Killing Medicare

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.