Medicare-reform bills last week. But lawmakers and the White House face a daunting task reconciling the competing proposals. And it's not clear that the prescription-drug plan they are fashioning will work as hoped.

That Medicare needs changing is beyond dispute. The quarrel is over how to keep it up-to-date. It is built on the economic, scientific, and demographic equivalent of a constantly shifting sandbar.

Since Congress created the program in 1965, based on the healthcare system of that time, the economy has changed, the practice of medicine has changed, and the demographics of the American elderly population have changed. The increased use of expensive outpatient prescription drugs, not now covered, has caused many seniors to complain about their out-of-pocket expenses.

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Baby boomers and rising costs

Medicare's long-term financing is in serious trouble, despite 1997 reforms that bought a little time. The problem, as with Social Security, is the looming retirement of the baby boomers - 77 million Americans born between 1946 and 1964. The skyrocketing costs for that part of the program known as Part B - paid for by insurance premiums and general revenues - threaten to turn Medicare into The Program That Ate the Federal Budget. In 10 years, it may be the largest category of federal spending.

Now Congress and the White House want to tack onto Medicare a $400 billion (or more) prescription-drug benefit. It would make available new insurance policies for seniors to help pay the rising costs of prescriptions. But it relies on the hopes that (1) private insurers will offer drug-only plans - a doubtful proposition; (2) more elderly people will move into private managed care (preferred-provider organizations) from the traditional fee-for-service system, and that this will lower costs - far from a sure thing; and, (3) private employers will continue to provide prescription coverage to their retired workers - the House bill would pay them to do so; the Senate bill would not.

Before those questions can be answered in the marketplace, however, the House and Senate must agree on a bill. That will be difficult: If the conference bill moves too far away from the market-based approach they prefer, conservative Republicans in the House may bolt. The fragile Republican-Democrat centrist coalition in the Senate - including, most important, Sen. Edward Kennedy (D) of Massachusetts - will insist on doing more to protect lower-income seniors from higher costs.

Also controversial is a House provision for means testing, in which higher-income seniors would receive less help than those with lower incomes. Advocacy groups and some in the Senate would prefer to see all who pay into the program get the same benefit.

Ultimately what's needed is a shift away from the current one-size-fits-all benefit program to a system in which Washington subsidizes premiums for healthcare insurance, as it now does for federal employees (including lawmakers), and seniors have a choice of the type of program they prefer. That would allow the program to evolve naturally as the environment in which it operates changes.

Making the transition will be challenging and expensive, however, and seniors who retire before a given date will need to be grandfathered into the current program, with ability to opt for the newer one if they wish.

The politics of reform

Both parties have long promised a prescription-drug benefit, but efforts to add one have been stalemated as both Democrats and the GOP jockey to garner the credit. The current rush to reform is similarly motivated by electoral politics. President Bush and his advisers very much want to deliver the drug benefit to polish his domestic-policy credentials in the run-up to November 2004. For their part, Democrats don't want to appear to be blocking reform - many believe that the moment for reform is finally here, and they must seize it.

But lawmakers must take their time and carefully think through the new program they are creating. A rush to compromise often results in bewilderingly complex programs, and that's the case now.

Experience shows that Medicare changes are usually more expensive than planned. Once a law is in place, fixing unforeseen problems will take a lot of time and effort.

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