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Policy Forum: The State of the Union Health Care Proposals
Commissioning a Medicare Crisis

Joseph R. Antos, Ph.D.
Medical Progress Today
February 6, 2006

It looks as if Alan Greenspan may not be out of work for long. Greenspan, the recently retired Federal Reserve chairman, might be persuaded to head the new entitlements commission announced by the President in his State of the Union address. That would not be a new challenge for the wily economist. Greenspan chaired a commission two decades ago that gets credit for bailing out Social Security. He would bring gravitas to a commission that is nonetheless unlikely to carry much weight with today’s politicians.

There is no denying that the entitlements, particularly Medicare and Medicaid, are facing an imminent fiscal crisis. We are only five years from the entry of the first baby boomers into Medicare, and the ensuing demographic tidal wave will overwhelm the program’s ability to pay for the health services boomers have been promised. The demand for long-term care from aging boomers will similarly push Medicaid to unsustainable spending levels without aggressive action.

The bottom-line cost of Medicare alone is staggering. If Congress wanted to fully finance the program over the next 75 years, the Medicare trustees say we would have to find nearly $30 trillion to put into the bank today. That’s 2 ½ times the size of our entire economy.

The bad news is that this is not news at all. Greenspan’s 1983 commission, which was charged with solving Social Security’s spending crisis, explicitly warned of Medicare’s own impending crisis—even while it recommended borrowing from the Medicare trust fund to help pay pension checks. Reports from the Medicare trustees, the Congressional Budget Office, the Government Accountability Office, and other public and private experts have repeatedly warned that Medicare spending must be reduced if the program is to survive.

Congress has been responsive to these concerns from time to time, although rarely in election years. Major changes in the way Medicare pays hospitals, physicians, and other health care providers have temporarily stemmed the tide of red ink, but the fundamental incentives that promote wasteful spending remain largely intact.

Beneficiaries typically pay little or nothing out-of-pocket for their care. They have little idea of either the cost or the value (in terms of improved health) of services that are offered to them. Providers are paid only if they deliver services, and Medicare pays regardless of how well those services are delivered. These concerns are well known, but Congress has been leery about expanding competition and requiring greater consumer responsibility.

Perhaps a commission could be the catalyst for political consensus on reform, but the track record is not encouraging. The 1999 Medicare commission developed competitive reforms but did not recommend them to Congress because of partisan disagreements on the commission. Bush’s commissions on Social Security and tax reform proposed sensible ideas that were met with a deafening silence (or worse) among politicians. There is little reason to think a different fate will meet a new entitlements commission in Washington’s partisan environment.

Two cheers to the President for having raised the issue. Voters will embrace entitlement reforms if the President keeps pushing concrete proposals that give consumers more control over their own health care spending. What we need now is for the President to keep health care reform on the front burner, not delegate it to a back burner commission.

Joseph Antos is the Wilson H. Taylor Scholar in Health Care and Retirement Policy at AEI.

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