Consumerism Needed in Medicare

Medicare experts gathered at The Heritage Foundation today to discuss the long-term financial viability of the program and the challenges of trying to add more benefits while making structural improvements. Speakers at the forum, ?A Medicare Anniversary Event: What Will Medicare?s Future Hold for Seniors and Taxpayers,? included Tom Saving, public trustee of the Medicare and Social Security Trust Funds, Jeff Lemieux of the Progressive Policy Institute and Centrists.org, and Bob Moffit of Heritage. Tomorrow marks the 38th anniversary of the passage of Medicare.

Tom Saving described the financial pressures facing Medicare as outlined in this year?s Medicare Trustees Report. Under current law, Medicare will consume 20% of federal income tax revenues by 2026. Adding a drug benefit that covers roughly 25% of drug costs for seniors, as many Republicans propose, means Medicare would consume about 24% of federal income tax revenues by 2026. Adding a drug benefit that covers about 75% of seniors? drug costs, as many Democrats propose, means Medicare would consume 35% of the federal income tax revenues by 2026. ?The Medicare prescription drug bill is terribly expensive when looked at from this perspective,? said Saving.

?What is being left out of this debate is how this is going to affect future generations,? said Saving. ?This is a system out of control.? Savings proposed getting rid of much first-dollar coverage and giving people incentives through vouchers or Medical Savings Accounts to view the money they?re spending as their own. ?We have to make the consumer see how much things cost. Until consumers start caring what things cost, we can?t solve this problem,? concluded Saving.

Jeff Lemieux said it is important to give people price sensitivity when buying health insurance, but encouraged the use of an ?agent? or ?partner? before sending seniors out to make their own health care choices. He said another way we can improve Medicare is to examine the spending patterns of people with chronic illnesses.

Regarding the current Medicare bills in Congress, Lemieux said he liked the interim discount card/low-income assistance, improvements to private plan options, and the move toward an FEHBP-style system in 2010. He did not like the stand-alone drug benefit set to begin in 2006. Lemieux said the drug benefit in both the House and Senate bills will lead to significant adverse selection problems that will require more money, more government control, or both to make it work.

Since neither the House nor Senate appear likely to adopt the others? bill, Lemieux predicted the Medicare conference would produce a report containing the House drug benefit, but without the true competition between Medicare and private plans in the current House bill. Instead, he believes a demonstration project with FEHBP-style premium support will be included. He believes liberals will then learn that premium support is not such a bad idea and will embrace it. He also said that the fallback plan for the Medicare drug benefit would more likely resemble the House version where the government picks up 99.9% of a plan?s risk. Ideally, Lemieux would like to see a conference report with discount cards and low-income assistance starting in 2004, a stable catastrophic drug benefit starting in 2006, and an acceleration of the FEHBP-style premium support system.

Bob Moffit was not so sure anything would happen this year. ?It?s not the political slam-dunk that some political geniuses in this town think it is,? said Moffit. Tom Saving said the main problem is that the bills started out as prescription drug bills, not Medicare reform bills. He suggested throwing them out and starting over.

–Joe Moser
Galen Institute

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Medicare experts gathered at The Heritage Foundation today to discuss the long-term financial viability of the program and the challenges of trying to add more benefits while making structural improvements. Speakers at the forum, ?A Medicare Anniversary Event: What Will Medicare?s Future Hold for Seniors and Taxpayers,? included Tom Saving, public trustee of the Medicare and Social Security Trust Funds, Jeff Lemieux of the Progressive Policy Institute and Centrists.org, and Bob Moffit of Heritage. Tomorrow marks the 38th anniversary of the passage of Medicare.

Tom Saving described the financial pressures facing Medicare as outlined in this year?s Medicare Trustees Report. Under current law, Medicare will consume 20% of federal income tax revenues by 2026. Adding a drug benefit that covers roughly 25% of drug costs for seniors, as many Republicans propose, means Medicare would consume about 24% of federal income tax revenues by 2026. Adding a drug benefit that covers about 75% of seniors? drug costs, as many Democrats propose, means Medicare would consume 35% of the federal income tax revenues by 2026. ?The Medicare prescription drug bill is terribly expensive when looked at from this perspective,? said Saving.

?What is being left out of this debate is how this is going to affect future generations,? said Saving. ?This is a system out of control.? Savings proposed getting rid of much first-dollar coverage and giving people incentives through vouchers or Medical Savings Accounts to view the money they?re spending as their own. ?We have to make the consumer see how much things cost. Until consumers start caring what things cost, we can?t solve this problem,? concluded Saving.

Jeff Lemieux said it is important to give people price sensitivity when buying health insurance, but encouraged the use of an ?agent? or ?partner? before sending seniors out to make their own health care choices. He said another way we can improve Medicare is to examine the spending patterns of people with chronic illnesses.

Regarding the current Medicare bills in Congress, Lemieux said he liked the interim discount card/low-income assistance, improvements to private plan options, and the move toward an FEHBP-style system in 2010. He did not like the stand-alone drug benefit set to begin in 2006. Lemieux said the drug benefit in both the House and Senate bills will lead to significant adverse selection problems that will require more money, more government control, or both to make it work.

Since neither the House nor Senate appear likely to adopt the others? bill, Lemieux predicted the Medicare conference would produce a report containing the House drug benefit, but without the true competition between Medicare and private plans in the current House bill. Instead, he believes a demonstration project with FEHBP-style premium support will be included. He believes liberals will then learn that premium support is not such a bad idea and will embrace it. He also said that the fallback plan for the Medicare drug benefit would more likely resemble the House version where the government picks up 99.9% of a plan?s risk. Ideally, Lemieux would like to see a conference report with discount cards and low-income assistance starting in 2004, a stable catastrophic drug benefit starting in 2006, and an acceleration of the FEHBP-style premium support system.

Bob Moffit was not so sure anything would happen this year. ?It?s not the political slam-dunk that some political geniuses in this town think it is,? said Moffit. Tom Saving said the main problem is that the bills started out as prescription drug bills, not Medicare reform bills. He suggested throwing them out and starting over.

–Joe Moser
Galen Institute

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About the author