Bad Prescription - privatizing Medicare - includes related article on government subsidies to private health insurance

Washington Monthly, March, 1999 by Kip Sullivan

Why privatizing Medicare may be hazardous to your health

When the debate over the fate of Medicare heats up later this spring, you'll hear a familiar battle cry: The retirement of the Baby Boomers is sending Medicare into "bankruptcy" and it can only be "saved" by privatization. This claim is nonsense, but Republicans have been making it ever since they took over Congress in 1995. By the time you read this, the Republican position may have been endorsed by the National Bipartisan Commission on the Future of Medicare, a committee established by Congress to examine the Medicare "crisis." This commission was required to send its recommendations to Congress by March 1. Any recommendation must have the support of a supermajority of 11 of the commission's 17 members. It was clear by January 1999 that the privatization of Medicare had the support of 10 members. At a two-day meeting held January 5 and 6, eight of the commission's Republican appointees and two Democrats indicated their support for privatization.

At stake in the upcoming Medicare debate is not just the fairness and sufficiency of Medicare funding, but whether health care for America's elderly will be turned over to the insurance industry which has made such a mess of health care for the non-elderly. To judge from the privatizers' rhetoric, you would think that health care costs for the non-elderly were under control, that the number of uninsured Americans under 65 was falling, that quality of health care was improving, and that non-elderly Americans were thrilled with the restrictions imposed by the HMOs which have come to dominate the U.S. health care system. But the privatizers have it backwards: Medicare is more effective at controlling health care costs than the private sector is, and Medicare has achieved this level of efficiency without resorting to the private sector's favorite cost-control technique--denying necessary services to patients.

The claim that Medicare is going "bankrupt" is extremely misleading for two reasons. First, it implies that the insurance companies that now insure the non-elderly are more efficient than Medicare. That implication is false. Second, the "bankruptcy" rhetoric obscures a fundamental problem: Medicare draws a substantial portion of its funding from a 2.9 percent payroll tax which is unfair to working people. This tax is unfair because it is regressive (a tax is regressive if it takes a rising percent of income as income falls). If current law governing Medicare remains unchanged, this tax will have to be raised in the near future because the ratio of retirees to workers will increase as the Boomers retire. America should be debating how quickly we can replace the regressive payroll tax with a progressive tax, not how quickly we can privatize Medicare.

It is precisely because Medicare relies for 60 percent of its funding on an earmarked payroll tax that Medicare is vulnerable to bankruptcy rumors. The 2.9 percent payroll tax pays for hospital services provided by Medicare. (The other 40 percent of Medicare funding, which pays for physician services, comes from general revenues and a monthly premium paid by the elderly.) The basis for the claim that Medicare is "going bankrupt" is the projection that revenue from the 2.9 percent payroll tax will drop below Medicare hospital expenditures in 2008, just two years before the leading edge of the Baby Boom turns 65. The projections are accurate. It's the "bankruptcy" rhetoric that's deceptive. If Medicare were funded by general revenues, as most government programs are, it would be more difficult for privatizers to argue that bankruptcy is the inevitable result of forces beyond congressional control. Can you imagine anyone arguing that the Pentagon is "going bankrupt"? Of course not. The Pentagon will "go bankrupt" only if Congress wants it to. The same is true of Medicare. Medicare will expire only if a Republican-controlled Congress says it should.

Republicans have never made their peace with Medicare, a popular program that covers 15 percent of the U.S. population and pays 20 percent of the U.S. health care bill. When Congress enacted Medicare in 1965, a majority of Republicans in Congress voted against it. Today, few Republicans are willing to call for the elimination of Medicare. (Newt Gingrich was an exception. In a speech to Blue Cross Blue Shield executives, he recommended letting Medicare "wither on the vine.") But most Republicans do want to reduce the government's share of health care expenditures for Medicare beneficiaries, and they want private insurance companies to have much more control over Medicare. They know the only way to get Americans to support the privatization of Medicare is to convince us that our choice is between a privatized Medicare and no Medicare at all. Hence the "bankruptcy" rhetoric.

Stealth Plan

Unlike those who seek to privatize Social Security, those who seek to privatize Medicare rarely use the word "privatize," and they do not propose privatization overnight. They propose, rather, changes to Medicare that would render Medicare vulnerable to a gradual takeover by health insurance companies. The privatizers propose to take from seniors Medicare's guarantee of medical services, and to replace that guarantee with a voucher--a set amount of money that seniors could use to buy health insurance, either from traditional Medicare or from HMOs or other types of health insurance companies.