The GOP's Medicare Blunder
An expensive lesson in the politics of entitlements.
WSJ.com OpinionJournal
Saturday, November 26, 2005 12:01 a.m.
The Medicare prescription drug benefit is finally coming online, and President Bush and the Republicans who passed it are puzzled that they aren't getting any political credit. There's a lesson here--an especially painful one for taxpayers--in the politics and policy of government entitlements.
Democrats and many of our media colleagues keep suggesting that seniors are hopelessly "confused" by the new benefit, implying that this is because it will be administered by competing private insurers, not an old-fashioned, one-size-fits-all government welfare program. They apparently aspire to the French model of government efficiency and growth.
That line of attack is insulting to the nation's 42 million Medicare beneficiaries, who aren't hapless or senile. However, the reason that criticism has some traction is because it taps into justifiable concerns that the new benefit will be a poor substitute for the drug coverage that some three-quarters of seniors already have, and which it will undoubtedly do much to replace.
In particular, seniors are nonplussed by the "donut hole" they see in the new coverage. The benefit envisaged by our Capitol Hill solons has coverage starting after a $250 deductible and continuing until annual drug expenses reach $2,250, after which it will disappear again until total costs reach $5,100. That means that if you spend $2,000 annually on drugs, Medicare will cover 66%. But if you spend $5,000, Medicare's share will be only about 30%.
In any rational insurance plan, coverage increases with increasing costs. But the likes of Senate Finance Committee Chairman Chuck Grassley and House Speaker Dennis Hastert were determined to hand out a bit of money to all seniors, regardless of whether or not they really needed the help. The donut hole is their feckless attempt at cost control. And the results are already in as to whether this was a political winner. Far from attracting senior gratitude or establishing GOP credibility on health care, these Republicans have set the stage for decades of Democratic demagoguery about closing the donut hole and enriching the benefit.
This is a perfect political-science-class illustration of why creating new entitlements can never work to the political advantage of parties that pay even lip service to the goal of limited government. There will always be someone agitating for the entitlement to be bigger.
One piece of good news here is the way the market has responded to the legislation. During the Congressional debate in 2003, many suggested that private insurers might not even show up to the drug-benefit party. But there are 80-some offering coverage in the New York City area, and more than 40 in most parts of the country. Some plans come with monthly premiums as low as about $2, and the average premium is $32 (the feds had estimated $37).
To some degree, the private providers are even saving Congress from itself by filling in the dreaded donut hole. They are allowed to offer coverage in the "gap" as long as the overall benefit is "actuarially equivalent" to--i.e., not richer than--the one Washington specified, and about 15% do. A whopping 58% of plans eschew the suggested $250 deductible. Meanwhile, the lower-than-projected premiums suggest that the private benefit managers are doing a good job wringing discounts out of the pharmaceutical industry, despite Democratic demands to impose government-mandated price controls.
Our more optimistic friends say this all shows that competition can work in Medicare and that the drug benefit will pave the way for systemic reform down the road. We still have our doubts, and because of politics, not because of the ingenuity of the private plans. No matter how efficiently the private sector runs the drug benefit, it is still going to be a hugely expensive new taxpayer liability. And we suspect more direct price controls will be a first, not a last, political resort. Penny-wise, pound-foolish Republican Senators are already looking to cut funding in the fiscal 2006 budget for Medicare Advantage, the comprehensive managed-care option that should be a model for overall reform.
We also can't forget how damaging the shifting cost estimates for this program have already been to the Administration's credibility. Everybody knew the original 10-year, $400 billion figure that Congress was shooting for was a polite fiction. But that figure is now more than $700 billion, and both parties did their best to cover that fact up during the debate that led to the benefit's passing the House by a single vote in 2003.
In short, the Medicare bill has been mostly trouble for the GOP. The drug benefit should have been the carrot to lure people into Medicare Advantage, which would have been real Medicare reform. Instead, the standalone entitlement has become a prop for the increasingly decrepit fee-for-service Medicare system. Nor did it win the Administration any political capital for Social Security reform, despite White House spin at the time. One reason the AARP opposed Social Security reform so strongly was because of the heat it took from the left for endorsing the Medicare bill.
Politically, the worst is probably yet to come as private employers start ditching retiree drug coverage and throwing more people into the government system. And as costs for the program inexorably increase, so will the pressure to raise taxes.
It was all so predictable, as some of us said repeatedly back in 2003. We hope Republicans have learned their lesson. But it has been and will continue to be an expensive lesson indeed. |
