June 6, 2011

Medicare: Reform It or Lose It

by Hal Gershowitz

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The Democrats in Congress are crowing about the upset victory by Kathy Hochul in the special election to fill a Congressional seat in upstate New York, which has been consistently held by Republicans.  Ms. Hochul based almost her entire campaign attacking Paul Ryan’s plan to fix Medicare by giving every taxpayer a voucher to purchase his or her own health insurance in a competitive marketplace.  While it is not clear that Ms. Hochul’s victory was solely attributable to that issue (there was in fact a well‑known third candidate in the race) we will assume for purpose of this essay that the Democrats are correct.

As a result of the outcome in this special election Democrats, and the entire political left think they have a winning issue, which will allow them to take back control of the House of Representatives in 2012.  Frightening seniors and those who are close in age to being eligible for Medicare might actually work unless the GOP can demonstrate that Medicare is imploding and that the Democrats are prepared to let it continue to implode for the crassest of reasons − short term political gain.  Many Democrats seem to prefer that for political expediency.

The Washington Post in its May 24th edition editorialized, “ . . . the threat is that this victory will carry an enormous cost for the country, with both sides taking the lesson that bravery in tackling entitlements is foolhardy.”  Former President Clinton who attended a summit on fiscal responsibility hosted by the Peterson Foundation last week said “I hope Democrats don’t use this as an excuse to do nothing.”  He and a bipartisan group of past and present government officials and academics all warned that we are approaching a permanent fiscal deficit (emphasis added.  Senator Mark Warner of Virginia put it very succinctly “Congress is Thelma and Louise in that car headed for the cliff.”  Peggy Noonan reported about the same conference in the May 29th weekend edition of the Wall Street Journal, noting “no one said we can grow our way out of this, or that the negative effects of chronic debt are exaggerated.”

It is clear that both parties know there is a crisis but political concerns (their own reelection) mean more than fashioning sensible fiscal proposals to remove the threat to our nation’s health.  These elected representatives might be forgiven for being confused.  In November 2010, the electorate swept the Democrats out of control of the House and gained a number of Senate seats because the public seemed to have gotten the message that our debt and deficits threatened the country’s future.  Now the public in at least one New York district seems to be saying “Yes the debt is a big problem but don’t fix it by taking away one of my benefits.”

That is why it isn’t sufficient for Republicans to make their case by simply relying on Mr. Ryan’s very thoughtful, indeed courageous, plan.  They need to demand that Democrats put a plan on the table.  They need to demonstrate in the plainest possible terms that by doing nothing Medicare will be bankrupt by 2024.  Joseph Antos, a scholar at the American Enterprise Institute, reported that Medicare has been funded by the interest on trust fund holdings since 2008, and therefore the programs are already in the hole and living on borrowed time.  Moreover, the projections of bankruptcy in 2024 include a cost savings from Obamacare, which many experts say are unlikely to occur.  Even Medicare’s chief actuary Rich Foster said, “the financial projections . . . do not represent a reasonable expectation for actual program operations.”

When Medicare was enacted in 1965 during the Johnson Administration, there were over 5 workers for every retiree.  Today the ratio is 3.3 to 1.  By 2020 the ratio forecast by the Social Security Trustees Report is that the ratio will be 2.5 to 1.

The above projections, bleak as they are, may actually be worse.  Because life expectancy has increased every year, there will be more people aged 65 or older, but the number of people age 85 and over is also increasing.  Today there are 4.3 million people in that age group who are likely to require more expensive long‑term health care services.  Additionally, over the next 5 years, 80 million baby boomers will gain coverage.

All of these facts need to be succinctly and forcefully made to counter the much simpler tack the Democrats take by demagoging the issue with what many pundits have called “mediscare” tactics.  The public needs to know the truth, which simply is that Mr. Ryan’s program is not taking away Medicare.  He is substituting a sensible financing plan so federal assistance for health care for all Americans can be saved and will be there for our seniors, rather than the business as usual kick-the-can-down-the-road plan of the Democrats which simply delays more onerous legislative action when the wolf is literally at the door.

The Ryan plan is quite sound and logically constructed.  The $15,000 first-year voucher, which is to be used for insurance premiums, is approximately equal to what the government spends, on average, for each Medicare enrollee.  By making these funds available to each eligible individual or family, the plan will induce insurance companies to compete for the prospective insured’s business. There has been, over the years, strong bi-partisan support for a voucher plan such as Representative Ryan has proposed. The only real issue has been over the inflator he has provided in his plan.  Under the Ryan plan premiums would be adjusted at the annual rate of inflation. Some argue that the inflator should be based on a more liberal mechanism such as the rate of GDP growth plus one percent.  That’s a debate worth having, but the democrats do not want to have a serious debate.  They want an election narrative instead. They want to pit the first person in memory with the courage to put real reform on the table against the elderly, the infirm and the helpless infant. Sadly, these are the very citizens who will pay the highest price when the system crashes because of political cowardice.

In the meantime while the clock ticks, more and more physicians, including primary care doctors, are opting out of Medicare.  They simply advise their patients up front that they expect their regular fee and that reimbursements will be the responsibility of the patient.  This number will certainly grow.  Allowable fees for doctors have not covered the doctors’ real costs for many years, with reimbursements from Medicare running about 20% under what actual medical service is costing. The difference is subsidized by the doctors themselves, which is why so many have already stopped accepting Medicare patients, and why so many others are saying they will have no choice but to drop these patients in the future.   The Obama health care plan, which has not yet gone fully into effect envisions squeezing further cost savings by further reducing allowable doctor fees.  Perhaps that is what Mr. Obama and the Congressional leadership really wanted when they jammed their monstrosity of a health care bill down our collective throats, hoping that Medicare’s collapse will make it easier for them to enact their dream single payer system.

Medicare will be reformed. Ultimately, the extent of reform will be, by and large, the same whether at the hands of Republicans or Democrats. So much available money will only buy so much available healthcare. It is just a matter of when and how the system gets reformed.  The Republicans in Congress are trying, at considerable political risk, to force an honest discussion of the problems we face.  The Democrats, at least those who are still walking in lock step with the President, seem to have decided that they can dance around the issue, spout some focus-group vetted demagoguery and win the day, at least through the 2012 election.

The status quo, however, is simply not an option if we want to save a program which most Americans want and on which they have come to rely.  That is a tough message to convey in the face of the utterly false claim that Republicans want to save on health care costs by leaving children uninsured and grandma shivering in the cold.


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