Medicare Cuts: Courage or Cowardice?

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Mark Weisbrot
Chicago Tribune, July 1, 1997
Philadelphia Inquirer,
July 4, 1997

The Baltimore Sun, July 1, 1997

It is amazing how often, in the debate over entitlement reform, that cowardice is mistaken for courage, disingenuousness for disinterest, and flat-out innumeracy for economic wisdom. This confusion was on display in the Senate's vote yesterday to raise the age of eligibility for Medicare from 65 to 67, starting about 6 years from now. They also voted for a sharp increase in Medicare premiums for upper-income senior citizens.

This is a serious threat to Medicare and should be treated as such. Means-testing Medicare-- it's now called "affluence testing" because the public relations consultants decided that means testing sounded "mean"-- would go a long way toward converting Medicare from a system of social insurance to a welfare program.

Right now everyone is covered by Medicare when they turn 65, and all pay the same low premiums and deductibles regardless of income. This gives all Americans a stake in the system. By voting to quadruple the premium for higher-income seniors, the Senate threatens to weaken support for the system among the more well-off and politically influential citizens. Medicare could become vulnerable to the same kind of dismemberment that the largest Federal welfare program suffered last year.

The proposed increase in the age of eligibility is based on the time-tested Washington principle of "we can get away with anything so long as it is phased in after we are out of office." Senator John Kerrey of Nebraska, a leader in the effort to cut Social Security and Medicare, fancies himself an intrepid guardian of the nation's economic future. To avoid these cuts, he said last week, is "to stick your head in the sand and ignore it because you are afraid of what's gong to happen at the polls."

Many pundits and policy makers, who will never have to sweat the enormous costs of buying their own health insurance at age 65, share his views. They heap scorn upon those who dare to challenge the elite consensus that we can no longer afford our "generous" entitlements for the elderly. There seems to be an error in most of their spell checking programs, which substitutes the word "demagoguery" for "democracy", as in "the fear of demagoguery around the issue will cause these curbs to face an uphill battle in the House."

The simple truth is that the aging of America poses no challenges to the health care system, or Federal entitlements, that can't be easily met by even a slow-growing economy. A simple way to see this is to pose the question: "How much more would we spend on health care in 2030, if the only change in costs were due to the aging of the population?" The answer is about 24%, for 2030 versus 1990. Over a 40-year period in which the economy will more than double in size, this would not be much of a burden.

The "reformers" routinely choose statistics that exaggerate the impact of the baby-boom generation's reaching retirement age. For example, we are constantly reminded that number of people over 65 will double over the next 35 years. But if we look at the past 35 years, the number of senior citizens actually more than doubled. (As a percentage of the population, the prior increase was less than, but still similar to, that of the much-dreaded future).

Much is also made out of the fact that the Hospital Insurance fund of Medicare, which is financed from a payroll tax, will be insolvent by 2002. But this is merely an accounting procedure. The distinction between this part of Medicare and the rest, which is funded out of general revenues, is widely recognized to be arbitrary.

The real problem is the rate of price increases for health care-- despite the slowdown of the last few years, which is not projected to continue. But this has nothing to do with demographics, Medicare, or entitlements. This results from having the most expensive and inefficient health care system in the world. We spend more than 20% of our health care dollars on administrative costs, or more than twice the percentage that Canada spends. Contrary to popular misunderstanding, Medicare is actually vastly more efficient than the private insurance sector. Medicare's administrative costs are about 2%, compared with 13% (including profit) for private insurers.

In other words, we need health care reform, not Medicare reform. Still less do we need entitlement reform (Social Security is solvent forthe next three decades without any changes, and will need only moderateadjustments, if any, thereafter). But don't expect Senator Kerry and his friends to take on the big insurance companies who finance their re-election campaigns. These brave souls would rather train their guns on the old and the sick, all the while trying to convince us that we can no
longer maintain the commitments we have made to our senior citizens because of "demographic" changes . 


Mark Weisbrot is co-director of the Center for Economic and Policy Research, in Washington, D.C. He is also president of Just Foreign Policy