The Medicare Muddle

[Guest guest]

http://www.nytimes.com/2004/03/26/opinion/26KRUG.html?th

 

March 26, 2004OP-ED COLUMNIST The Medicare MuddleBy PAUL KRUGMAN

 

n advance of Tuesday's reports by the Social Security and Medicare trustees,

some credulous journalists wrote stories based on tips from advocates of Social

Security privatization, who claimed that the report would offer a radically

downgraded vision of the system's future. False alarm: projections for Social

Security are about the same as last year. Projections for Medicare, however,

have worsened: last year the trustees predicted that the hospital insurance

trust fund would last until 2026, and now they've moved it back to 2019.

 

How should we react to this news?

 

It has become standard practice among privatizers to talk as if there is some

program called Socialsecurityandmedicare. They hope to use scary numbers about

future medical costs to panic us into abandoning a retirement program that's

actually in pretty good shape. But the deteriorated outlook for Medicare says

nothing, one way or another, about either the sustainability of Social Security

(no problem) or the desirability of private retirement accounts (a lousy idea.)

 

Even on Medicare, don't panic. It's not like a private health plan that will go

belly up when it runs out of money; it's just a government program, albeit one

supported by a dedicated tax. Nobody thinks America's highways will be doomed if

the gasoline tax, which currently pays for highway maintenance, falls short of

the system's needs — if politicians want to sustain the system, they will. The

same is true of Medicare. Rising medical costs are a very big budget issue, but

2019 isn't a drop-dead date.

 

The trustees' report does, however, give one more reason to hate the

prescription drug bill the administration rammed through Congress last year. If

deception, intimidation, abuse of power and giveaways to drug companies aren't

enough, it turns out that the bill also squanders taxpayer money on H.M.O.'s.

 

A little background: conservatives have never mounted an attack on Medicare as

systematic as their effort to bully the public into privatizing Social Security.

They do, however, often talk about Medicare " reform. " What this amounts to, in

practice, is a drive to replace the traditional system, in which Medicare pays

doctors and hospitals directly, with a system in which Medicare subcontracts

that role to private H.M.O.'s.

 

In 1997 Congress tried to take a big step in that direction, requiring Medicare

to pay per-person fees to private health plans that accepted Medicare

recipients. There was much talk about the magic of the marketplace: private

plans, so the theory went, would be far more efficient than government

bureaucrats, offering better health care at lower cost.

 

What actually happened was that private plans skimmed the cream, accepting only

relatively healthy retirees. Yet Medicare paid them slightly more per retiree

than it spent on traditional benefits. In other words, instead of saving money

by subcontracting its role to private plans, Medicare was in effect required to

pay H.M.O.'s a hefty subsidy.

 

The only thing that kept this " reform " from being a fiscal disaster was the fact

that after an initial rush into the Medicare business, many H.M.O.'s pulled out

again. It turns out that private plans are much less efficient than the

government at providing health insurance because they have much higher overhead.

Even with a heavy subsidy, they can't compete with traditional Medicare.

 

There's a lesson in this experience. Sometimes there's no magic in the free

market — in fact, it can be a hindrance. Health insurance is one place where

government agencies consistently do a better job than private companies. I'll

have more to say about this when I write about the general issue of health care

reform (soon, I promise!).

 

But whether because of ideology or because of H.M.O. campaign contributions, the

people now running the country refuse to learn that lesson. As part of last

year's prescription drug bill, they tried again, offering an even bigger subsidy

to private plans.

 

And that turns out to be an important reason for the deterioration in Medicare's

prospects: of the seven years lopped off the life of the trust fund, two are the

result of increased subsidies mandated by last year's law, mainly in the form of

higher payments to H.M.O.'s.

 

So what did we learn this week? Social Security is in decent shape. Medicare has

problems, but ill-conceived " reform " has only made those problems worse. And

let's rip up that awful prescription drug bill and start over.

 

 

 

E-mail: krugman

 

 

 

 

 

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