Medicare excluded, any deficit fix is fleeting

Once upon a time, a U.S. president pushed through sweeping health care legislation that the country couldn't afford.

The president in question was not the current occupant of the White House. It was George W. Bush, and the legislation created a government-sponsored drug insurance program for anyone 65 and older.

Known as Medicare Part D, it ranks as perhaps the largest expansion of entitlement programs in the past 40 years. Part D won the support of Democrats and Republicans alike -- including the current GOP leadership -- despite ample warnings that it would be ruinously expensive. Not five or 10 years down the road, but immediately.

That 2003 vote came to mind last week as we watched the world's richest country, blessed with the largest and most dynamic economy, scramble to avoid defaulting on its debts. Still, the bracing prospect of having to raise our debt limit from the current level of $14.3 trillion seemed an opportune time to craft the kind of deficit reduction plan that would address, in a substantive and thoughtful way, the entitlement programs that eat up an increasing share of our national wealth.

Unfortunately, any deficit plan that emerges from Congress is going to be another short-term fix for a problem that gets more costly with each delay.

This is especially true of Medicare, the federal health insurance program for those 65 and older, and Medicaid, the joint federal and state program that provides health care for mostly low-income people. Total federal spending on these two programs already exceeds outlays for the single largest entitlement program, Social Security, as well as the budget for national defense.

Medicare expenditures totaled $523 billion in 2010, more than twice what it was in 2001. The average benefit per enrollee was $11,762, three times what it was in 1991. In the coming years those costs are expected to increase at a faster pace than either workers' earnings or the economy overall. The hospital insurance trust fund is now projected to be exhausted by 2024, five years earlier than was expected as recently as a year ago.

Based on current economic and demographic data, over the next 75 years Medicare will pay out an estimated $37 trillion to $55 trillion more than it takes in from premium payments and payroll deductions.

"We have no choice. We're going to have to re-engineer Medicare," said Art Rolnick, an economist and senior fellow at the Humphrey School of Public Affairs at the University of Minnesota. "If we don't, it will continue to blow up the national and state budgets."

Give Wisconsin GOP Rep. Paul Ryan credit for having the political courage to tackle Medicare reform in the budget proposal he released earlier this year. But Ryan's plan amounted to a dismantling of Medicare for anyone currently 55 or younger. Future beneficiaries would have been required to use a government voucher to buy coverage from private insurers, who generally have done a worse job at controlling health care costs than Medicare.

Even many of Ryan's Republican colleagues were reluctant to embrace his proposals. As a politician, it's always easier to give something away than to take it back.

But we don't need to scrap Medicare to put our country on a firmer financial footing. We just have to make it better. We can do that by rewarding outcomes and efficacy, rather than paying for services rendered; or by using the government's clout to negotiate prices that are lower, but fair.

For example, Medicare is currently prohibited from considering price or cost-effectiveness when determining whether to pay for procedures, drugs or devices. So, earlier this year it approved coverage for Provenge, a drug that may extend the life of late-stage prostate cancer patients by up to four months. Cost: $93,000. Wall Street analysts said the decision could mean $2.7 billion in revenue for the drug's maker by 2014.

This month saw the release of yet another study concluding that coronary stents are overprescribed. During the six years through 2009, Medicare paid almost $26 billion for coronary stent procedures. How much of that total represented unnecessary procedures, which can cost as much as $20,000 each?

We expect the federal government to use its purchasing power to negotiate lower prices on everything from cars to computers, so why shouldn't it do the same thing when it comes to the most commonly prescribed drugs? Because Medicare Part D included specific language that prohibits it from doing so. And that's one reason Part D cost more than $270 billion during its first seven years. Over the next 10 years it's projected to cost a total of $1 trillion.

These measures wouldn't alone be enough. Means testing might be necessary to ensure those who could truly afford to pay a greater share of their health care costs do. Higher payroll tax contributions might also be inevitable.

Medicare is a classic example of a government program that few people think works as well as it should, but few can imagine living without. But that's a possibility if we don't act soon to make it stronger and fairer.

ericw@startribune.com • 612-673-1736