Medicare excess: Not a threat, a promise

Steve Chapman

When Lyndon Johnson was pushing to create Medicare, an aide approached him about adding a provision to win approval in the House of Representatives. The problem was that it would cost the federal government $500 million a year. “Five hundred million,” snorted an incredulous Johnson. “Is that all? Do it. Move that damn bill now, before we lose it.”
Today, $500 million looks just as trivial as LBJ made it out to be. When it was established, Medicare was projected to cost $7 billion a year by 1985. But when 1985 rolled around, the actual amount was $48 billion, or nearly seven times more than planned. By then, of course, it was too late to do much about it. Last year, Medicare paid out $267 billion in benefits.
Our leaders learned a valuable lesson from that experience: They learned not to bother their pretty little heads about the long-range cost of new federal programs. Better to worry about winning the next election, and let the kids and grandkids figure out how to pay the bill.
The Washington party is rocking, and no one wants to take away the keg. The Bush administration has set a goal of holding discretionary spending increases to 4 percent a year, but in the last two years, federal discretionary spending has risen by more than 13 percent per year — up from an annual average of 2.4 percent during the 1990s.
The spirit of riotous excess is on display in the negotiations over expanding Medicare to pay for prescription medicines — which would be the biggest new entitlement since the Johnson era. The Bush administration offered a plan advertised at $400 billion over the next 10 years, and everyone agreed that enormous tab was affordable. So House and Senate negotiators have been occupied with other matters, like how to structure the new benefit.
Two problems deserve attention but are getting none. One is that, with the baby boom generation approaching retirement, Medicare already faces more commitments than it can handle. The Concord Coalition, a fiscal watchdog group, says the gap between Medicare’s obligations and its funding amounts to “a staggering $13 trillion over the next 75 years.”
Adding prescription drug coverage would increase the weight appreciably. Our leaders think an extra $400 billion over a decade should be bearable. What they don’t tell us is this projection has all the credibility of a WorldCom balance sheet.
As Congressional Quarterly’s Andrew Taylor explained in a recent article in CQ Weekly, the ultimate cost depends on all sorts of unknowns — such as how many retirees enroll, whether they prefer private plans or traditional Medicare coverage, what effect the change has on drug prices, how many seniors lose employer coverage as a result, and whether various stringent cost-saving provisions will survive once they start inflicting pain on beneficiaries. (Actually, we can guess the answer to that last one: no.)
That brings us to the second major problem with the Medicare expansion. “If history is any guide, it will cost more than we think,” says Gail Wilensky, who ran the agency that administers Medicare under the first President Bush. “Not because people are deliberately low-balling the estimates, but because we have never been able to correctly estimate the cost of a new benefit, and this one is much bigger than most.” Those estimates were produced the old-fashioned way: They were pulled out of thin air.
There are other factors that suggest expenses will soon surpass expectations. Those members of Congress who favor an ever-growing federal role in the health sector understand that the hard part of their job is getting new programs enacted. The easy part is enlarging those programs once they’re in place.
Sen. Edward Kennedy, D-Mass., has praised the measure as “the greatest action in a generation to mend the broken promise of Medicare,” while stressing “this is only a down payment.”
As they used to say in Westerns, that’s not a threat, it’s a promise.

Steve Chapman writes for Creators Syndicate.