Weekly Newsletter: March 31, 2008

Medicare Trustees’ Report Highlights Program’s Fiscal Woes…

While Congress was in recess last week, the trustees of the Medicare Trust Funds released their annual report, which quantified the size of the fiscal obstacles facing the entitlement program. According to the trustees, the Hospital Insurance Trust Fund is scheduled to be exhausted in early 2019—just over one decade from now. In addition, the trustees for the third straight year projected that Medicare is scheduled to consume a growing share of general federal revenues, “triggering” another funding warning that requires the next President to submit legislation to Congress with his (or her) budget remedying Medicare’s funding.

Of particular note in the report was the fact that while projections of future spending on hospitals (Medicare Part A) remained constant, and future estimates of physician payment levels (Medicare Part B) increased, estimated future costs for the Medicare Part D prescription drug benefit provided by private insurance companies decreased. As health costs continue to rise both inside and outside the Medicare program, some conservatives may believe that the benefits of competition and consumer empowerment seen in Part D could yield measurable savings if extended to the other parts of Medicare.

Here are RSC Policy Briefs on the Medicare trustees’ report and on health care cost growth. More information on the Medicare trigger—and the President’s proposals for reform—can be found here.

…While Democrats Minimize Need for Entitlement Reform

The trustees’ report also notes that in the past twelve months, the anticipated size of Medicare’s unfunded obligations has grown from $74 trillion to nearly $86 trillion. As Joe Antos of the American Enterprise Institute noted at an AEI briefing last week, the one-year increase in Medicare’s unfunded obligations is itself nearly ten times the size of the total losses anticipated from the losses in sub-prime lending markets.

Estimates of $1.2 trillion in worldwide losses due to the current credit crunch, less than half of which will hit American institutions, have sparked numerous “relief” proposals from the Democrat majority. Yet when it comes to the $86 trillion in losses on the horizon for Medicare, Democrats like Rep. Pete Stark (D-CA)—Chair of the House Ways and Means Health Subcommittee, with prime jurisdiction over entitlement reform—refrained from demands for swift action, calling Medicare “solvent and sustainable” and claiming that “the trigger has been pulled by Republican ideologues,” when in reality the report was written by the non-partisan actuaries at the Centers for Medicare and Medicaid Services.

By contrast, many conservatives believe that the ominous statistics in the trustees’ report provide further impetus for Congress to utilize the Medicare “trigger” to enact comprehensive entitlement reform this year. Every year that Congress does not address the unfunded obligations associated with Social Security and Medicare, their size grows by trillions of dollars. Some conservatives would argue that with the Hospital Insurance Trust Fund scheduled to be exhausted in just over a decade, Congress must act now to preserve the promise of Medicare for the neediest of American seniors.

Clinton Proposes Cap on Insurance Premiums, Additional Taxes

In an interview with the New York Times last week, Sen. Hillary Clinton offered additional details about the formulation of her health care plan. Clinton expressed a desire to cap insurance premiums for individuals at between 5-10% of individuals’ income. She also indicated her support for restrictions requiring health insurance companies to pay out a defined percentage of premium costs on health benefits (as opposed to administrative costs or profits). And she advocated an increase in the tobacco tax to finance health care reform, despite the dwindling base of smokers left to pay such taxes: “At some point, there’s going to be diminishing returns. But, sure, why not? I don’t have any objection to that.”

However, some conservatives may have objections to the Clinton approach, starting with a tobacco tax that may encourage counterfeiting and result in a long-term fiscal imbalance leading to more taxes once tobacco revenues dwindle. Both capping premiums on individuals and mandating that insurers pay a high percentage of premiums in health benefits would constitute significant government price controls on an industry that spends more than one in six dollars consumed in the United States. And some conservatives may share the concerns of MIT professor Jonathan Gruber, who generally supports Clinton’s approach but conceded that a cap on insurance premiums at 5% of income would not be “realistic” because of the heavy government subsidies necessary to finance the difference.

Instead of a heavy-handed approach that relies on additional government regulation and taxation, many conservatives support principles that rely on consumer empowerment. Unleashing the forces of competition, and providing financial incentives for individuals to curb marginal spending on health care, represents the best way to bring down costs and ensure access to care.

Article of Note: A Cry on the Left for Freedom

Just before the recess, former Senator and Presidential candidate George McGovern (D-SD) published an op-ed article in the Wall Street Journal advocating a greater role for consumers in several segments of the economy, including health care. Noting the growing array of state benefit mandates on health insurance plans while premium costs continue to rise, McGovern criticizes the “health-care paternalism” whereby “states dictate that you [have] to buy a Mercedes or no car at all.” McGovern also notes support for the idea of buying health insurance across state lines, where plan premiums may be more reasonable—a principle supported by many conservatives and introduced by RSC Member John Shadegg (R-AZ) in H.R. 4460, the Health Care Choice Act.

The fact that an icon of the Left such as Sen. McGovern can decry the growth of government regulation as a development consistent with paternalism demonstrates the incapacity of the public sector to respond to challenges such as the rapid growth in health care costs. Many conservatives believe that only through a freer market—and common-sense solutions like buying health insurance across state lines— will America finally come to take control of its skyrocketing expenditures on health care.

Read the article here: The Wall Street Journal: “Freedom Means Responsibility” (subscription required)