Clinton’s Medicare Plan Merely Postpones the Day of Reckoning

The Medicare Trust Fund is now scheduled to be bankrupt by 2001, just five years from now and a year earlier than the Medicare Trustees--including three Clinton Cabinet members--guessed last year.

The fund is hemorrhaging, with outlays running well ahead of projections. Last year, the president, congressional Democrats and their special-interest allies in the AFL-CIO and the American Assn. of Retired Persons ran a media scare campaign against the Republican reform plan that even the traditionally liberal Washington Post and New York Times labeled demagoguery. Unfortunately, it was not effectively rebutted by the Republicans. Many elderly citizens were scared into thinking they would lose their Medicare or see it sharply curtailed.

It is widely understood that Medicare outlays are growing at an unsustainable pace. Here are the facts: Medicare spending growth would have been slowed from about 9% to 7% per year over the next seven years under the Republican plan. The Republicans projected to spend $1.65 trillion over the next seven years, whereas the Clinton administration projected to spend $1.68 trillion. The difference, $30 billion, less than 2%, was what the White House argued would “savage” Medicare.

There were some similarities in the two approaches. Both the Republicans and the White House would have encouraged more elderly to migrate to managed-care plans, although the GOP plan had more incentives to do so. Most of the savings in both plans came from lower projected payments to doctors and hospitals providing fee-for-service Medicare. Republicans had a slightly higher out-of-pocket premium for Part B Medicare--the part that covers doctors and outpatient bills--of about $11 more per month in 2002. The total amount of federal spending per recipient under the Republican plan would have gone up substantially--from $4,800 to $7,100 per year. That is what the White House calls a “cut.”

The flip side of the coin is that the president’s plan really would not do much good for Medicare. It would have resulted in some one-time savings but very little to slow the growth of outlays. Even the American Academy of Actuaries said the president’s proposal “falls far short of having a significant impact” on Medicare’s long-range financial problems. In fact, the president’s plan had no guarantee that any savings would materialize, whereas the Republican plan had a fail-safe mechanism to do so.

Fast forward half a year to earlier this month, and the Medicare scare had begun again. The 1996 Medicare Trustee’s Report--issued two months late--publicly admits that Medicare is in far worse shape than had been anticipated. The Medicare actuaries actually state that the trust fund is much more likely to go bankrupt sooner--perhaps as early as 1999--than later. That should provide renewed impetus for a sensible solution to Medicare’s financing problems and to sensible reforms that promote efficiency and restore confidence in the future of the system for the elderly.

But, of course, the same demagogic attacks are occurring again. The reforms that the Republicans are proposing hold the promise of improving the current Medicare system. They will provide greater options to the elderly for choosing from various private plans or the government program. Unlike the open-ended system, which delivers a certain set of benefits, the new program would send a defined amount of money in the form of a voucher to recipients, which they could spend as they chose. The competition and consumer choice thereby engendered hold the promise of actually succeeding in reducing the growing cost of Medicare without reducing the quality of services provided.

Worse yet, the Medicare scare--both last year and this year--misses a far larger point. By focusing on the possibility that some will pay a small increase in premiums, or the requirement to deal with the impending trust fund bankruptcy by 2001, we miss the much more serious long-run problem in Medicare. The Medicare hospital insurance fund--known as Part A--is projected to spend about 1% more of taxable payroll than it receives in payroll taxes by 2001 (about 4% in outlays, 3% in receipts). That’s a pretty sizable amount, and substantial savings by then will be necessary to delay the date of bankruptcy.

Unlike the Republican plan, the president’s proposals to “fix Medicare,” merely postpone the day of reckoning a few years and would really not make any serious inroad in the far larger long-run problem. Indeed, about half his “fix” is the irresponsible gimmick of shifting some outlays from the Part A hospital trust fund to Part B, which pays for outpatient treatment and is financed by general revenue. But that only further disguises the problem and reduces the discipline imposed by the trust fund. The point is that the long-run problem will be five times as large as it will be in 2001 if nothing is done.

It is unfair, both to the current and future elderly and to current and future taxpayers, to ignore this long-run problem. Waiting a decade to deal with the more serious long-run problems will require far more draconian “cuts”--in size and speed--on the eve of the baby boomers’ retirement. While dealing with the impending financial meltdown of the trust fund, reforms that also contribute to reducing the much larger long-run problem must also be adopted.

Alas, such common sense does not appear to be bursting from the Clinton administration. As with everything else, it appears to want to push dealing with any serious problem off beyond a hypothetical second term for President Clinton; his so-called balanced-budget plan postpones almost all the necessary savings beyond 2000.

That may be a recipe for increasing his chances for reelection, but history will not treat kindly a president who passed up the opportunity to deal with the autopilot entitlement growth at the core of the nation’s long-run fiscal problems.