This Will Hurt: Bush takes on Medicare

Here we go again. In 1995, Republicans were basking in the aftermath of a historic election victory that had brought them more power than they had enjoyed in decades. They decided to use their new power to reform Medicare, the health program for old people. It was a major political mistake. The Democrats ran a tough campaign accusing Republicans of taking a meat cleaver to the popular program-a campaign so demagogic that Republicans dubbed it "Mediscare." The Republicans took a pummeling that eventually would end Newt Gingrich's "revolution" after just one year. The party didn't regain its confidence until George W. Bush took it over, and even now it has less zeal to rein in the welfare state than it did before the Medicare debacle.

In 2003, the Republicans are again enjoying the aftermath of a historic election victory. President Bush has proposed, as his main domestic initiative of the year, a reform of Medicare. Even the most aggressive Republican congressmen are nervous about it. They should be. The president has often profited by taking risks the chattering class of Washington thought were foolish. But the decision to take on Medicare is his riskiest domestic move yet. It could also be the biggest mistake of Bush's presidency.

Bush's plan is, in part, a response to the strong public demand for prescription-drug benefits for the elderly. Medicare was created in 1965, before the pharmaceutical revolution, and it doesn't pay for drugs. Democrats began clamoring for the addition of a drug benefit to Medicare in the late 1990s. The high price of prescription drugs was said to be putting senior citizens three steps from the poorhouse. Old folks were supposedly skipping meals to afford needed medicines. This wasn't true. Some people have trouble affording medicine, of course, but the average elderly American spent more every year dining out than getting drugs. Republicans knew that the issue was a powerful one, however, and immediately conceded that Medicare should cover drugs.

But most Republicans continue to believe that it would be dangerous for Medicare merely to add a drug benefit, without reform. For one thing, it would break the bank. The drug benefit that House Democrats were demanding last year was expected to cost up to $800 billion over ten years. That's on top of a Medicare program that is already on track to double in cost over the decade. If the previous experience of Medicare is any guide, the federal government would almost certainly be moved to institute de facto price controls on the pharmaceutical industry. Price controls would bring the industry's innovation-the very thing that gave rise to the demand for drug benefits in the first place-to an end.

Bush wants to combine drug benefits with a market-based reform of the program, so that the new, improved Medicare will be efficient and affordable. Under that reform, Medicare recipients would be able to stay in the traditional program-or participate in a new one that offers drug benefits.

Republicans argue that this plan will be an easier sell than their 1995 proposals. In 1995, they were trying to squeeze money out of Medicare to balance the budget. They wanted to save $270 billion by restraining the program's growth. They were also seeking a $245 billion tax cut. The closeness of the numbers was not lost on Democrats, who accused the Republicans of skimping on seniors to finance tax cuts for the rich.

This time, Republicans will be adding to the Medicare budget. In his State of the Union address, Bush promised a $400 billion increase over the next decade. Much of that money will finance a new drug benefit for Medicare, a sweetener Republicans didn't offer in 1995.

They also think they will be much less vulnerable to another politically deadly charge that was made against them in 1995. Back then, Republicans said that Medicare should be opened up to competition. Senior citizens would be able to get their health benefits from private companies as well as from the traditional Medicare bureaucracy. The Democrats claimed that the GOP was really looking to herd senior citizens into HMOs.

Americans are familiar with being herded into HMOs. In the private sector, most employees have little choice but to sign up for the managed-care plan their employers have selected. Most people who get health care through HMOs express satisfaction with their care. But people generally dislike HMOs, and dislike the system that gives them so little choice and control. In 1995, Republicans wanted to make Medicare more like private-sector health care. That's exactly what senior citizens didn't want.

Bush's advisers realize, of course, that the Republicans' 1995 proposal was a political disaster. They also think it led to bad policy. After beating up the Republicans through the 1996 elections, the Democrats allowed a version of their proposal to become law. It was called Medicare+Choice, and it was a failure. Competition never really materialized. Participating HMOs were subjected to onerous regulations and to price controls; many of them stopped participating.