The Pros and Cons of Increasing Medicare Eligibility
January 16, 1998
in this forum:
Is the Medicare proposal a federal government power grab? If the proposal is "revenue neutral", why not expand Medicare? Is there the political will to increase premiums if health care costs continue to rise? Who can afford $3600 to $4000 a year for Medicare? How will this proposal impact health care generally? Will this allow business to start reducing its health coverage? Dan Aposhian from San Diego, CA asks: Dear Sirs,
The inflation rate in health care coverage surpasses the overall rate. The health care inflation rate for older Americans doubtless greatly exceeds that of the general population. The premiums listed in the plans for expanded coverage will likely be insufficient as time passes. Will the President and Congress have the political will to raise premiums or take steps to reduce the cost of coverage through expanded use of HMOs or through other cost saving measures? Recent history suggests not. Thank you very much for your time and response.
Joseph White responds:
There's really two points here. The first is empirical: that the inflation rate for coverage for older Americans exceeds that for the general population. Now, that depends entirely on policies for cost control within Medicare. Over the period from 1970 to 1996, Medicare costs actually grew slightly more slowly per capita than private insurance benefits (10.8% per year vs. 11.3% per year), even though the elderly are a much more expensive population. Basically, they had the same trend through 1984; Medicare adopted more stringent cost controls in the 1980s and did better in that decade; and private insurance costs have grown significantly more slowly than Medicare's in the past few years, but not enough to make up all the previous difference. The better performance in private insurance in recent years has two main causes: first, the switch from less-restrictive to more restrictive forms of insurance. It's not entirely clear that the costs of the more restrictive "managed care" will grow so slowly in the future, but switching at least saved money for a while. Second, we didn't have any new Medicare cost control legislation in 1995, as might have been expected, due to the huge stalemate over the budget. Medicare cost growth now will slow due to the 1997 law, and private insurance costs are expected to accelerate. So it's not at all clear that Medicare costs will grow faster than those of private health insurance normally.
But they still are likely to grow faster than the economy. And that WILL raise issues about premium levels. My guess is, how that will play out politically will work as follows. First, if any law is passed, there will be a technical, nonpolitical process for setting the premiums. Then, as they rise, there will be pressures to do something about that. But anything that's done will, under congressional budget procedures, have to be "budget neutral." So any premium relief will be at least ostensibly balanced by spending cuts, which normally are to the levels that providers are paid.
The National Taxpayers Union responds:
The "political will" to control federal spending has been in very short supply in Washington. With entitlement programs, it has been virtually non-existent. Most federal benefits are defined as "mandatory spending" for budget purposes, meaning they are not subject to the annual appropriation process. This allows elected officials to avoid individual accountability for uncontrolled spending.
We have already witnessed our leaders' long-term inability to confront Medicare's problems, but recent events deserve further comment. Medicare's Trustees have warned Executive Branch and Legislative Branch officials alike for at least a decade about Medicare's financing problems since the early 1990s. Yet, when the 104th Congress proposed to slow the annual growth of Medicare spending from over 10 percent to a still hefty seven percent, the White House launched a shameless, politically motivated smear campaign that portrayed this modest restraint as Draconian. Lawmakers promptly lost their courage and backed down.
Last year's successful passage of even more modest Medicare growth restriction was more a by-product of soaring revenues and spending hikes in other pet programs than political courage. Indeed, the 1997 Balanced Budget Act only postpones the tough decisions on Medicare and other entitlements for a decade or so. Once the Boom Generation retires, costs will soar. The lesson here is that the best way to break an expensive habit is to avoid starting one in the first place!