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February 16, 1999

OP-ED

"A BETTER IDEA FOR MEDICARE"

By: CONGRESSMAN BILL THOMAS, R-CA
Co-Chair, National Bipartisan Commission on the Future of Medicare

Medicare is rapidly going bankrupt. The proposal the President made in his State of the Union address to assign almost $700 billion of projected future budget surpluses to bail out one portion of Medicare demonstrates the extent of the problem but does not solve it.

That scheme would extend the life of the particular trust fund that pays for hospital care, but only for a few years, and it would do nothing to address Medicare’s across-the-board underlying structural problems. Medicare expenditures are increasing at an unsustainable rate. The need to shore up the hospital trust fund with $700 billion is an early warning and small (yes, small) reflection of what we face if the structural issues are not addressed.

We must not rely on possible future surpluses alone to bail out Medicare. The "surpluses" may not be there in fact, and relying on them puts Medicare on shaky financial grounds. Even if they do materialize, using the surpluses for Medicare would feed, not reduce, its demand on tax revenues. Putting more gas in an old car does not make it run more smoothly and is no substitute for an overhaul. Medicare needs that overhaul to survive and meet the health care needs of Americans who will retire in the 21^st Century.

When it began in 1966, Medicare gave beneficiaries an open-ended entitlement to government payment for practically every service doctors and hospitals provided. It quickly became apparent, however, that this entitlement offered a blank check for unlimited draws on federal tax funds. In response, the government over the past 25 years has introduced a series of increasingly stringent controls.

These controls do not change the underlying incentives of Medicare. They attempt instead to counteract the effects of those incentives. As a result, the government now sets the price of every physician’s service, of every hospital stay, and of almost every other treatment received by Medicare beneficiaries, like oxygen, x-rays, CT scans, and blood tests. Additional complex regulations are continually imposed to enforce those controls.

Medicare consequently is now a different system, with a different attitude, from the one that was created in 1965. Rather than helping senior citizens participate in the private health care system, it has become a top-down, government-run health system itself. The Mayo Clinic, one of this country’s most distinguished medical groups, has counted more than 130,000 pages of laws, rules, manuals, instructions, alert notices, etc. that govern the delivery and payment of health care.

It is no wonder that senior citizens and the health care professionals who care for them bristle at the restrictions under which they are forced to function. Their hands are tied by what appear to them to be meaningless and arbitrary red tape. Innovation is discouraged. Senior citizens and taxpayers are denied the savings that would result from fair competition among health plans. Senior citizens are deprived of the greater choice that this competition would provide.

Medicare now comprises the worst of three worlds: it is based on incentives that encourage unchecked spending; it operates through intrusive controls in an effort to counteract those incentives; but it nevertheless faces bankruptcy within a decade.

Many of us on the National Bipartisan Commission on the Future of Medicare have proposed a new approach for Medicare. It would give senior citizens the financial and institutional assistance necessary to buy private health insurance of their own choice. The exercise of this choice will force plans to be responsive to their needs. Only efficient plans offering quality care at attractive premiums will attract members. This competition will protect the quality of care better than a government bureaucracy alone can and will make Medicare more efficient. Increasing Medicare’s efficiency holds the best chance for adding new benefits and avoiding substantial new taxes.

Of course, if seniors do not want to choose a private plan, they could use the government’s contribution to stay in the government-run system.

Under this Premium Support System the government pays a stated amount toward the purchase of a plan chosen by a senior citizen. The amount is set on the basis of the cost of plans chosen by beneficiaries. In this way the actual costs of health insurance are incorporated into the calculation of the government contribution. This automatically adjusts for new medical technology and new treatments and reflects beneficiaries’ choice of what kind of plan they want.

Private plans chosen by beneficiaries would have to meet Medicare standards. An independent and expert Medicare Board would monitor their operations, as well as those of the government-operated system. In this way, the Premium Support System combines government protections with market-based competition and innovation.

The Premium Support System is modeled after the plan under which members of Congress and 9 million other Federal government employees, retirees, and their dependents obtain their health insurance. The Premium Support System is also like the plan under which employees of state and local governments in California obtain insurance.

The forces of status quo, however, are struggling to keep the current system in place—with more regulations, ad-hoc bailouts from tax revenues, and ultimately higher taxes. We believe, instead, that we must make the Medicare system more efficient and more responsive to beneficiaries’ needs. We must try an approach that, while it may be new to Medicare, is well established and proven effective for millions of other Americans. Senior citizens and the taxpayers who pay for their health care are entitled to the same choice and efficiency.

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