What Clinton could learn from the catastrophic health care catastrophe - President Bill Clinton, Medicare Catastrophic Coverage Act of 1988

Washington Monthly, March, 1993 by Greg Monfils

Of the myriad health care plans being Fed-Exed and faxed to Bill Clinton's policy experts, the one that may serve them best has already failed: the 1988 Medicare Catastrophic Coverage Act. That's not because we need catastrophic care insurance any more than universal coverage, but because the catastrophic care bill's tortured collapse can provide the new administration with a road map of exactly what to avoid in tackling the tougher task of overhauling the entire health care system.

On the universal list of Good Ideas That Bombed, the catastrophic care act ranks near the top. Designed to protect elders from the financial and mental trauma of ever-growing medical fees, the bill was enacted by Congress and signed by President Reagan with grand expectations. But within a few months, it came under sure attack from geriatric rabble-rousers who believed they were getting a raw deal. The pressure worked: Congress, fearing the wrath of hoards of angry, politically active seniors, repealed the act, ending, for all practical purposes, the effort to provide seniors with security against the exorbitant costs of long-term or debilitating illness. In the years since, Congress and the executive branch, both badly burned by the episode, have made virtually no effort to revive catastrophic care.

The biggest losers in the fiasco were, of course, the nation's 31 million seniors. But there is a silver lining if we are smart enough to see it: The debacle shows us how to avoid the same mistakes in trying to create and pass legislation to fulfill another important reform, universal health care for all.

The lessons of catastrophic care legislation begin with how the bill failed. The story begins in 1986, when Republicans lost control of the Senate after the Reagan administration attempted to reduce cost-of-living adjustments on Social Security benefits. Chastened by the experience, Reagan and Republican congressional leaders moved to recapture the "compassion agenda" by extending an olive branch to the elderly.

Enter then-secretary of Health and Human Services Otis Bowen. Bowen's wife had spent the last three months of her life in a hospital with terminal bone cancer. That experience introduced him to the plight of many elderly couples who, although entitled to Medicare benefits, were often left destitute after a serious illness. Because Medicare automatically reduces payments after 60 days of hospital care and eliminates them entirely after 90 days, the only way elders were able to protect themselves financially in the event of long-term hospitalization was to purchase "Medigap" insurance to fill in the gaps where Medicare leaves off. Bowen thus urged Reagan to address the problem of major hospital costs incurred after 60 days. This was key not only because long stays often bankrupted seniors, but because the possibility of facing such financial trauma was a burden in itself. The President backed Bowen's agenda, but with a major caveat: No taxes could be raised to finance the plan.

Bowen's plan called for an extension of benefits financed by a mandatory, flat rate annual premium of $59 assessed against all Medicare enrollees. In return, beneficiaries would enjoy 100 percent coverage for treatment of serious illness after a $2,000 per year deductible. A few Democrats thanked Bowen and Reagan for their proposal, but also realized that they had been upstaged in the eyes of the powerful seniors' bloc. The Democrats also noted that the flat rate was regressive, forcing a disproportionate share of the burden upon the elderly poor for whom the $2,000 deductible created an already catastrophic burden.

Thus the Democrats disparaged the Bowen proposal and, egged on by the seniors' lobby, claimed that a new, more expansive plan was needed. It wasn't long before a compassion-rest erupted in Washington, with now the White House, now Congress, now the White House claiming that we, not they, had the interests of the elderly at heart. A good concept was slowly ballooning out of control.

On July 1, 1988, Reagan signed the Medicare Catastrophic Coverage Act--the biggest expansion of Medicare since its introduction in 1965. The final version provided all seniors with: full coverage for hospital stays of any length after a $560 deductible for hospital costs and a $1,370 deductible for doctor bills; 80 percent of prescription drug costs after a $600 deductible; 150 days of skilled nursing care; 38 days of home health care; and 80 hours of respite care to ease the burden on family members caring for disabled elderly, among other benefits.

Gray matter

But all these goodies had to be paid for somehow. Congress' solution was to replace Bowen's flat rate premium with a "supplemental premium." All Medicare recipients who earned enough to pay more than $150 a year in federal income tax would be required to pay a special 15 percent surtax, capped at $800 per person. In short, the poorest seniors would pay nothing and the wealthiest would pay the most. People earning under $25,000 a year would pay about $58 a year for catastrophic coverage; those earning about $40,000 would be required to put in $400 a year; and those in the highest income brackets would pay the maximum $800--clearly a far cry from the $59 tax called for in the original Bowen plan. Aside from the elderly rich, there was another set of losers--those who were already receiving Medigap insurance free as part of their pensions, namely retired federal employees, teachers, and union members.