The Not-So-Simple Economics
(and Politics) of
Len M. Nichols
The Urban Institute
Despite an unprecedented amount of policy attention since 1995, the U.S. Congress has been unable to agree upon an approach to longterm or structural Medicare reform. This chapter will explain why Medicare reform is important but difficult, both economically and politically. It will contrast the two leading proposals for Medicare reform, from the current congressional health policy leadership and the Clinton-Gore Administration, respectively. This chapter concludes with a brief discussion of a possible compromise that could be crafted from these proposals, if the political will and leadership is forthcoming after the 2000 elections.
Medicare is our most sacred social contract precisely because it binds the generations together with the promise to pay for the health care needs of the elderly today in exchange for the expectation that future generations will pay for the needs of the current generation of workers. In 1965, when the Medicare program began, only about half of the elderly had any health insurance. Insurers were reluctant to sell to the elderly who manifested health problems, and the poverty rate was sufficiently high that many elderly simply could not afford insurance even if it was priced with actuarial fairness. Public intervention was absolutely essential for all seniors to have access to insurance and care. Today, over 39 million people get insurance and health care