A lot of my Republican friends are excited about the Medicare reform legislation being pushed so hard by Sen. John Breaux (D-La.) and Rep. Bill Thomas (R-Calif.). I wish I could be as excited as they are, but politics and the past make me skeptical.
You've probably heard by now that the Social Security program is in financial trouble. Well, if Social Security is facing an untimely demise, Medicare is already on financial life support. The Breaux-Thomas proposal is an attempt to save the Medicare program by fundamentally changing it. But the changes may not go far enough to solve the problem. It's a question of whether the Breaux-Thomas proposal is a glass half empty or half full.
The most important part of the Breaux-Thomas proposal is a structural reform called "premium supports" that turns Medicare from a "defined services" plan into something like – to borrow a phrase from retirement programs – a "defined contribution" plan. A defined services plan promises people a certain set of medical services, and then provides them, regardless of cost. A defined contribution plan, by contrast, promises that a certain amount of money (i.e., contribution) will be paid by the government to the health provider, and people then choose the benefits they receive.
Traditional Medicare has been a defined services plan, but it has been slowly evolving into a defined contribution plan. Currently, about 18% of seniors have chosen a private-sector managed care plan that provides the health care services they need. The federal government gives these plans a predetermined amount of money (i.e., defined contribution) and the HMO provides comprehensive services. Breaux-Thomas would expand this trend.
The premium support idea relies on the Federal Employee Health Benefits Program, which provides health insurance for some 9 million federal employees and their dependents, as a model to introduce more choice and competition into Medicare, thus raising quality and lowering costs. But it is unclear whether the plan, if passed, would somehow dodge the bureaucrats who live to make Medicare legislation vague, confusing or ineffective.
Let me explain. Back in 1997, Congress tried to expand seniors' private-sector options by letting them choose from a wider array of health insurance plans, including Preferred Provider Organizations (PPOs), traditional fee-for-service insurance and Medicare Medical Savings Accounts.
Unfortunately, the Medicare+Choice legislation has not worked as well as intended because the Health Care Financing Administration, the federal agency that oversees Medicare, has managed to make a mess of the whole thing. So much so that by the beginning of this year some 400,000 seniors lost their Medicare HMO coverage because they could no longer afford to provide the care. I might be wrong, but history does not give me a lot of confidence that bureaucrats will get this one right either.
Another part of the Breaux-Thomas plan is to raise the Medicare eligibility age from 65 to 67, just as Social Security has already done. While this proposal makes perfect sense in a world where people are living longer, healthier lives, we cannot ignore the politics of Medicare. President Clinton, by contrast, has proposed making Medicare available to the "near elderly," those ages 55 to 64. Would Democrats running for office use the raising of the Medicare age to say that Republicans were trying to "cut" or "destroy" Medicare, as they did in 1995? There is an old saying: Fool me once, shame on you. Fool me twice, shame on me. Republicans might well heed this advice.
Finally, the Breaux-Thomas plan includes a prescription drug benefit for low-income seniors, which Democrats have decided to make a huge political issue, both this year and during next year's election. Set aside that fact that 65% of seniors already have a prescription drug benefit through a supplemental policy, from their Medicare HMO or through Medicaid, which provides financial assistance to low-income seniors. And ignore the fact that many of the other 35% are relatively healthy and don't spend much on prescription drugs. There are some seniors who find themselves needing prescription drugs and with no insurance to cover them. Their stories can often be compelling. And Democrats know they can make some political points with seniors, who have been increasingly voting Republican, by promising a new program to cover their prescription drugs.
None of this sounds very encouraging for Medicare reform. If we're going to reform Medicare, let's do it right: let people put their Medicare payroll tax in a private account that will grow over time and be theirs at retirement. Partial reform may look good for the moment, and be good election politics, but as any really thirsty person knows, half a glass of water often just doesn't do the trick.
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The National Center for Policy Analysis is a public policy research institute founded in 1983 and internationally known for its studies on public policy issues. The NCPA is headquartered in Dallas, Texas, with an office in Washington, D.C.