June 10, 2003
Saving Medicare for the 21st Century
Thank you, Bob, for that kind introduction. I would like to thank you and Lawrence Mone for inviting me back to the Manhattan Institute. It’s always a pleasure to be here.
I want to thank the scholars and staff of the Institute for researching and promoting common sense ideas and free-market principles. And congratulations on your silver anniversary. For 25 years, you have offered clear thinking on critical domestic issues, in a way that made people take notice and take action. As you know, your research on smart ways to address crime, health, education, and welfare reflected and reinforced many of the principles we were demonstrating in Wisconsin when I was governor.
We proved that welfare traps people in poverty and that responsibility liberates them. We proved it when we reformed welfare and caseloads fell 94 percent. We proved it when those who got jobs on average earned more than $2 per hour above minimum wage. Other states and Congress followed our lead. And poor people and former poor people are the winners.
In Wisconsin, we proved that minority parents want the same thing for their children that all parents want: high standards and choices in education. Other states and cities and the Supreme Court followed our lead. A few weeks ago, even the Democratic mayor of Washington, D.C. said he would follow the Wisconsin lead and allow children in Washington to have choices. And children everywhere are the winners.
In Wisconsin, we demonstrated that the best social program is an independent family and the most humane social program is a profitable company. Independent families are healthier and happier and profitable companies create jobs. And the American people are the winners.
And while we were putting our trust in the people of Wisconsin, I know you were doing very similar things here in New York City, and spreading these common sense ideas throughout the country. And I thank you.
Some people want to make poverty easier to bear. That’s heartwarming. But we want to make poverty easier to escape. That’s inspiring.
Some people claim that only liberals can understand or care about education or health care or welfare well enough to help people. We’ve proven them wrong time and time again—especially over the past 20 years. And today I’d like to talk about another way we can help people by trusting them. We can do this by strengthening and improving Medicare by offering better benefits and more choices.
Ladies and gentlemen, the greatest health care system the world has ever known operates in the United States. America's doctors and hospitals offer the best care because they have the freedom and incentives to develop new products and techniques. Over the past thirty years, medical innovation and new technology have changed the face of health care and helped Americans to live longer and healthier lives. And people all over the world have benefited as well.
But as great as our system is, we know it can be even better. President Bush and I have a vision for American health care that builds on our strength: competition in a free economy. In our vision, physicians can focus on the quality of their care, not the quantity of their paperwork. In our vision, state governments can have more flexibility under Medicaid to deliver care in efficient ways and to offer benefits to those in need.
We don't just share that vision; we also share a sense that this is the year we can turn the corner. This is the year we can work with Congress, states, the health care community, and ordinary Americans to make the critical improvements in our policies, our procedures, and our lifestyles that will launch a new century of medical excellence and good health.
Over the past two years, through waivers and state plan amendments, the Bush Administration has already expanded access to health coverage for more than 2.2 million people, and expanded the range of benefits offered to 6.7 million other Americans. We have also proposed tax-based supports to help low-income Americans purchase health insurance.
Today I want to talk about the President’s framework to strengthen and modernize Medicare by providing better benefits, a better delivery system for those benefits, and a better financial footing for the future. This will make the system better for current recipients, better for the Baby Boomers that will soon get Medicare, and better for future generations whose earnings fund the system and who worry about their own future.
The President’s leadership has allowed us to develop the framework and build support for it. He’s been working with Congress on it all year, and right now he’s made it his top priority. On Saturday, he devoted his radio address to Medicare. He’ll be speaking about it this week in Chicago and Connecticut. The Vice President will address it on Friday. And they and others from the Administration will continue to work with lawmakers. We hope that both the Senate and the House can pass Medicare legislation by the end of the month.
Today, Medicare provides health care coverage for 41 million Americans. For fiscal year 2004, Medicare’s budget is estimated to be about $284 billion. And the program continues to grow rapidly. We expect actual benefits to enrollees to grow from about $279 billion in fiscal year 2004 to $480 billion in fiscal year 2013.
If you look at Medicare and Social Security together, you see that right now American workers cover these programs’ expenditures primarily through payroll taxes. But a demographic force—the retirement of the Baby Boomers—is about to change this. As early as 2008, even without the addition of new benefits, these programs will begin to impose additional costs on the taxpayers, when you include the general tax revenues that finance Medicare’s Trust fund for physician and outpatient services. By 2010, they will consume not only their designated payroll taxes but also 1.5% of total income tax receipts. They will consume 36% of income taxes by 2030 and 47% by 2040.
Medicare is popular, but it faces some serious challenges. This afternoon, I would like to lay out some principles of an ideal health care system, show why our current system falls short in some ways, and then explain how our Framework will make our system better by applying some of these principles to Medicare.
I think we can agree on these common sense principles.
- Preventing disease is better and cheaper than curing it.
- The best single way to prevent disease is to lead a healthy lifestyle.
- While not all disease is preventable, people who lead a healthy lifestyle will tend to consume less health care, and if they do they should naturally pay less.
- Health care systems should be efficient and effective.
- Markets provide incentives for investors and researchers to develop better devices, better drugs, better treatments, and better forms of delivery.
- Consumer responsibility and consumer power in purchasing health care are the best way to promote efficiency and quality in health care.
- Insurance, whether private or public, is a great way to spread risk, not as great a way to control costs.
- Where reasonable, people should pay for their own health care, and insure against major expenses.
- Money that goes into the health care system should go to quality care, not to trial lawyers.
- People with means should help those who cannot pay for their own care, through charity and through government.
These principles are reflected in our current health care system, but our system does not live up to them nearly as well as it should. Let me explain how we got the system we did.
How we got here
Let’s start in the 1930s. Life expectancy was 58 years for men and 61 years for women. Americans over 65 were vastly outnumbered by younger workers. Given these facts, it seemed affordable to ask workers to subsidize these people. President Roosevelt created Social Security along these lines. Some people thought of it as an insurance program, but it has never really worked that way.
Congress created Medicare in 1965. Following the example of Social Security, they added another program for workers to support the elderly. They used the same assumptions of demography and intergenerational transfers, even though our demographics were changing. Medicine was changing, too.
The Challenge for Medicare
In the 1960s, when you got sick, you usually went to a hospital for a while. You got most of your prescription drugs (what few there were) through the hospital. And recovery periods for surgery were long. Health insurance rarely covered preventive care or outpatient prescription drugs, and did not fully cover catastrophic care.
Medicare was designed around those models and those limitations. It delivered state-of-the-art care to seniors, and it was very popular
But medicine has changed. Health insurance has changed. Our population has changed. And Medicare needs to provide new options.
While health insurance has followed market demand, Medicare still lacks catastrophic protection, full coverage of many preventive benefits, and a comprehensive outpatient prescription drug benefit.
Many participants in Medicare bolster their Medicare coverage with supplemental policies such as Medigap, retiree health insurance, or—for those with the lowest incomes—Medicaid. But many others don’t have access to such assistance or cannot afford it. That leaves many participants vulnerable to the high costs of serious illness.
Our current Medicare program is not structured to provide seniors access to all of the wondrous inventions, new technology, and the same choices and quality other Americans get from their health plans. For example, while 76% of seniors have some form of drug coverage, Medicare does not provide an outpatient drug benefit, so too many seniors must buy medicines directly.
Seniors like the Medicare program. But some are missing the miracles of modern medicine. If they don’t follow health care news, they may not know what they are missing. But that’s no reason to deny them these benefits.
President Bush wants to remove these barriers to affordable, quality health care by modernizing Medicare, for its current beneficiaries and for the future. That's why he has proposed a framework to improve Medicare by offering more choices and better benefits. Medicine has changed and progressed. And our Framework will help guide Medicare for the future.
When I was governor of Wisconsin, I found that some workers in our state had a hard time affording health care for their families. I wanted to help these people afford health insurance, but I didn’t want to burden the taxpayers any further. So we looked around and we saw that our state employees had a number of good choices for health insurance. The rates were reasonable because of the buying power of the state government. So we created a program called BadgerCare that let certain Wisconsin families buy their health insurance through the state employees program. It made health insurance more accessible to 100,000 people, without burdening the taxpayers. I call that….a success.
The President developed his Framework for modernizing Medicare by looking at a model that works really well--the Federal Employee’s Health Benefit Plan. It is even older than Medicare, and offers a number of health insurance options to every federal employee. We thought, Medicare recipients are also getting health insurance through federal taxes. Why not offer them a similar set of choices—if they want them? And once we asked the question, the answer was obvious.
It’s all about allowing people to keep the program that they have today, or to choose better benefits such as catastrophic protection, better preventive benefits, and prescription drug coverage.
Seniors will have three basic options. They may stay in traditional fee-for-service Medicare. They may join an Enhanced Medicare plan—with better preventive benefits, catastrophic protections from high costs, and access to prescription drug coverage. Or they may join a Medicare Advantage plan. All 3 offer meaningful prescription drug benefits.
Today, most Americans who have employer-sponsored coverage—in fact 70% of them—participate in a PPO or POS plan. PPOs are the fastest-growing and most popular choice for health insurance because they provide excellent care and a broad range of choices. By contrast, only 5 percent use fee-for-service plans. PPOs give beneficiaries a wide choice of providers, allowing them to stay within the PPO organization or go outside the plan to any doctor or hospital in any place, at minimal if any expense.
Some people have asked whether PPOs can work well in rural areas. In fact, they have an excellent record in rural areas. The Framework’s Enhanced plans will be required to participate in an entire region and accept any Medicare eligible participants. This will minimize risk selection and guarantee access to all beneficiaries--urban, suburban, or rural.
So PPOs should be an option for Medicare beneficiaries. Here’s the way we look at it. Most workers and their families are accustomed to the flexibility and choice of PPOs. When they retire, they should be able to keep that PPO flexibility under Medicare. They already understand it and they already like it. Why stop them? Why force them to change?
Another option is Medicare Advantage. This is the low-cost, high-coverage plan that many seniors currently receive and prefer. Under our framework, it includes the option of a subsidized drug benefit.
So those are the three options. Keep the traditional fee-for-service plan, join an Enhanced plan, or join a Medicare Advantage plan. But it's important to keep a few things in mind.
- Seniors will have the option to choose prescription drug coverage.
- All seniors will be able to choose doctors and hospitals.
- All seniors will have the choice of an individual health care plan that best meets their needs—just like Members of Congress and federal employees.
- All seniors will have the option to choose full coverage for disease prevention such as screenings for cancer, diabetes and osteoporosis.
- All seniors will get protection from high out-of-pocket costs that threaten to rob them of their savings.
We want to deliver these choices, these additional benefits, and this modern medicine in a modern way—combining the best practices of government programs with those of the competitive free market system that benefits Americans so well. By keeping the existing government system, building on its strengths and incorporating the best ideas of the private sector, we can create a modern and efficient Medicare program for the 21st century.
We can also make Medicare easier for seniors to understand and navigate. Right now they have to sign up for Part A, Part B, and supplemental coverage such as Medigap, and pay multiple premiums and keep up with all the paperwork. Instead, we can create a unified program. After they make their choice, we want to let seniors sign up for one program with one premium that delivers health care efficiently and effectively.
The President’s Commitment and Prospects for Success
There’s been general agreement for several years that we need to bring Medicare up to date, and that we need to increase spending in the middle term to do so. Here’s how last year went: The Administration proposed to increase spending and add benefits. The so-called Senate tripartisan bill proposed to add $370 billion to the projected investment. And the House passed a bill that would have added $341 billion.
In addition to meeting the project growth of Medicare over the next ten years, including adding the other options and benefits I discussed, President Bush would add an extra $400 billion to provide subsidized prescription drugs to Medicare beneficiaries. It’s bigger than the House bill. In fact, it will be the one of the largest expansions of Medicare benefits ever.
Obviously, this is more than enough money for Congress and the Administration to work in a bipartisan fashion to craft a comprehensive Medicare package that builds on the President’s framework.
We want to make sure this is a worthwhile investment. We want to make sure the $400 billion buys better benefits for seniors, and that it’s not wasted on inefficient delivery or more government bureaucracy.
We’ll take what works, and strengthen it with some of the best practices of the competitive free-market system.
Over the past few weeks, we’ve heard leaders in both parties make it clear they believe we can come to an agreement on a plan.
We share their optimism. Rising above partisanship may be a challenge. But the two parties did just that on education two years ago. And we think they will pass a good plan for better benefits for Medicare this year.
I said partisanship is the most obvious challenge to modernizing Medicare. I think there is another, bigger challenge that no one wants to talk about. This is a psychological challenge. Giving beneficiaries more choice means giving them more control. That’s great for them, of course, but it means shifting power out of Washington and back to the families across America. It means less control for us in Washington. It’s easy to support on the merits, but it’s hard for politicians and bureaucrats to give up power—even for a good cause. So we may face some growing pains, but we can get through them together.
If we can all learn to say “Power to the People”, we can get it done.
And we need to get it done. We’ve been talking about this challenge for years. Every time we delay, our seniors miss out on more advances in medicine. The President’s Framework provides a balanced foundation for getting the job done. I applaud leaders in both parties and both houses for showing a willingness to act this year.
Now, we just need to stay focused on the job and complete it this summer. If we do so, both parties will win. But, more important, seniors throughout America will win with better health care.
Power to the People!