Killing Medicare

By Trudy Lieberman, The Nation. Posted November 25, 2003.

The Medicare "reform" legislation just passed by Congress sends the program on a path to destruction. Crafted in the heady days of the Great Society, Medicare has worked reasonably well for almost four decades for seniors and disabled Americans, many of whom are unable to buy health coverage in the private market. But the nation's financial commitment to Medicare -- $215 billion in 2000 -- got in the way of the right's ideological goals of reducing the cost of government and making people fend for themselves. So nearly a decade ago, right-wing politicians and their allies at the Heritage Foundation embarked on a campaign to transform Medicare into a private insurance program and ultimately to remove the government from the business of guaranteeing healthcare for the oldest and sickest citizens.

The new law lays the foundation for cutting benefits and increasing the amount of money beneficiaries will pay for care. The right knew it could never get control of Medicare's expenditures by overtly cutting benefits and raising premiums, so embedded in the legislation are provisions that give cover for doing exactly that. The so-called cap on what the government can spend on the total Medicare program is essentially a trigger that requires Medicare trustees to declare the program insolvent when spending from general tax revenues reaches 45 percent of the inevitably rising program expenditures. The $400 billion set aside for the prescription drug benefit will be financed through the general revenues. (Medicare is also financed through payroll taxes and premiums paid by beneficiaries.) Opponents say this arbitrary definition of insolvency aims at creating a crisis and generating political momentum for benefit cuts and more cost sharing.

The first step toward privatization mandates that private insurers, not the government, provide prescription drug benefits, the legislation's ostensible raison d'etre. The government will funnel money to the insurance plans, which will then charge a premium to beneficiaries. Only in special circumstances will Medicare be allowed to offer drug coverage directly. In 2010 privatization will accelerate when commercial health plans in certain metropolitan areas will be able to sell insurance benefits in direct competition with those offered by traditional Medicare. Legislative architects hope that cheaper premiums and richer benefits will entice seniors to leave Medicare. Those offers will target the healthiest people, who won't cost insurers a lot of money. The sick will be stuck in the traditional program, unwanted by commercial carriers and forced to pay escalating premiums, since there will be less money available. For those who leave there are no guarantees.

The current experience with the Medicare HMO market provides a clue to the future. A decade ago Medicare HMOs lured beneficiaries with generous benefits and charged no extra premiums. But when Medicare slashed payments to them, they reduced benefits and began charging premiums as well as high deductibles and co-payments.

The experience in California shows what can happen. The Center for Consumer Health Choices at Consumers Union, in its ongoing study of the California Medicare market, found that the once-rich coverage offered by HMOs withered substantially as government payments declined relative to the costs of providing care. Next year, for example, Kaiser Foundation Health Plan will no longer offer brand-name drug coverage, leaving most of the state's beneficiaries without coverage for the most expensive drugs.

The modest drug coverage authorized in the bill is hardly worth the price of privatization. Those with chronic illnesses and ongoing drug expenses will see little benefit because of the convoluted benefit structure. The average Medicare beneficiary, who is currently without drug coverage and who spends about $2,300 on prescriptions, will actually spend $2,900 in 2007 even with the new benefit, assuming drug costs continue to rise at the same rate. That's likely, since Congress has placed no cost controls on pharmaceuticals and indeed expressly forbids the government from using its muscle to bargain for lower drug prices, as it does in the Veterans Administration health system.

Also, the bill makes it virtually impossible to reimport cheaper drugs from Canada. And although the bill authorizes subsidies for very-low-income seniors to help pay increasing premiums, co-payments and deductibles, some 3 million people will lose out because of eligibility limits placed on income and assets. Those just over the line will struggle mightily.

The bill does, however, represent brilliant political strategy on the part of its proponents, who began seeking allies as far back as 1995. AARP's support was not surprising, given that right-wing interests attacked its tax exemption that year and that then-Senator Alan Simpson of Wyoming, who had opened an investigation, told AARP officials, "I want you to know that the intensity of my investigation will be directly related to your fight on Medicare."

AARP got the message. The financial goodies for special interests -- eliminating the planned payment cuts to doctors, the $25 billion to rural hospitals and doctors, the $12 billion in special payments to entice private insurers to offer benefits -- ensured the support of powerful lobbyists and gave wavering lawmakers a reason to support the measure. Arkansas Senator Blanche Lincoln said she voted for the bill because the extra money was helpful to rural health providers.

Over time, the legislation will splinter political interests, predicts Harvard government professor Theda Skocpol. "The genius of Medicare was that it included poor people and the middle class. It wasn't designed as charity or welfare," she says.

That solidarity will crack as people no longer get the same benefits or even pay the same premiums. The wealthiest beneficiaries will now pay more. With people getting benefits from Aetna, Cigna and Blue Cross, what reason will they have to support Medicare? One thing the new bill won't provide is help understanding its bewildering new rules. That's because the final legislation stripped out $40 million that had been earmarked for state insurance counseling programs.

The repercussions from this legislation will be felt years from now when seniors and the disabled realize that they can't pay for their healthcare. Couple that with the prospect of less retirement income as employers shed their pension plans and the right begins to push hard for privatizing Social Security and a picture emerges of impoverished elderly people like those seen before Medicare was phased in, in 1965.

Two years before, President Kennedy, quoting historian Arnold Toynbee, noted in a special message to Congress that "a society's quality and durability can best be measured 'by the respect and care given its elderly citizens.'" The Medicare bill tells us how much has changed since Kennedy's time.

Trudy Lieberman is the director of the Center for Consumer Health Choices at Consumers Union. Her latest book is "Slanting the Story: The Forces That Shape the News" (New Press).

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