How John McCain Would Dismantle Medicare

Election '08
This article originally appeared on Health Beat.

No doubt you've seen the ads. Barack Obama claims that John McCain plans to hollow out Medicare, arguably the most popular social program in America.

McCain says that just isn't so.

The controversy began early this month when the Wall Street Journal reported that McCain plans major reductions in Medicare and Medicaid spending totaling $1.3 trillion over the text ten years. This will help pay for his health care plan. Douglas Holtz-Eakin, McCain's senior policy adviser, told the Journal that "the savings would come from eliminating Medicare fraud and by reforming payment policies to lower the overall cost of care." 

Without question, there is money to be saved if Washington cracks down on Medicare and Medicaid fraud. But before reaping any savings, the government first would have to spend money to ferret out the fraudulent claims. And no one believes that Washington could recover anything close to $1.3 trillion. Meanwhile, "reforming payment policies" seems to suggest that McCain plans to pay doctors and hospitals less, at a time when many Medicare patients are having a hard time finding a primary care physicians -- precisely because Medicare's fees are already so low. This could reduce access to care.

Barack Obama quickly went on the attack with ads warning that McCain would take "Eight hundred and eighty-two billion from Medicare alone...requiring cuts in benefits, eligibility, or both."

McCain's camp fired back, arguing that McCain had no intention of slashing benefits. The "savings"  would come from eliminating fraud, accelerating the computerization of health records, speeding the use of generic drugs, eliminating government subsidies for private Medicare Advantage plans, and  requiring high-income beneficiaries to pay more for pharmaceuticals,.

Let's look at this list, item by item. While electronic medical records could reduce waste in the long run, experience has shown that it takes at least ten years for healthcare IT to begin to pay off. In the meantime, where would the Senator find the money to install the technology and train doctors and hospital staff to use it? Electronic medical records would be a fine investment: but this is not a way that Medicare can save billions over the next decade. Speeding the use of generics should reap some savings -- though if you buy generics, you have probably noticed that prices are spiraling.  As for eliminating the bonus that Medicare now lavishes on private insurers that offer Medicare Advantage, that would trim spending by $16 billion. But that's still far from the $1.3 trillion that McCain aims to save.

Finally, what about the last item: "requiring high-income beneficiaries to pay more for pharmaceuticals"?  Let me suggest that this gets to the heart of the matter. For the goal here is not so much to raise revenues for Medicare as to shrink the size of the program. 

When it comes to McCain's plans for Medicare, the Wall Street Journal story is only the tip of the iceberg. If you want to understand McCain's intentions toward Medicare you need to realize that his objections to the program are firmly grounded in a conservative ideology that can be traced back to Ronald Reagan. From a conservative point of view, the problem with Medicare is that it covers everyone.

This explains why both President George Bush and Senator McCain have supported "means-testing" benefits, charging some seniors more than others. It also sheds light on why Sarah Palin quoted Ronald Reagan in her closing statement during the vice-presidential debate earlier this month.

McCain's Advisers Send a Signal

Begin with Palin. During the October 5 debate (the day before the Wall Street Journal story about McCain's new plan to fund his healthcare plan appeared), Sarah Palin turned to Reagan, as she reminded her audience that if we want to protect our liberties, we must be vigilant: "It was Ronald Reagan who said that freedom is always just one generation away from extinction. We don't pass it to our children in the bloodstream; we have to fight for it and protect it, and then hand it to them so that they shall do the same, or we're going to find ourselves spending our sunset years telling our children and our children's children about a time in America, back in the day, when men and women were free."

Some observers took this moment as an example of Palin's naiveté. Apparently she didn't know that these famous lines came from a speech that Ronald Reagan had recorded for the American Medical Association (AMA) in 1961, railing against the evils of that dark plot to undermine our liberties...Medicare.

Palin probably didn't know the source of the quotation. But the McCain advisers who prepped her for the debate most certainly did. Those lines are treasured by Reagan's many admirers.  By quoting that particular speech, the McCain camp was signaling how it views Medicare -- the day before the Wall Street Journal would announce that McCain planned to radically cut Medicare's funding. To understand the message, it's worth going back to 1961.

Reagan Leads a Secret Operation Aimed at Housewives

At the time, the Democrats were proposing, the "King-Anderson" bill, a proposal, backed by President John F. Kennedy, that would create a program much like modern Medicare, covering all Americans over 65. The AMA vigorously opposed the legislation. The physicians' guild saw Medicare as one step forward on the slippery slope toward "universal coverage," which the AMA called "socialized medicine."

Enter the Woman's [sic] Auxiliary of the AMA an organization composed primarily of the wives of member physicians. In an essay titled "Operation CoffeeCup: Ronald Reagan's Effort to Prevent the Enactment of Medicare," Larry DeWitt, a public historian for the Social Security Administration, describes how the Woman's Auxiliary was asked to launch a special high-priority initiative under the title of WHAM, Women Help American Medicine in 1961.

"The avowed aim of WHAM was bluntly stated," DeWitt reports: "This campaign is aimed at the defeat of the King-Anderson bill of the 87 th Congress, a bill which would provide a system of socialized medicine for our senior citizens and seriously curtail the quality of medical care in the United States." (Thanks to The New Republic's Jonathan Chait and Dr. SteveB on Daily Kos for calling attention to DeWitt's excellent essay.)

"The AMA's campaign against the King-Anderson version of Medicare was a complex, extensive, and well-financed lobbying tour-de-force," DeWitt continues. "Many aspects of the WHAM campaign were very public and visible. The AMA placed advertisements in major newspapers and funded radio and television spots, all deploying the usual red-brush of 'socialism,' and even the specter of jack-booted federal bureaucrats violating 'the privacy of the examination room.'"

But DeWitt reveals, "there was also a more stealthy component to the campaign," one that depended for its success on its sponsorship and origins being hidden from the members of Congress who would be lobbied under its aegis. This was Operation CofffeeCup," and Ronald Reagan was its star.

Operation CoffeeCup arranged a series of coffee-klatches hosted by the members of the Woman's Auxiliary. "The Auxiliary members were instructed to downplay the purpose of the get-to-gathers," DeWitt explains, "depicting them as sort of spontaneous neighborhood events: "Drop a note -- just say 'Come for coffee at 10 a.m. on Wednesday. I want to play the Ronald Reagan record for you.'"

In 1961, Reagan's film career had faded and he was contemplating a move into politics.  With that in mind, in agreed to become the AMA's spokesperson, recording a 19-minute LP vinyl entitled "Ronald Reagan Speaks Out Against Socialized Medicine." (You can hear Reagan's silky voice on YouTube.)

Reagan's impassioned address was followed by an 8-minute speech by an unnamed announcer. Reagan's work on behalf of the AMA was, listeners were assured, unpaid (although there was no mention of the fact that Reagan's father-in-law was a top official of the AMA) and was motivated only by his own strong political convictions on the issue.

Meanwhile, "the attendees at these coffees were trained and encouraged in writing apparently spontaneous letters to members of Congress expressing their strong opposition to the pending King-Anderson bill. It was essential, the attendees were instructed, that their letters appear to be the uncoordinated, spontaneous, expressions of a rising tide of public sentiment."

Ronaldreagan Reagan's speech was "a determined and in-depth attack on the principles of Medicare (and Social Security)," DeWitt points out, "going well beyond opposition to King-Anderson or any other particular piece of legislation."

In the recording, Reagan described "the idea that all people of Social Security age should be brought under a program of compulsory health insurance" as an "imminent threat." He emphasized the breadth of the plan, explaining that it would cover, "not only our senior citizens" but "those who are disabled" (just as Medicare does today.)

Reagan urged his listeners to write to their Congressmen telling them that "We do not want socialized medicine...[we] demand the continuation of our traditional free enterprise system.

"Call your friends, and tell them to write . . . If you don't," Reagan warned, "this program I promise you, will pass just as surely as the sun will come up tomorrow. And behind it will come other federal programs that will invade every area of freedom as we have known it in this country, until, one day... we will awake to find that we have socialism. And if you don't do this, and if I don't do it, one of these days, you and I are going to spend our sunset years telling our children and our children's children, what it once was like in America when men were free.

Despite efforts to keep Operation CoffeeCup under the radar, Reagan's role in the AMA campaign was revealed, in a scoop by Drew Pearson in his Washington Merry-Go-Round column, "Star vs. JFK" :
Pearson wrote: "Ronald Reagan of Hollywood has pitted his mellifluous voice against President Kennedy in the battle for medical aid for the elderly. As a result it looks as if the old folks will lose out. He has caused such a deluge of mail to swamp Congress that Congressmen want to postpone action on the medical bill until 1962. What they don't know, of course, is that Ron Reagan is behind the mail; also that the American Medical Association is paying for it.

"Reagan is the handsome TV star for General Electric...Just how this background qualifies him as an expert on medical care for the elderly remains a mystery."

Nevertheless, Reagan and the AMA carried the day. Medicare legislation would not pass until 1965, after JFK had been assassinated. 

DeWitt stresses that Reagan objected to Medicare because it was universal. As an alternative, both Reagan and the AMA preferred the Kerr-Mills bill, which offered an early version of Medicaid, paying medical bills for those on welfare, or those who could qualify as indigent. "By restricting federal programs to the 'truly needy' these programs could be kept small," DeWitt explains, "involving few if any middle-class or upper-class Americans. . .."

Medicare, by contrast, was a program that included all seniors as well as the disabled. Based on a collective vision of society, it was a program that might create social solidarity -- as indeed it would. And conservatives knew that there was a danger that when younger Americans saw how well Medicare worked, they might say "we want that too." Some might begin talking about "Medicare for All."

So Reagan argued against universality: "Now what reason could the other people [i.e. the Democrats] have for backing a bill which says we insist on compulsory health insurance for senior citizens on a basis of age alone regardless of whether they are worth millions of dollars, whether they have an income. . . whether they have savings?" he asked. "I think we could be excused for believing that . . . this was simply an excuse to bring about what they wanted all the time: socialized medicine."

When Medicare legislation finally passed in 1965, some in Congress continued to argue that more affluent Americans should not be eligible. But the program's supporters rejected that idea. They did not want Medicare to become "a poor program for the poor." They realized that what makes Medicare special -- and so popular -- is the fact that it treats all Americans over 65 equally.

McCain Echoes Reagan's Position

Conservatives do not understand this. Or perhaps they do.  In 2003, as part of a veiled attempt to privatize Medicare, the Bush administration opened the door to mean-testing, hiking premiums on Part B of the program for Americans with incomes  over $80,000 -- $160,000 for couples).

Seniors already had seen serious hikes in Part B premiums. "Between 2000 and 2007, all Medicare beneficiaries faced average annual increases in Part B premiums of nearly 11 percent," the Medicare Payment Advisory Commission (MedPac) pointed out in its March 2008 report. "Over the same period, Social Security benefits, grew by just 3 percent a year.

The new increase for wealthier seniors was slipped into the Medicare Modernization Act of 2003, the reports: "a Republican dominated committee quietly added a provision to  the Act, which was not included in the versions passed by the House or Senate, that would add a surcharge to the Part B Medicare premium for more affluent seniors. The 13 percent surcharge will begin in 2007 and be phased in over three years. According to the Congressional Budget Office, the means test will affect about 1.2 million beneficiaries in 2007 and 2.8 million by 2013. Medicare has made no public mention of this change, not even in the July fact sheet on Part B costs, which estimated the Part B premium for 2007 would be less than $100 per month."

Today, the surcharge has kicked in, driving a wedge into the Medicare program. For the first time since Medicare's creation 43 years ago, seniors are no longer paying the same amount for the same services. By January 2009, higher-income beneficiaries will be paying 1.4 to 3.2 times the standard Part B premium, depending on their incomes.  The standard premium for individuals earning less than $85,000 will be $96.40.  By contrast, more affluent seniors will pay premiums that range from $134.90 to $308.30.

And now John McCain has proposed more means-testing, arguing that Medicare beneficiaries with incomes over $82,000 should also pay more for Medicare  Part D, the prescription drug benefit. Echoing Reagan's objection to covering the wealthy under Medicare, McCain has called the drug benefit a "new and costly entitlement" that included many people "who could buy insurance on their own without government help -- people like Warren Buffet and Bill Gates. By making them pay more for their medicines than some worker who spent his career in the coal mines, the country could save billions of dollars that could be returned to taxpayers or put to better use."  According to McCain adviser Douglas Holtz-Eakin,  the  proposal would affect the richest 5 percent of Medicare beneficiaries and save the system about $2 billion a year.

On the face of it, this sounds fair. Bill Gates doesn't need my Medicare dollars. But McCain isn't talking about only excluding billionaires. He proposes making Medicare less attractive to a large swathe of the upper-class and upper-middle-class -- everyone earning over $82,000 ($164,000 for couples).

And why stop there? As Trudy Lieberman pointed out in the Columbia Journalism Review, in April, McCain adviser Douglas Holtz-Eakin tipped his hand when he told the Washington Post:  "You could make this as aggressive as you want to get more savings."  In other words, Lieberman added, "if the government saves $2 billion by making couples with incomes greater than $164,000 pay higher premiums, it could save $6 billion by moving down the income ladder to, say, $100,000 or even less."

"Many health care advocates see McCain's proposal as just another opening to privatize and destroy Medicare as a social insurance program, under which everyone who has paid into the system is entitled to equal benefits as a matter of right," Lieberman observed. "If drug benefits, [like part B premiums] are based on income, critics fear that support for the program will eventually erode as those with more choices and more money will opt out of the program and buy coverage from private insurers."

After all, at a certain point some upper-middle class and many upper-class seniors may well decide that they could get better care at a lower cost if they dropped out of Medicare Part B (which, like Part D, is voluntary) and used the $308 monthly premiums to purchase a plan from a private insurers. One can easily imagine insurers offering seniors relatively low-cost high-deductible plans that cover what Part B and D cover -- -physicians' visits, out-patient care and prescription drugs.  (Meanwhile, Medicare Part A would continue to shield seniors from the charges that even the wealthy fear: hospital bills.)

Switching to private insurance to cover doctors' bills would offer well-heeled beneficiaries some advantages.  Today, many doctors are refusing to take Medicare patients because the fees Medicare pays many physicians are low.

Wealthier seniors might prefer a private plan that lets them choose from a wider range of physicians. If they switched to private insurance, they could pay down their deductible while giving their doctors say, 15 to 20 percent more than Medicare would allow.

Of course, this would mean that even more doctors would refuse Medicare, leaving middle-class and upper-middle class seniors who earn less than $82,000 (and pay only $96 for Part B) with many fewer physicians to choose from. In this way, Medicare would become a two-tier program.

"Those left in Medicare will likely be the poorest and the sickest with few options," Lieberman points. Experience tells us that private insurers will shun sicker seniors, leaving them on Medicare, where they would push the program's premiums ever higher.  Meanwhile, healthier, wealthier seniors who opt out of Part B and Part D will be opting out of what Lieberman rightly describes as "a compact among generations and made it possible for people to have health care when they are old and need it."

Under this scenario, that compact would be threatened. After all, if some seniors begin opting out of Part B, younger, affluent Americans might well ask, "Why should I continue to pay the full payroll tax for Medicare? I only plan to use Part A. I'll let the government know I'm not interested in Part B and they can cut my contribution accordingly." This leaves just one question: how would Medicare stay afloat if only lower-income employees are shelling out the full tax?

Finally, how confident do you feel that private insurers would reimburse for all of the benefits that Medicare now covers? What would happen to upper-middle class seniors who purchased a high deductible plan if their retirement savings suddenly swooned? Would they find themselves putting off needed care because they couldn't afford the deductible? Would Medicare still be there if they decided to switch back? For decades, Medicare has served as a safety net that all Americans could count on -- rich or poor, sick or well.  This is why we call it a "social safety net."

The Conservative Agenda

Keep in mind that when conservatives talk about means-testing, their goal is not to put Medicare on a firmer financial footing by raising co-pays for wealthier beneficiaries. Their aim is simply to drive more affluent seniors out of Medicare and into the arms of private insurers. At that point, health care advocates warn, Medicare would become welfare for low-income seniors and middle-class seniors. And just have much political support would it have then?

Finally: even if McCain is not elected, keep an eye on Congress. There are more than a few legislators who would like to gradually shrink Medicare, killing the program by inches.

One cannot help but remember what House  Speaker  Newt Gingrich said in 1995, when calling for Medicare cuts: "We don't want to get rid of [Medicare] in round one because we don't think it's politically smart...but we believe that it's going to wither on the vine because we think [seniors] are going to leave it voluntarily."

On the face of it, "means-testing" Medicare sounds so reasonable.  By contrast, reforming Medicare to raise quality and contain costs would be a tough job. As I've discussed in the past, if done right, Medicare reform could serve as a model for national health care reform that included a public sector plan open to everyone. This is just what conservatives fear. 

It would be so much easier, they say, to just raise co-pays on more affluent seniors -- until finally Medicare becomes a model for nothing. At that point, those who oppose "Medicare for All" can breathe a sigh of relief.

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