DOING MEDICARE RIGHT

Republicans tend to approach healthcare policy the way the rest of us do aroot canal. So it's notable, and encouraging,that the GOP is now saying thatMedicare reform will be among its top prioritiesin the new Congress.

The challenge, and it's a large one, willbe to bring that creaking program intothe 21st century without breaking thefederal fisc. The temptation will be totake the easy route merely of adding apolitically popular prescription drug benefit.But down that path lie drug pricecontrols and, eventually, Canadian-stylehealth care. Adding a drug benefit makessense, but only if it is added as part ofreform that introduces market incentivesand competition to Medicare.

On its current road, Medicare is whatLouisiana Democrat John Breaux calls a"smoking jalopy." Private health insurancenow pays for prescription drugs because ithas responded to market demand and thechanges in medical care. But Medicare,founded in the big government heyday of1965, is a command-and-control systemthat responds mainly to political incentives.Despite price controls on fees andservices imposed in the 1980s, Medicarespending is still growing like Topsy, and isexpected to gobble up about a quarter ofall federal revenues by 2030, more thandouble its current share. A drug benefitwould pile on another $500 billion or soevery 10 years to that burden.

Meanwhile, the program's bureaucracyso frustrates doctors that more and moreof them refuse to accept new Medicarepatients. Not long ago the Mayo Clinic talliedmore than 100,000 pages of Medicarerulings, regulations, and bulletins it had toadhere to. Perfectly innocent doctors andhospitals risk prosecutions every daybecause of these rules, which can be arbitrarilyenforced whenever the next"fraud" crusade hits Congress.

The solution is to change Medicareinto a defined-contribution health caremodel much like the insurance systemthat covers 9 million federal employeesand family members. Instead of directlypaying for all medical charges, Medicareshould pay seniors to help them buy modernmedical insurance, including drug coverage,on the private market.

This was the idea behind the Republicanreform that passed Congress beforeBill Clinton vetoed it in 1995. And it wasthe essence of the plan proposed by Mr.Clinton's own bipartisan Medicare commissionin 1998 and 1999, before the formerpresident threw it over the side tosave himself from impeachment. Thatcommission included Mr. Breaux, as well asnew Senate leader Bill Frist and HouseWays and Means Chairman Bill Thomas.

One good way to make the transitionto such a system would be to simply giveseniors some options: remain in traditionalfee-for-service Medicare (without adrug benefit), or elect a drug-inclusiveHMO or preferred-provider coverage. Thiswould be an improvement and expansionof the Medicare Plus Choice program,which has been a failure only because it isunderfunded and overregulated.

Liberal Democrats will bitterly resistthese ideas, precisely because they wantMedicare to remain a command-and-controlsystem. Their long-term goal is tomake American health care into anotherBritish or Canadian government-run system.But most seniors only want the certaintyof health coverage, and the reformswe are talking about are hardly radical.They'd retain the government as thefinancier of senior health insurance, butthey would allow the more efficient, moreresponsive private sector to compete inadministering different insurance plans.

Some Republicans, recalling their 1995disaster, will not want to be this bold. Butthey should keep in mind that they didn'tthen control the White House bully pulpitwith its ability to shape the debate. Evenat that, they were able to persuade theAARP and other lobbies to supportreform. More broadly, if Medicare reformisn't possible even with the huge carrot ofdrug coverage as a political sweetener, itwon't be reformed in our lifetimes.

Of course reform will take 60 senatevotes, and too many senate Democratsmay be running for president in 2004 toallow a decent compromise this year. Thebest fallback in that case would be to passa privately administered benefit only forthe low-income seniors who are most inneed. Republicans shouldn't give up theuniversal drug benefit that is the only carrotfor broader reform and that would, bythe way, displace private drug benefitsthat a majority of seniors already have.

We know that some congressionalRepublicans would like to get the prescriptiondrug issue off the table in anyway possible. But that's an act of fiscaland medical irresponsibility. PresidentBush, to his credit, seems to appreciatethat Republicans have a historic chanceto reform the Medicare entitlement thatliberals have let go to seed, deliveringdrug coverage and saving future taxpayersin the bargain.

Reprinted with permission of the Wall

Street Journal copyright 2003 Dow Jones

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