FACING FACTS The Truth about Entitlements and the Budget A Fax Alert from The Concord Coalition FAX ALERT ( Number 3 July 5, 1995) DESPERATE DIVERSIONS ON MEDICARE The benefit lobbies are busy mobilizing against the Medicare cuts* in the congressional budget plan. Here are the top five reasons that will be given not to cut Medicare and why they're merely diversionary. Diversion One: Medicare shouldn't be entangled in the budget debate since it's a "self-financing" program. Nonsense. Only Medicare Part A, or Hospital Insurance (HI), is self-financing, even in theory; doctor bills under Medicare Part B are three-quarters paid out of general revenues. HI, moreover, will run an operating deficit of $9 billion in 1995, a shortfall projected to rise to $47 billion by 2002, $352 billion by 2020, and $1.9 trillion by 2040. These sums are the annual HI savings Congress would have to find in each of those years just to keep the federal deficit from growing. Diversion Two: The proposed cuts in Medicare are "extreme." Actually, it's the problem that's extreme. Between now and 2002, annual Medicare outlays are projected to grow from $178 billion to $345 billion, or by 94 percent. Although the congressional budget would limit spending to $274 billion in 2002 (a 54 percent increase), this savings would delay the "bankruptcy" of the Medicare Part A trust fund by at most a decade and would still leave total Medicare outlays on track to double as a share of GDP by 2025 (instead of 2015). Diversion Three: The cuts would have a "devastating impact on the elderly." What the critics really mean is that any cut in senior benefits is unacceptable. But, in truth, there are only three choices. First, we can push the burden of rising Medicare expenditures onto current workers (by raising taxes or by "cost-shifting"). Second, we can borrow and let our kids pay for it, as we're doing now. Third, we can pay for fewer health-care services. This means that beneficiaries would have to consume fewer services or else pay more out of pocket for those services. Greater out-of-pocket spending need not "devastate" the elderly, particularly if the cost-cutting reforms are means-tested. According to the CBO, over one-third of Medicare benefits go to households with incomes above the U.S. median. Diversion Four: Cutting Medicare will simply result in "cost-shifting" which means it's a zero-sum game. Paradoxically, many of the same critics who fault cuts for denying care to the elderly also criticize them for shifting costs to workers and thus for generating no net health-care savings. In fact, most health economists believe that no more than 20 to 30 cents out of every dollar in Medicare savings is shifted to private payers. But even if there were a 100-percent cost shift, the critics miss a fundamental point. Lower Medicare spending will result in lower deficits and thus in higher net national economic savings. Instead of future generations paying for current federal outlays (through more debt), someone would be paying for them today. Diversion Five: We can painlessly control Medicare costs by enacting "system-wide" health-care reform. Although often repeated, this claim defies logic. If, as opponents of Medicare cuts say, reforms that simply result in cost-shifting must be judged a failure, then only those reforms that result in less health-care consumption by Medicare beneficiaries can be judged a success. But why should such cuts be any less painful if exacted under the aegis of system-wide reform? There is no reason unless you believe that simply because reform is comprehensive it would somehow purge the health system of vast amounts of waste, fraud, and abuse that would otherwise be ineradicable. The truth is that eliminating reimbursements for totally unnecessary services cannot alone control costs. To keep costs from exploding, someone will have to give something up. While certain system-wide changes whether in malpractice law or insurance markets may be desirable on their own merits, this does not justify holding Medicare reform hostage to the dream of some global and painless panacea. *All "cuts" mentioned here refer to changes relative to the current baseline for Medicare, not to nominal or real dollars.
FACING FACTS AUTHORS: Neil Howe and Richard Jackson CONCORD COALITION EXECUTIVE DIRECTOR: Martha Phillips