The Politics of Medicare Reform

Published March 1, 2003

Emboldened by a desire to make the program sustainable, Republicans were preparing what they claimed would be the most sweeping changes to Medicare in a generation. In Washington, there was a buzz. The New York Times reported in a front-page story that Republicans planned to make “vast changes in Medicare, offering new health insurance options to the elderly, broadening coverage of preventive services, and creating strong new financial incentives for managed care companies …”

Rep. Pete Stark (D-California) struck back: “[They] seek to promote managed care and to encourage the great mass of beneficiaries to join managed care plans, while letting the richest doctors and patients in our society avoid the inconveniences of managed care.” Hoping to sound a note of compromise, Republican spokesman Ari Fleischer promised: “We’ll work cooperatively and constructively”

Deja Vu?

Does this sound like recent news? Actually, all this took place in the summer of 1997. And if Republicans aren’t prepared to be bold by offering a sweeping vision for Medicare, they will fail again.

It was five years ago that congressional Republicans, led by a handful of senators including Bill Frist, hoped to introduce reforms as part of the balanced budget agreement that would make Medicare “sustainable.” Ari Fleischer, incidentally, was spokesman for the Ways and Means Committee.

The reforms of 1997, like the ill-fated efforts of 1995, proved disastrous. Republicans proposed adding private options but settled for the unworkable Medicare + Choice; they fought for fiscal sanity and ended up agreeing to price controls. Herein lies the big worry for Republicans today: Will they fall short again?

Republican health proposals have, as of late, smacked of a “me-too” strategy. Democrats support a heavy-handed Patients’ Bill of Rights, children’s health coverage, and mental health parity; Republicans espouse modest versions of the same. The idea of a prescription drug benefit originated with the Democrats.

Polling well as an issue, Republicans me-too’ed–with a twist. Last year, President Bush made clear a benefit could be added only if a Medicare overhaul was part of the package. Republicans thus offered the carrot of program expansion with the stick of restructuring.

And thus, a certain sense of deja vu: Republicans promising again to “modernize” Medicare. Of course, they have crucial advantages over their last attempt: first and foremost, a sympathetic President.

But Republicans failed not so much because of their inability to persuade then-President Clinton of the wisdom of reforms so much as for their inability to make a case to the American people. In 1995 and 1997, Republicans spent much political capital trying to sell Americans on a combination of premium hikes and program cuts; in other words, more for less. Today, Republicans should offer a sweeping vision.

Achilles Heel

Medicare is structurally flawed; no company could sell such insurance in any of the 50 states. Medicare remains ossified in time, covering the same types of services as it did when it was created. But if Medicare hasn’t changed much since the days of LBJ, medicine has. The result is a bizarre patchwork of coverage: The elderly are entitled to a cane or a walker, but not both–and something as basic as pharmaceuticals is not covered at all. Medicare pays too many small bills (what the elderly could afford themselves) while leaving them exposed to heavy expenses like drug costs.

How to reform Medicare? Rather than funding services, Medicare ought to fund people, allowing them to choose the services they want covered and the types of co-payment. Medicare, in other words, should switch from defined benefits to defined contributions, giving elderly Americans more freedom with their health insurance.

Flexible plans would offer a way to add prescription drug coverage. The alternative–what so many House Democrats support–would be to simply tack on drugs to the status quo. It would be a $350 billion addition to a collapsing house, further adding to the red tape, inflexibility, and general confusion.

Sensing a repeat of the mid-1990s debacles, some Democrats are licking their lips.

In January, Stark’s chief of staff told reporters: “If the price of a prescription drug benefit is the end of Medicare as we know it, that’s not a price worth paying.” A good response would be pointing out that federal employees can choose among competing health plans. Why can’t America’s seniors?

Senior Power

The answer is the gray lobby. With its well-oiled political machine, the AARP–and other such organizations–vigorously opposes any talk of market reforms. Should Republicans attempt to really reform Medicare, the gray lobby will offer an aggressive public campaign aimed at humiliating and embarrassing congressional leaders.

Americans wouldn’t have seen anything like it since Republicans took on the welfare lobby–and implemented the most sweeping changes in a federal program in a generation.

Dr. David Gratzer is a Toronto physician and Manhattan Institute senior fellow for health policy. Gratzer’s first book, Code Blue, won the prestigious Donner prize, the highest honor for a Canadian public policy book.