THE MEDICARE DRUG BILL: An Impending Disaster For All Americans

Founded in 1973, The Heritage Foundation is a research and educational institute - a think tank - whose mission is to formulate and promote conservative public policies based on the principles of free enterprise, limited government, individual freedom, traditional American values, and a strong national defense.

With the support of the Bush Administration, or at least with the White House’s passive acquiesce, Congress appears on course to enacting a huge new entitlement aimed at middle-income Americans. President Bush likely will sign whatever bill emerges. And as President Clinton’s Medicare administrator puts it “In signing it, as he will surely be forced to do, he will preside over the biggest expansion of government health benefits since the Great Society.”

The legislation makes a mockery of sensible budget control or prudent reform. Rather than combining steps to help some seniors with reforms to the unsustainable finances of the Medicare program, Congress’ “reforms” will reduce choice and innovation and impose staggering financial burdens on our children and grandchildren.

No Fixed Budget = Massive Tax Burdens
Congressional proponents of the legislation maintain that the new drug benefit will cost $400 billion over the next 10 years. This of course is merely a guess. Since the program is an entitlement there is no fixed budget. Moreover, the evidence from both the private and public sectors in recent years suggests that future costs are likely to exceed projections. But even if they are accurate it is not the next 10 years that matter. It is the years after that when the full force of the Baby Boom generation hits Medicare and Social Security. Within 15 years Medicare already faces a Niagara Falls of red ink. Adding a drug benefit without serious reforms and constraints on future spending means massive tax burdens on generation to come.

The bill is needed, say leaders of both parties, to help seniors who face heavy prescription drug costs. To be sure, many lower-income elderly do need help. But today about three-quarters of all seniors already have private insurance against onerous costs, and the pricing of that insurance does force seniors to strike a prudent balance between desire and cost.

Unconscionable Approach
It makes sense for our society to provide assistance targeted toward those who still face heavy burdens, chiefly because of their income. But Congress’ approach would institute a government-sponsored drug program for all Medicare recipients, not just those who need help. For several reasons that approach is unconscionable.

First, there will be powerful incentives for current and future middle-income seniors to forego private insurance protection at realistic prices in favor of government-sponsored drug coverage at subsidized prices. Moreover, corporations and other entities facing high retiree health benefits will soon find creative ways to shift retire drug costs to the taxpayer. The result: taxpayer costs will rise further.

Second, proponents are naïve when they claim that seniors will have many choices of coverage under the legislation – private plans as well as traditional Medicare benefits. Hard lessons from the past, combined with likely design requirements in the final bill, suggest that few private plans will join the program. Mass withdrawals of plans from the existing Medicare+Choice program show what happens when Congress imposes regulations and controls in an effort to cut costs. And in an effort to curb a surge in spending, the government will no doubt gradually tighten regulations on any private plans that do join the drug program, leading to fewer and fewer private plans. It remains to be seen how seniors will respond to this. But when Congress last tried to provide a drug benefit that jeopardized coverage many seniors already had – in 1988 – the backlash was so severe that Congress repealed the legislation within a few months.

Third, despite claims that the new program is modeled after Congress’ own health program, which includes drug coverage, nothing could be further from the truth. The Federal Employees Health Benefits Program (FEHBP) is open to virtually any private plan or insurer meeting some basic benefit requirements and consumer protections. Premiums for these plans vary and reflect the benefits included in the plans, and federal workers choose from among many competing plans.

No Serious Reforms, Fuels Taxpayer Costs
By contrast, Congress will determine the benefits in the legislation moving through Congress, and the government will decide how many of the lowest bidding preferred provider plans will be permitted to offer coverage to seniors in any area. Moreover, because Congress would take a prominent role in influencing prices and benefits – unlike in the FEHBP – the political dynamics would work in the same way as they do today in Medicare. Politicians would be under relentless pressure to keep prices down for their constituents, while drug companies, doctors and seniors would press for ever-more generous coverage. The result: larger and larger subsidies and costs to future generations. Thus not only does the legislation contain no serious reforms to control costs without undermining quality, it actually fuels taxpayer costs.

President Bush and congressional leaders had an opportunity to combine help for some Americans in genuine need with sensible reforms so that our children and grandchildren might look forward to an affordable and high-quality Medicare program. With the looming political and financial juggernaut of the Baby Boom generation approaching retirement, this legislation probably is the last opportunity for hard decisions. But rather that taking a firm leadership role in the legislative process, President Bush elected instead to send Congress a framework and then invited lawmakers to fill in the details. The result was predictable. The process is fast becoming a political feeding frenzy, in which short-term partisan advantage trumps responsible action. While today’s politicians may reap the benefits, it is future generations who will have to pay for this unforgivable failure of leadership.
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"Republicans and Democrats have distracted us with unending battles between haves and have-nots for decades. Over the same period, they have bankrupted the country,"
Source

Senate Panel Adds Drug Benefits in Medicare Overhaul - June 13, 2003
"An influential Senate committee tonight approved the biggest expansion of Medicare in its 38-year history, with an overwhelming bipartisan vote to add prescription drug benefits....The bill would increase federal spending by $400 billion.."

Is the Tax Cut for Real?
"The Bush administration inherited a federal budget of $1.86 trillion, and now proposes to spend $2.3 trillion in 2004, for a whopping 23.6 percent increase in federal spending in this short period. The Bush presidency has far outspent Clinton's in every category. As Cato's Chris Edwards says, "[B]ased on his first three budgets, President Bush is the biggest spending president in decades." To close the gap between spending and revenue, said a report commissioned by the US Treasury, would require an "immediate and permanent 66 percent across-the-board income tax increase."

"George W. Bush is the 43rd President of the United States. Formerly the 46th Governor of the State of Texas, President Bush has earned a reputation as a compassionate conservative who shapes policy based on the principles of limited government,..."

Honey, don't you think
it's great how President Bush
and Congress have spending and fiscal
responsibility under control. Yes, did you see
Laura kiss the President today?

Mandatory Health Insurance Debate Begins

United Press International
By Ellen Beck
June 11, 2003
Source

WASHINGTON, June 11 (UPI) -- Sen. John Breaux expects to wrap up a bipartisan agreement soon to reform Medicare using private insurance plans and then, he said, he is ready to begin persuading his centrist colleagues on Capitol Hill to support the idea of mandatory health insurance for all Americans.

The Louisiana Democrat has teamed up with the New America Foundation, a non-partisan public policy group; the Commonwealth Fund, a non-partisan public health research group, and Blue Shield of California. Together, on Wednesday, they outlined a strategy to provide the nation's 41 million uninsured with health care coverage -- while preserving choice for consumers who want and can afford more, and making the private sector a key participant.

Those same ingredients also have kept Republicans and Democrats together as they work through obstacles to Medicare reform. In fact, in some respects, the proposed mandatory plans resemble Medicare reform legislation.

Breaux is a longtime key player in health care issues and is known for being able to work both sides of the political fence. He helped the Senate Finance Committee reach a deal on a bipartisan bill to allow preferred provider organizations to participate in Medicare. That deal would give seniors a prescription drug benefit as well as more choices. It also would retain traditional or basic Medicare but also offer a government-subsidized drug benefit.

An almost equally divided Senate means neither party can bull through its own plan, but Breaux brought together centrist lawmakers from both sides to craft a politically acceptable bill. The PPOs would bid for Medicare business within a set U.S. region -- 10 states -- and be paid by the government. The bill comes up for committee approval Friday and could face a Senate vote as early as next week.

There is now $50 billion in the budget for the uninsured and President Bush has supported using refundable tax credits for working poor families that buy insurance.

Proposals by the Commonwealth Fund and Blue Shield to cover the nation's uninsured also would use PPOs and health maintenance organizations to provide a government-subsidized basic health insurance package. It would be a minimum plan and everyone in America would be required by law to carry at least that much health insurance coverage.

"The health care system in America is fundamentally broken," Breaux said, adding the country's health care itself is of the highest quality.

"The problem is the fact that not everyone can avail themselves of that quality in America," he said.

Policy experts make the analogy that mandatory health insurance should be like mandatory auto insurance and believe most Americans will agree. Mandatory health insurance, however, contains one additional step: although everyone must have it, they would pay for it according to their financial ability. That means imposing a financial obligation on businesses currently not providing health insurance to workers and on the uninsured.

The Blue Shield version would cost about $75 billion more than the government spends on health care now. Employers would have to offer either a minimum basic health care insurance plan or a better package, or pay an assessment of 7 percent of their payroll to the government to fund a basic nationwide coverage program.

Blue Shield calls its basic program an "essential benefits" package and it would offer HMOs and PPOs partly subsidized by the government but run through private insurers, much like the Medicare reform plan.

Employers that offer their workers insurance now would save $27.9 billion under the Blue Shield plan. Employers that do not offer insurance would have to kick in $40 billion. People who are insured but self-employed, and employees who have employer-sponsored coverage, would pay $15.7 billion less because of subsidies. Employees who are not insured would pay $11.1 billion, rated on their ability to pay. Non-workers also would be required to carry insurance and could buy the minimum coverage program, with payment based on annual income.

The poorest people who qualify for Medicaid would remain in that program. The government also would pay the insurance cost of the 14 million people nationwide who are qualified for Medicaid but do not participate.

There is a guilt component as well, levied on companies that do not offer health insurance to their workers.

Blue Shield Chairman Bruce Bodaken said big business is tired of paying higher health care premiums that include a subsidy for the uninsured because other employers do not offer it.

"Forty million Americans without coverage today can receive good health care for less than $150 per month," Bodaken said of the Blue Shield plan.

The Commonwealth Fund plan also would create new minimum coverage -- called the Congressional Health Plan -- by allowing the self-employed, workers at small businesses and anyone who has been without insurance for six months to tap into the HMO and PPO options of the Federal Employees Health Benefits Program. The federal government would provide tax credits if premiums cost more than 5 percent of a person's income -- jumping to 10 percent for people in higher income brackets.

Medicare would expand to cover adults age 60 and over who do not have access to other plans. Medicaid and the State Children's Health Insurance Program would expand to help insure more of the working poor. Businesses that do not offer coverage to workers would be assessed up to $1 per hour worked or 5 percent of their payroll to fund the minimum coverage plan.

"We do want the best health care system in the world," said Karen Davis, president of the Commonwealth Fund. "We need to make it a shared responsibility."

The bottom line: There would be $70 billion in new federal spending on health care, but businesses already providing coverage would save $20 billion.

There are fundamental issues to be worked out and some potential problems. For instance, how will working poor families that cannot afford to buy either employer-sponsored or private health coverage afford the premiums, co-pays and deductibles in the PPOs and HMOs of the basic coverage plans? It's a worry of senators in the Medicare reform debate as well.

Small businesses often want to provide health care coverage for workers but simply cannot afford it. Under the new legislation, they would be required to pay the 5 percent or 7 percent payroll assessment, but the question is whether they can even do that much. How business reacts to any plan will be crucial to its success.

Mandatory insurance also needs a watchdog element to ensure all Americans finally are covered. Suggestions included a "Big Brother" government idea of requiring people to provide their insurance status on their income tax returns. That would give the government at least a partial list of who is not insured. Another idea would enroll automatically any uninsured person seeking health services. However, that could discourage people from seeking needed health care for fear of being dumped into an insurance plan they could not afford.

Another unknown: Policymakers assume that businesses already offering insurance coverage to workers will continue to do so. But if these businesses are offering more generous benefits than the basic package provides, how many would reduce their offerings to match the basic coverage plans? That could increase out-of-pocket costs for their employees who want additional services. Some companies simply might drop their coverage and choose to pay the 5 percent or 7 percent payroll subsidy.

Perhaps an even more basic issue: Just what will "minimum coverage" include in the basic plans? That might be highly irritating to American consumers, who traditionally have wanted all the whistles and bells that health care technology can provide but are reluctant to pay the higher costs to get it.

On all these issues, the Blue Shield and Commonwealth plans are good starting points for debate, but Breaux said such major system changes cannot be accomplished this year or even in 2004. He said he is hopeful a plan might be ready for debate by the beginning of the next Congress.

The New America Foundation is seeking 10 major policy papers that analyze providing a mandatory, but privately administered insurance program.

Meanwhile, there still is work to be done persuading Americans and lawmakers that mandatory health insurance is a responsibility for everyone, and a need as much as mandatory education is for children.

Collapse Feared For Medicare, Social Security

The San Diego Union-Tribune
COPLEY NEWS SERVICE
By Finlay Lewis
June 16, 2003
Source

Aging population, deficit don't allow for easy solutions

WASHINGTON – Medicare and Social Security are speeding toward a fiscal train wreck because the United States is graying and the federal deficit is exploding.

Medicare could be insolvent by 2026 and Social Security by 2038. Now add to that the likelihood of an expensive Medicare prescription drug benefit wending its way through Congress.

Because the government borrows so heavily from the large surpluses that currently exist in those programs, the damage could be far more widespread.

And the choices for dealing with a potential fiscal free fall – enormous tax increases, deep spending cuts or massive government borrowing – also could be damaging.

"There is no free lunch," Douglas Holtz-Eakin, director of the nonpartisan Congressional Budget Office, told Congress. "Effective measures will not necessarily be popular measures, and the longer they are deferred, the harder they will be to enact, as those affected grow as a share of the population."

The situation comes as no surprise to the nation's politicians, who are just now coming to grips with a long-standing demand by the elderly for greater help in paying for prescription drugs.

Regardless of what Congress does on prescription drugs, Medicare's long-term financial problems will persist. Without an immediate crisis, lawmakers feel little urgency to seriously tackle the problem because any realistic solution almost certainly would anger older voters.

And solutions are likely to be harder to find with each passing year.

The Congressional Budget Office recently estimated that the federal deficit will be about $400 billion by Sept. 30. That is equal to about 4 percent of the nation's annual production of goods and services, and represents a significant turnaround from the surpluses of a few years ago.

Social Security and a key part of Medicare draw their funds from payroll taxes levied against the current work force and its employers.

Beautiful start

When the post-World War II baby-boom generation began entering the work force, the system worked beautifully. With fertility rates climbing through the 1940s and 1950s, Social Security – a New Deal landmark – experienced huge surpluses in its trust fund because of a favorable ratio of workers to retirees. Medicare, enacted in 1965, benefited from the same trends.

By the mid-1970s, the fertility rate fell below pre-World War II levels and has remained low. That fact now is about to intersect with the impending retirements of older members of the baby-boom generation.

By 1990, there were five employed Americans for every person over 65. Today's worker-to-retiree ratio of 3.7-to-1 is due to fall to 2.4-to-1 by 2030. By 2075, there are projected to be two workers for each retiree.

Even that statistic understates the looming problem.

Those now approaching retirement are expected to live far longer and make greater demands on a health care system that is growing pricier by the day.

Only 40 percent of the first generation to begin receiving Social Security benefits at its inception in 1935 lived to age 65. Those who did survived an average of 13 additional years. By contrast, 84 percent of the males born in 1985 can expect to live to retirement age, and about 20 years beyond that.

Between now and 2050, the number of people over 85 is expected to double as a share of the population, from 1.5 percent to 3.7 percent.

Strain noted

These trends will put an enormous strain on both programs.

As the ranks of the elderly swell, medical needs will grow apace. That will be particularly true in view of the growing numbers of those who will qualify as "very old."

Medicare currently saps about 2.3 percent of the overall value of the economy, according to the president's Council of Economic Advisers. That is expected to rise to 8.5 percent by 2075. The combined cost of Medicare and Social Security in that year is expected to reach 15 percent – significantly more than the government now collects in personal income taxes.

There is no shortage of ideas on how to remedy the situation.

President Bush has proposed offering a prescription drug benefit as an inducement to draw retirees into less expensive private insurance plans as alternatives to traditional Medicare coverage.

Democrats and Republicans alike are pushing a variety of proposals to refashion Social Security, primarily by offering workers greater control over how their payroll taxes are invested.

Yet the prospects for imminent major reform are dim because of the political passions aroused by both programs.

Most analysts agree that eventual solutions inevitably will call for politically painful choices – perhaps involving tax increases, benefit cuts or eligibility adjustments. To most politicians, those are singularly unappealing measures, given the electoral clout of older voters.

Rudolph Penner, a former director of the Congressional Budget Office, noted that other countries have faced similar problems.

"It's extremely difficult for a democracy to deal with its elderly citizens, except in a crisis mode," Penner said.

The Socialism is getting to be by the minute, not just the day. Reluctantly my rear. Please, please, we didn't really mean it. Please, vote for us, please! Think strategy. LOL!

House Reluctantly Passes 'Welfare' Legislation

Talon News
By Jimmy Moore
June 16, 2003

WASHINGTON (Talon News) -- The controversial $1000 child tax credit extension bill that would give low-income families who do not pay income taxes an annual tax deduction until 2010 passed the House on Thursday.

The 224-201 vote on the $82 billion in new tax cuts provides a government subsidy for low-income families who do not pay income taxes and offers some tax relief for additional married couples not covered by the $350 billion tax cuts recently signed into law by President Bush.

However, the House version of this bill is radically different from the one passed by the Senate, which would provide a $400 rebate check to 6.5 million families who do not currently pay enough income taxes to qualify for the child tax credit. The cost of this would be paid for by increasing customs fees and duties. The Senate version of the bill passed 94-2.

Moreover, Democrats are blaming House Republicans for failing to instruct the Treasury Department to send rebate checks to low-income families this year. Republicans say that the families will be able to deduct the child tax credit from their taxes next year. But, some Democrats are angry about this.

"This is one of the most cynical and hypocritical moves I have ever seen," said Rep. Charles Rangel (D-NY).

Republicans argue that the bill that passed the House does not prevent the Treasury Department from printing checks for the low-income families this year.

"We intend to get these checks out as quickly as possible," said John Feehery, a spokesman for House Speaker Dennis Hastert (R-IL).

Rep. Bill Thomas (R-CA) reassured Democrats that the rebate checks going out to these families would "obviously ... be one of the issues." At the same time, Thomas expressed disappointment in the Democrats for failing to see what the House version of the bill does for many taxpaying families.

"Sadly, rather than focusing on the merits of this legislation, some [Democrats] have used this as a political opportunity," he remarked.

Still, some conservative Republicans are upset by the compromise child tax credit bill because they say it should only be given to people who pay taxes.

"We're turning our tax code into a welfare system," said Rep. Spencer Bachus (R-AL). "It's not a tax refund. Let's call it what it is -- it's welfare. If we want to turn our income tax code into a welfare system, let's be honest with the American people."

The Bush administration urged the House and Senate to "quickly resolve their differences." But both chambers are adamant about what is contained in their respective bills.

Democrats fear the House version of the bill will prevent the low-income families from receiving the rebate checks this summer because of constant negotiations.

"I don't think it's ever going to happen," bemoaned House Minority Leader Nancy Pelosi (D-CA).

Vote Bush, Vote GOP, Vote Socialism

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