Medicare Scare


During one of the most flush periods in our nation's history, all the talk in Washington is about austerity. Cutting back health care and retirement benefits, removing the safety net for the poor, the elderly, and the disabled, and dismantling what's left of the New Deal and the Great Society--this is the order of the day.

Panels assembled by Congress to study Medicare and Social Security inform us that these programs face bankruptcy unless the government resorts to extreme measures. The Republicans are clamoring to privatize federal entitlements and throw the elderly and ailing on the mercy of the free market. The Democrats, meanwhile, are rubbing their chins, divided about whether to defend the programs from the privatizers or pursue a more "moderate" path of partial privatization.

But the real crisis facing the most vulnerable people in our society is not a financial shortfall. The real crisis is purely political.

"Can you imagine anyone arguing that the Pentagon is `going bankrupt'? Of course not," writes Kip Sullivan, research director for Minnesota COACT (Citizens Organized Acting Together), in his excellent analysis of the phony Medicare crisis for The Washington Monthly. "The Pentagon will `go bankrupt' only if Congress wants it to. The same is true of Medicare. Medicare will expire only if a Republican-controlled Congress says it should."

The reason we hear so much talk about austerity for Medicare is that politicians--and their friends in the insurance, pharmaceutical, and managed-care industries--are determined to undermine federally subsidized health care. "They know the only way to get Americans to support the privatization of Medicare is to convince us that our choice is between privatized Medicare and no Medicare at all," Sullivan writes. "Hence the `bankruptcy' rhetoric."

There is big money at stake. The $214 billion Medicare program covers some 15 percent of the U.S. population and represents about 20 percent of the nation's total medical expenditures. Instead of letting the government administer all that health care, the privatizers propose converting Medicare into a voucher program, which would force individuals to shop for insurance in the private market.

But for the elderly and disabled, this would be a disaster. Private insurance would be more expensive, and it would not cover many serious health problems.

Unlike the managed-care system, Medicare does not contain costs by rationing care to patients. And Medicare's per-capita costs are lower than the private insurers'.

"Over the last thirty years, the annual growth in spending per capita in Medicare has been about one-third of the growth in per-capita spending in the private health care sector," says Edie Rasell of the Economic Policy Institute. Last year, the total Medicare spending increase was a mere 1.5 percent, she adds. Part of the reason for this efficiency is that Medicare spends far less on bureaucracy than the health maintenance organizations (HMOs)--2 percent of Medicare revenues go to administrative costs, versus 15 percent for private insurers. Nor does Medicare spend millions on marketing, advertising, and lobbying Congress, as the HMOs do.

The absurdity of the privatizers' position comes into focus when you consider what the HMOs actually did when they got a piece of the Medicare pie.

In 1985, the Medicare administration began offering government subsidies to HMOs that provide prescription drug coverage and other services to Medicare patients. The HMOs lobbied for the subsidies, claiming that they could provide more efficient care. But last year, HMOs began dumping Medicare patients in droves. On January 1, 1999, more than 400,000 Medicare recipients lost their HMO coverage.

"HMOs' moves to drop the elderly represent a U-turn for the organizations, which had thought that accepting Medicare patients would be profitable, and rushed in recent years to sign up Medicare patients," The Wall Street Journal reports. …

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