Medicare: It’s About the Future, Stupid! by Edmund F. Haislmaier

Senate Democratic Leader Tom Daschle has identified with pinpoint accuracy the key stumbling block in the pending Medicare legislation. He repeated that Democrats want to add prescription drug coverage to Medicare, but added: “if we’re going to change the character of Medicare itself, that’s too high a price to pay.”

If you’re under age 65, the appropriate rejoinder to the Senate Minority Leader is the exact opposite. To wit: “No, Senator. If you’re not going to change the character of Medicare itself, then that is too high a price to pay for adding a Medicare drug benefit.”

These opposing statements encapsulate what is actually the most important issue in this year Medicare debate. While politicians from both parties are focused on winning senior votes in the next election with a Medicare drug benefit, the far more important issue is the kind of health care the rest of us will get when we retire.

Unfortunately, the final bill that Congress could vote on by the end of this week has lots of spending on drugs for today’s seniors, but no meaningful Medicare reform for tomorrow’s retirees. But if the rest of us are going to have a secure retirement, we need to focus on this issue, but quick, and make sure that our Congressmen and Senators know that we are paying attention.

The reason is that the basic structure of Medicare will likely have a greater impact on your retirement than the solvency of Social Security or the type of investments in your IRA or 401(k).

There are three things you need to understand about the current Medicare system and why it desperately needs to be changed.

First, contrary to popular perception, Medicare isn’t an entitlement to health care for the elderly. Nothing in Medicare says that a beneficiary has a right to be seen by a doctor, or a right to receive an operation, drug or medical device. All Medicare does is entitle doctors and hospitals to get paid, at a rate that Medicare sets, if they provide services that Medicare deems “appropriate” to people covered by Medicare. In other words, Medicare is really an entitlement for the health care industry, albeit one with low prices, lots of rules, caveats and strings attached and literally over 100,000 pages of regulations. There is no guarantee any beneficiary will actually get a specific medical treatment under Medicare.

Second, Medicare already provides substandard care to the elderly, and the cost pressures that will result when the baby boomers retire and the size of the program almost doubles from 40 million to 70 million beneficiaries, virtually guarantee that the program’s standard of care will get worse — much worse — if nothing is done now to change its basic character. Medicare offers an outdated structure of benefits, cost sharing, and limitations and it delivers care in an episodic, fragmented, acute-care fashion rather than in an integrated, chronic-care model. While many assume that the elderly must be getting good care since Medicare is a fee-for-service system with generous funding, the evidence indicates Medicare is looking more and more like an urban public school system — ever more tax dollars go into the program, but the results keep declining.

Third, access to health services for the elderly under Medicare is decreasing and actually getting care will become harder and harder for future retirees. According to physician surveys conducted for the Medicare Payment Advisory Commission, by 1999, 24 percent of doctors were refusing to take some, or even all, new Medicare patients, and in just the past three years that figure has increase to 30 percent. Another measure: it already takes Medicare up to four or five years to approve new treatments. In the meantime, beneficiaries have to either do without or pay out of their own pockets.

And just because Medicare covers something, it doesn’t follow that a Medicare beneficiary can get it. Take, for example, Vice President Cheney’s widely reported Implantable Cardiac Defibrillator (ICD). Under current Medicare rules, an ICD is deemed “medically necessary” for only about 55,000 Medicare beneficiaries. But cardiologists believe a more realistic estimate of the number of beneficiaries for whom an IDC is “medically necessary” is about 270,000. Now, even if we assume that the cardiologists are over-estimating, that still leaves a discrepancy of about 200,000 patients. And remember, this is a serious question of who needs a new device to keep them from suddenly dropping dead!

The only way to keep the rest of us from enduring a retirement characterized by waiting in pain for government rationed medical care is to transform Medicare from a bureaucratically administered entitlement for doctors and hospitals into a system driven by the needs and preferences of patients. The answer is to let the rest of us, when we retire, opt to take the value of our Medicare benefits as a subsidy to buy the kind of health care coverage we want — which might even include keeping the health insurance we have now.

Senator Daschle says that such reforms would “destroy Medicare.” Once again, the response is, “No. Senator. Such reforms are the only way the rest of us can be sure we’ll be able count on Medicare when we need it.”


Edmund F. Haislmaier serves on the board of directors of the National Center for Public Policy Research and frequently testifies before Congress on health policy issues.

The National Center for Public Policy Research is a communications and research foundation supportive of a strong national defense and dedicated to providing free market solutions to today’s public policy problems. We believe that the principles of a free market, individual liberty and personal responsibility provide the greatest hope for meeting the challenges facing America in the 21st century.