Medicare Proposals Show the Need for a Refresher Course in Economics

Here’s a radical suggestion for President Bush and members of Congress as they move toward adding a prescription drug benefit to Medicare: Pass only what you are willing to pay for.

Doesn’t anyone in Washington own a calculator? Last week, the Congressional Budget Office announced this year’s federal deficit will hit $400 billion -- the largest ever. Other analysts have projected that in the wake of the big tax cut Bush just pushed through Congress, Washington will continue to groan under deficits roughly that large for the foreseeable future.

So naturally, Congress -- with Bush’s encouragement -- is moving quickly to approve the largest expansion of Medicare since its inception, a prescription drug benefit for seniors that will cost at least $400 billion over the next decade.

Washington will pay for this new commitment by diverting tax dollars raised for Social Security or by increasing the national debt -- just as it did with Bush’s latest tax cut.

Bush used to talk about promoting “the responsibility era.” But this series of decisions may be the most blatant example of generational irresponsibility in U.S. history. It amounts to baby boomers and their parents voting themselves a big tax cut, then voting themselves an even bigger prescription drug subsidy, then passing on the bill for both to their children in the form of an exploding national debt.

Talk about your Father’s Day present. Don’t bother with the tie, son.

The prescription drug debate is displaying both parties at their pandering worst. It’s breathtaking for Bush and congressional Republicans to propose a vast new entitlement for seniors after forcing through a series of tax cuts that will deny the government the revenue it needs to meet its existing obligations.

Democrats are little better. After denouncing the massive Bush deficits, their principal complaint about the pending prescription drug bills is that they don’t spend enough.

In their pursuit of seniors’ votes, neither side will acknowledge that Medicare costs are rising at an unsustainable rate even without adding a prescription drug benefit to the tab.

The problem is demography and technology -- an increasing number of seniors combined with relentlessly rising medical costs. As the baby boom generation retires, the number of seniors will almost double, from 37 million to 70 million, between now and 2030. Meanwhile, the cost of caring for those retirees is rising almost as fast; Medicare today spends twice as much as it did in 1972 each time a senior is admitted to the hospital.

Driven by these trends, Medicare spending is expected to soar. The Congressional Budget Office projects that by 2030, the bill for Medicare, Medicaid (which funds nursing-home care for low-income seniors) and Social Security will equal 14% of the economy. Today the entire federal government consumes only 20%.

Nervous about their declining electoral performance among seniors, most Democrats ignore these numbers. To his credit, Bush since the 2000 campaign has argued that these trends demand reforms to control the growth in Medicare’s cost.

But Bush is the wrong messenger for that message -- he has little credibility to demand fiscal sanity on Medicare after he’s contributed to record deficits through repeated tax cuts. He’s asking people not to walk in the flowers after he’s run a bulldozer across the lawn.

What’s left is a debate over prescription drugs where almost no one defends the future taxpayers who will bear most of the cost. But a strong argument can be made for tailoring a solution much narrower than the plans now moving through the House and Senate.

First, it’s worth noting that the prescription drug subsidy the Senate Finance Committee approved late last week -- which would essentially obligate Washington to pay half of seniors’ drug costs through $4,500 a year, and 90% once an individual’s bills hit $5,800 -- is more generous than the plan former President Clinton thought the nation could afford when Washington was still anticipating sustained surpluses.

Second, the rising number of seniors and soaring price of prescription drugs should make Congress cautious about creating obligations today that will grow unaffordable tomorrow. Emory University professor Kenneth E. Thorpe, a former Clinton administration health official, says any prescription drug plan will cost roughly three times as much in its second decade as its first.

Finally, Congress should consider whether the problem of unbearable prescription drug costs is really so widespread that it requires such an expensive response. Certainly a minority of seniors needs help with crippling bills. But previously unreleased data from the government’s most recent survey of Medicare beneficiaries show that three-fourths of seniors pay less than 5% of their income in out-of-pocket expenses for prescription drugs. Protection against catastrophic costs might be all the help they need.

Dealing with prescription drugs in a way fair to today’s seniors and tomorrow’s taxpayers requires tougher choices than Congress has made so far. Lawmakers could hold down the program’s cost by targeting the benefits toward those with greatest need.

The House Republican plan nods in that direction by asking more-affluent seniors to pay more. Centrist House Democrats, led by Rep. Calvin M. Dooley (D-Visalia), more precisely focus on the most pressing problems by offering low-income seniors subsidies on all their drug purchases -- and all other seniors help when their bills reach catastrophic levels.

Washington could also make a plan more affordable by closing the loopholes that allow pharmaceutical companies to block the availability of low-cost generics. And it could use the carrot of a new drug benefit to mandate some of the difficult steps -- such as higher premiums from wealthier retirees -- necessary to restrain even slightly the overall growth in Medicare’s cost.

But the most important move Bush and Congress can make to meet seniors’ drug needs responsibly is to raise today’s taxes to the level where they are sufficient to fund the services society expects and demands. Creating a drug benefit without the means to pay for it is a prescription for disaster.

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Ronald Brownstein’s column appears every Monday. See current and past Brownstein columns on The Times’ Web site at www.latimes.com/brownstein.