Medicare's Moment of Truth
Hats off to the House budget resolution for including real Medicare reform. It is the only hope.
President Barack Obama has already abdicated his obligation to provide leadership. He mailed in a budget devoid of serious remedies for the nation’s ailments. And nobody expects the Democratic leadership in the Senate to step up.
This sad situation prevails despite the fact that the president’s own National Commission on Fiscal Responsibility and Reform calls this our national “Moment of Truth.”
“We cannot play games or put off hard choices any longer,” the panel argued. “Without regard to party, we have a patriotic duty to keep the promise of America to give our children and grandchildren a better life.”
The commission — and any clear-eyed observer of the federal budget — expressed horror at the debt explosion under way and will continue over the next decade. At the heart of that tsunami of red ink are the entitlement programs — Social Security, Medicaid, Obamacare and Medicare.
Medicare has long been recognized as a particularly potent source for red ink — combining rising costs with the prospect of retiring baby boomers generating an insatiable demand for taxpayer dollars.
The program has long vexed policymakers. For at its budgetary heart is an inherent conflict. It promises beneficiaries the finest medical sciences — at low or no cost. That turns out to be expensive! When budgetary costs get out of hand, Medicare fixes prices or stops covering services.
Both lead to less access for seniors — violating the original pledge. Voilà. Congress does a U-turn, restores the cuts and the budget explodes.
A simple solution would be switching Medicare to a defined contribution program — as proposed by the House. Seniors would be budgeted an annual contribution, which could be adjusted to reflect costs associated with their health status and financial wherewithal. For the federal budget, the result is a capped exposure to Medicare — one that would adjust to reflect the number of seniors and inflation but not unlimited desires.
That would be great news for the spending outlook. It would be even better news for the exploding debt and the threat it carries to the nation’s economic health.
But it would be better news yet for Medicare and its beneficiaries.
Medicare now presents participants with two problems: It is bad medicine, and it is unsustainable. It is bad medicine because its fragmented structure facilitates payments to hospitals (Part A), doctors (Part B) and drug companies (Part D) but does nothing to make sure that those parts coordinate to provide quality care.
This is a microcosm of the broader problems with U.S. health care. Seniors do have the option of signing up for a coordinated benefit — the so-called Medicare Advantage. But Obamacare gutted that program to pay for its unwise entitlement expansion. Doing a U-turn on Medicare
Advantage is one path to moving to a defined contribution system.
With a fixed amount of money in the market, providers would have the best of economic incentives. It would provide benefits more cheaply and introduce efficiencies to permit adding more benefits. The latter means coordination, health information technologies, preventive services and a litany of other well-recognized needs.
Controlling the costs of benefits means that Medicare’s sustainability would no longer be in doubt.
Right now, every aspect of Medicare is running cash-flow deficits. It relies on general revenue to support its operations. Sadly, given the state of finances, that means borrowing to make ends meet — a disservice to the next generations that will inherit both the debt and the broken Medicare system.
So, it is simple. The fiscal situation demands action, as demonstrated by an open letter that more than 350 experts sent congressional leaders. The action must address the entitlement spending problems that are driving the debt explosion, with Medicare at the heart. The House budget faces this challenge.
Leadership is required — and the House stands alone at the crossroads.
With leadership, disaster can be averted. Even better, Medicare can be improved and sustained in the process.
This article originally appeared in Politico on April 6, 2011.