Medicare under the Knife: Radical or Cosmetic Surgery?

By Pretzer, Michael | Medical Economics, June 12, 1995 | Go to article overview

Medicare under the Knife: Radical or Cosmetic Surgery?


Pretzer, Michael, Medical Economics


Since the start of the Republican Revolution, Speaker of the House Newt Gingrich, R-Ga., has been saying that every option is on the table, that all things will be considered. This isn't true, of course, especially when it comes to Medicare. One can't imagine conservative Republicans opting to expand Medicare; nor, for that matter, committing political suicide by nixing the program altogether.

No, the Republicans have only one thing in mind for the Fed's second largest entitlement program: a deep slash in its rising cost. Moreover, their strategies for making the excision come down to just three. The first would reduce your fees. The second would increase the premiums your parents pay for Medicare. The third would recast the program into managed care, which some people say won't work.

Why squeeze Medicare, a program nearly as popular as Social Security There always seems to be a good reason.

Last year, for example, Bill Clinton and the Democrats in Congress wanted to cut Medicare to offset the cost of universal coverage. The last gasp of their effort, the health-reform bill touted by former Senate Majority Leader George J. Mitchell, called for reductions of nearly $250 billion over a 10-year period. Now the Republicans want even larger savings.

At first, Republicans said the cuts were necessary to offset tax cuts and balance the budget--justifications that didn't play well with the public, and were attacked by the Democrats as typical GOP callousness. Now some Republicans, such as presidential contender and Senate Majority Leader Robert Dole, R-Kan., say the reductions are needed to preserve the financially troubled Medicare for future generations of elderly. Gingrich has promised that Medicare savings won't be used in the budget-balancing quest. But many observers, not all of them Democrats, believe deep Medicare cuts are the only way the budget could be balanced.

Budget-cutters' motives aside, how much of Medicare's spending has to go? Early in the game, Dole said that $221 billion has to be excised from both Medicare and Medicaid over the next five years. Bob Packwood, R-Ore., who chairs the Finance Committee, put the number at $400 billion over seven years. His panel oversees Medicare legislation in the Senate.

By late May, the range had been narrowed. The Senate set a target of $256 billion in Medicare cuts over seven years, achieved by reducing the growth rate of the program to 7.1 percent a year from 10 percent. The House, a little freer with the knife, targeted $288 billion, reducing the growth rate to 5.4 percent. (Medicaid reductions are to total about $180 billion).

Even without the Contract with America, at least some members of Congress would be flailing at Medicare. The reason is simple: The program costs way too much--about $162 billion last year, according to the General Accounting Office. A little less, $159 billion, according to the Health Care Financing Administration.

But let's not dicker over a few billion dollars. Unless Medicare's budget is some how brought under control, insolvency looms. Projections from the Department of Health and Human Services indicate that the Medicare Hospital Insurance Trust Fund, which finances Part A payments, will go bankrupt in 2002--which is actually encouraging news, considering that two years ago HHS predicted the fund would go belly-up in 1999. HHS says Part B payments, which are made mostly from general revenues and beneficiaries' premiums, will nearly double from 1994 through 2000.

"The basic Medicare problem is its rapid growth," reports the American Medical Association. "Total [annual] program disbursements increased 3,111 percent between 1966 and 1993. Part A disbursements increased 2,652 percent, and Part B increased 4,312 percent."

The problem isn't new. "Every budget submitted by presidents Ronald Reagan and George Bush contained proposals for substantial cuts in Medicare," writes Marilyn Moon, a senior research associate at the Urban Institute in Washington. …

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