Wall Street Journal

January 14, 1998

Edit Page Features

Clinton's Proposals

Would Expand

Medicare's Problems

By JOHN C. GOODMAN and MERRILL MATTHEWS JR.

With Medicare teetering on the edge of bankruptcy, President Clinton is

proposing to add more beneficiaries and more costs. Under the president's

new proposal, all Americans age 62 to 64 would be able to join Medicare

for a monthly premium of $300. So would those 55 to 61 who have lost

their jobs, for $400 a month.

Mr. Clinton's proposal is a "solution" in search of a problem. Among

Americans between 55 and 64, only 13.9% have no health insurance, well

below the 17.7% rate for the nonelderly population. Among those who

don't have employer-provided coverage, about 2.2 million have purchased

their own insurance, which often costs about half of the president's

proposed premium.

True, some of the uninsured have medical problems. But the 1996

Kassebaum-Kennedy health-insurance reform law established "portability."

An employee who has health insurance and leaves his job cannot be denied

an insurance policy because of a pre-existing medical condition. A

provision that went into effect this month also requires states to adopt a

risk pool or some other mechanism to provide health insurance for those

who are uninsurable, whether or not they've been previously insured.

The White House estimates that only about 300,000 people will take up its

offer. So why bother? This proposal makes sense only when viewed as

part of a piecemeal attempt to enact his infamous national health plan. Last

year it was children; this year the "near-elderly." Next year, perhaps,

working single moms?

The president maintains that his program will pay for itself and cause no net

increase in the deficit. But no one is going to pay $300 or $400 a month

for health insurance unless there's no better option. The White House

admits that the offer will attract the sickest and most costly retirees. To

counteract those costs, enrollees will be charged a slightly higher premium

for Medicare Part B (which pays for doctors' care) when they turn 65.

Even if the White House numbers prove correct, we can expect the

program's generosity and costs to go up. As proposed, the program will be

limited to those who can fork over $3,600 or $4,800 a year. But

congressional Democrats are already talking about subsidized premiums

for lower-income retirees. And pressures will surely mount to reduce the

premium even middle-income retirees pay--just as current Medicare

enrollees pay an artificially low $43.80 per month, no matter how wealthy

they are.

Medicare is already on a collision course with reality. The Office of

Management and Budget predicts its trust fund will be depleted by 2010.

Medicare's burden on the economy will keep rising as far as the eye can

see. In 2045, when today's 18-year-olds will reach 65, Medicare Part A

(which pays hospital bills) will take 10.2% of the nation's taxable payroll,

up from the current 2.9%, according to estimates by Medicare's trustees.

When Part B is included, Medicare will take 16% of the taxable payroll.

These are the trustees' midrange estimates. According to their most

pessimistic forecast, Medicare will consume 30.8% of taxable payroll by

2045.

By the middle of the next century, we'll have fewer than two workers for

every retiree (compared with three today). This is partly due to longer life

spans and smaller birthrates. But it's also due to people retiring earlier. In

1950 87% of men 55 to 64 worked; by 1996 that figure had dropped to

65%. In recognition of the problem this trend poses, federal policy since

1983 has been designed to encourage later retirement. Beginning in 2003,

the Social Security retirement age will gradually increase to 67 from 65.

Last year the Senate voted to raise the Medicare eligibility age to 67 as

well, but this was eventually dropped from the budget agreement.

The Clinton proposal is a step backward. One of the reasons many

near-retirees remain in the labor market is to take advantage of

employer-provided health insurance. The Clinton proposal would

encourage early retirement by removing this incentive. To ensure eligibility

for those 55- to 61-year-olds, "retirements" would be relabeled "layoffs."

Earlier retirement, in turn, would mean fewer people paying into the

Medicare and Social Security system and more people drawing benefits.

Another provision of Mr. Clinton's proposal would mandate that retirees

over 55 who were promised then denied postretirement health insurance

be allowed to buy in to the employer's health plan. Since this provision

would penalize companies with retiree health insurance plans, some

employers would help their retirees qualify for Medicare instead of offering

such plans.

Rather than substitute government insurance for employer-provided

insurance, a better solution is to make it easier for people to purchase

coverage on their own. Current tax law excludes employer premiums from

employees' taxable income, a subsidy that can reduce the cost of health

insurance by 30% or more for an average family. Individuals who purchase

their own insurance should get similar relief under the tax law. Employees

also would be less dependent on employers if they could save in tax-free

medical IRAs during their working years for postretirement health care

costs.

Mr. Goodman is president and Mr. Matthews vice president of domestic

policy at the Dallas-based National Center for Policy Analysis.