What Really Ails Medicare

When Lyndon Johnson signed the law creating Medicare in 1965, he promised that it would transform the lives of America's senior citizens. "No longer will older Americans be denied the healing miracle of modern medicine," Johnson proclaimed. "No longer will illness crush and destroy the savings that they have so carefully put away over a lifetime so that they might enjoy dignity in their later years." As ambitious as those goals were, some of Medicare's architects had even loftier hopes. Many were veterans of Harry Truman's crusade to provide insurance to every single American; it was only after that effort failed that they decided to concentrate on covering the elderly, whom they knew to be a politically sympathetic group. But in focusing on senior citizens, they didn't give up on bringing insurance to the rest of the country. Medicare, they fervently hoped, would be a stepping stone to universal coverage -- and perhaps a model for how to achieve it.

More than 40 years later, universal health care is back on the political agenda. But hardly anyone with actual political power is talking about quickly achieving universal coverage with a Medicare-like program to cover everybody. And while some progressives hope to establish a new public program that could eventually cover everybody -- an idea endorsed by all the leading Democratic candidates for president -- they haven't made this element a prime selling point. Instead, Medicare is just as likely to be invoked by the opponents of universal coverage. As far as they are concerned, Medicare is proof that universal coverage can't work.

Medicare, according to this line of thinking, is a bloated, inefficient program -- one destined to bankrupt the country within a few decades. And it's true: The program's financial situation really does appear dire. According to the most recent official projections, in 2011 the trust fund that pays for hospital benefits will spend more money than it takes in; eight years later, it will run out of money altogether. In the meantime, the Congressional Budget Office predicts, Medicare as a whole will gobble up an ever-increasing share of both the federal budget and our national wealth -- until, by 2080, it's taking up more than 15 percent of gross domestic product. As a stopgap, Congress has tried various Medicare cuts. But those cuts frequently translate into reduced payments to doctors, hospitals, and medical schools, and trickle down to individual beneficiaries in the form of higher premiums for physician services and cost-sharing. That means seniors who use the most medical services -- those who need the most help -- keep spending a larger share of their incomes on medical care. Medicare's financing crisis is real enough. But it does not logically follow that universal health insurance should wait. On the contrary, Medicare costs a lot because medical care in this country costs a lot. The program is trapped in a deeply dysfunctional system -- one in which too much money goes to the wrong uses and not enough goes to the right ones. Unless we want to simply hack away at the program's benefits -- in effect, undoing one of the greatest social-policy advances in American history -- the best way to stabilize Medicare is to think even bigger and fix the rest of the health-care system. The founders had it right: Medicare should be the foundation for reform, not an impediment to it.

Notwithstanding the fiscal projections that make the evening newscasts, Medicare has been wildly successful. It delivered on LBJ's promise to bring the elderly into the mainstream of American medicine, virtually eliminating severe economic hardship as a consequence of the costs of illness among elderly. The program is also hugely popular with the people who use it. Polls have shown that, relative to working families with private insurance, the elderly on Medicare are more satisfied with their coverage. And why wouldn't they be? The program covers virtually any service they might need. It's available to everybody 65 years or older, regardless of pre-existing conditions. And nobody can take the coverage away. This universality also explains the program's efficiency -- no money wasted on marketing or on middlemen profits.