Clinton Medicare plan rests on big unknowns

Critics doubt forecasts for budget surplus - and cite cost of a new

There's nothing like an extra trillion dollars to make the job of "saving" Social Security and Medicare a little easier.

President Clinton is counting on this newly projected surplus to significantly extend the life of endangered entitlements so dear to America's burgeoning class of senior citizens. At the same time, he's proposing one of the largest expansions of Medicare ever: a new benefit that subsidizes prescription drugs.

But whether Social Security and Medicare will be rejuvenated depends crucially on two things. Will Washington be able to keep its hands off projected budget surpluses for decades to come? Will surpluses of the scale that the president is now predicting really come to pass?

History suggests the likelihood that today's 15-year budget forecasts will be accurate is less than 1 percent. How far will they be off, and in which direction?

"The problem is that a surplus may, or may not, exist.... So adding a major new entitlement that everyone acknowledges is going to be expensive is a bit problematic," says Bob Bixby of the Concord Coalition, a nonpartisan budgetary watchdog group.

He and other budget hawks also lament that Mr. Clinton's plan removes the impetus for real structural change in entitlement programs - such as raising the age for Americans to qualify for retirement benefits, or privatizing the Social Security system.

Moreover, Mr. Bixby is concerned that the new surplus projections play such a prominent role in Clinton's plans, unveiled June 28 and 29, given their illusive nature.

All smiles over the surplus

But Clinton and his team of economic advisers were positively beaming this week when they announced new surplus projections and their implications for Social Security and Medicare. Their forecast, which some economists agree is conservative, calls for the federal budget to make additional gains of $179 billion over the next five years, more than $500 billion over the next 10 years, and more than $1 trillion over 15 years. Congress is expected to release even rosier projections this week.

By putting much of these surpluses into a "lock box" so they can't be used for other purposes, the administration expects to keep the Social Security Trust Fund solvent until 2053 and Medicare going at least until 2027.

The White House would pay for its new prescription-drug benefit, to begin in 2002, by raising premiums (except for low-income Americans), by savings stemming from increased competition and efficiency, and by cash infusions taken from projected budget surpluses. The drug benefit would be voluntary and available to all seniors, but the administration expects about 31 million beneficiaries would choose it.

Clinton has referred to affordable prescription drugs as "the greatest growing need of seniors." Polls suggest a drug benefit would be wildly popular, because pharmaceuticals are the fastest growing health expense.

One-third to one-half of Americans 65 and older currently pay the entire cost of their medications. A typical older American relies on 18 prescriptions a year.

The Congress wild card

How all of this will fly in Congress remains a big question.

Republicans and Democrats disagree, even within their own parties, on how to proceed. Republicans, for instance, would like to see some sort of privatization of Social Security, while Clinton wants it to mostly be an adjunct - the so-called USA accounts (savings accounts for Americans that the government would help subsidize).

None of those structural changes in Social Security, however, is expected to pass Congress. "Every elected official says to himself or herself: Social Security, 150 million taxpayers, 45 million beneficiaries. Criminey! I make a mistake on this and I'm toast.' Therefore, they're going to be very nervous and edgy and in the end will say, 'Let's leave this one for another day,' " says Henry Aaron, entitlements expert at the Brookings Intstitution here.

That leaves only the possibility of agreeing to reserve a substantial part of the surpluses for Social Security, thereby extending the life of the fund.

But even on this issue, Republicans and Democrats disagree on how to go about it.

The president would like to use those surpluses to buy down the publicly held national debt, which he says he can eliminate by 2015 - an astonishing, historic achievement. Some Republicans would prefer to use the surpluses to change the basic structure of the nation's pension system.

"The only thing they agree on is walling off a majority of that surplus for Social Security. But that is the extent of the consensus," says Marshall Wittmann, congressional analyst for the Heritage Foundation here.

Prospects are better for a Medicare prescription-drug benefit, say Mr. Wittmann and others. If nothing else, Clinton has raised the profile of that issue and, in doing so, will force Republicans to respond - though more likely with a lower-cost benefit that covers only less-affluent Americans.

One scenario being discussed in Washington is that, because of the rosier surplus projections, there will be enough room for the president to give some ground on GOP demands for a tax cut, in return for a Medicare drug benefit.

"Clinton will want a drug benefit, [more money] for education, a [higher] minimum wage, and HMO [managed care] reform - and that's the price Republicans will probably have to pay for some tax cut," says Wittmann.

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