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The Real Work's Ahead

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The Real Work's Ahead

December 9, 2003
Health PolicyMedicare/Medicaid

GIVEN the energy, time and drama of the past weeks, it would be easy to assume that the Medicare debate ended yesterday when the President signed into law the bill creating a new prescription-drug benefit. But Senate Minority Leader Daschle is right: "This is not the end. We will see many, many more votes."

Indeed, agreeing on a prescription-drug benefit may be the simplest task facing politicians. The real issue is subtler: the long term sustainability of all Medicare. And Congress hasn't really begun to address the problem.

Medicare is a program designed perfectly for the assumptions of its day. In the 1960s, medicine was cheap and the population young. A generous program, free at the point of care, made sense. But today, the high-tech, high-expense medical revolution has transformed care - and costs.

Complicating the situation is an ageing population. "This is a system out of control," explains Professor Thomas Saving of Texas A&M. He should know - Saving serves as a public trustee of the Medicare and Social Security Trust Funds.

Under current law, notes Saving, Medicare will consume 20 percent of federal income-tax revenues by 2026. In other words, it threatens to be the program that ate the budget. Put slightly differently, the unfunded liability of Medicare - that is, how much more the program will cost for the next 75 years over what it will take in through payroll taxes and premiums - was $13 trillion, even before the addition of the drug benefit.

The longterm solvency of Medicare is the biggest problem facing the program, one that demands action. A sustainable framework means abandoning the present top-down, regulation-heavy structure based on an essentially zero-dollar insurance concept. It means recognizing that Americans aren't all equally wealthy and thus shouldn't be entitled to pay equally for Medicare benefits.

These aren't necessarily radical ideas, but in Washington today, the impulse is to expand Medicare, not to remake and save it.

Fundamentally, Medicare needs to change. At present, it provides a certain set of benefits. That may be popular (a majority of seniors like the program) but it's also problematic (a majority of seniors also have complementary insurance to fill in Medicare's many holes).

It's also expensive. Medicare offers unfettered access to the most specialized doctors and the most sophisticated diagnostic testing in the world. The surprise isn't that costs are rising - it's that Medicare doesn't cost more.

But there is a meaningful alternative. Just as federal employees have the opportunity to choose the health benefits best suited to their needs, elderly Americans ought to have the same options. Rather than fund tests and procedures (and then rely on a labyrinth of regulations to manage costs), Medicare should fund patients.

Ultimately, seniors should be given a voucher for a certain amount of health dollars and then empowered to pick the plan they want. By moving from the open commitment of defined benefits to a closed commitment of defined contributions, Medicare can take a big step toward sustainability.

The president and his party have scored a major political win - but leaders of both parties still face a vital task. By working to reform Medicare along the lines of individual choice and competition, Washington can ensure a victory for generations of American seniors to come.