President George W. Bush wants to cut Medicare

Saul Friedman | Gray Matters

April 26, 2008

The longer we live with the misnamed Medicare Modernization Act of 2003, the more we can understand why it was passed under cover of night by a supine Republican Congress.

In exchange for a spurious drug benefit, those who supported it - most significantly AARP - did great damage to traditional Medicare.

Even AARP, while earning tens of millions of dollars from the law it helped create, has joined other advocacy groups in seeking to reverse some of the worst aspects of what should be called the Medicare privatization act. AARP's position is ambiguous and its credibility was compromised when it went to bed with the insurance companies who have taken over much of Medicare.

One organization that has not compromised its principles for profit and has been right from the beginning about the act is the Connecticut-based Center for Medicare Advocacy, which has offices in Washington. Let me say that two other nonprofit organizations, the Medicare Rights Center and the National Committee to Preserve Social Security and Medicare have also fought efforts to privatize Medicare.

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The advocacy center has had a squad of knowledgeable attorneys representing beneficiaries against the Medicare bureaucracy and lobbying Congress to reverse the march toward privatization. The center's founder and executive director, Judith Stein, wrote in Nieman Watchdog (to which I contribute):

"The 2003 Medicare 'Modernization' law was a major step toward the destruction of traditional Medicare, little noticed by the public or the media in the wake of all the hoopla about the Medicare prescription drug benefit. ... This was just as planned. The 2003 law created an exclusively private prescription drug program [Part D], dramatically expanded the role of private Medicare plans and authorized billions of dollars to implement this move toward privatizing Medicare."

The 2003 law also created Medicare's first means test, raising Part B premiums for more affluent beneficiaries, to further encourage them to leave traditional Medicare for the private plans. But more deeply hidden in the law, which I've written about in passing, is the trap of the "45 percent trigger." And the Bush administration, which has been trying to murder government-run Medicare, is about to pull that trigger.

As Stein wrote, the trigger is a provision in the law that says if the Medicare's trustees (appointed by Bush) find for two consecutive years that Medicare spending will exceed 45 percent of the general revenues allotted for Medicare during the next six years, the president is required to reduce Medicare funding to the 45 percent cap. This is what the trustees found in their annual report.

As a result, Bush's 2009 budget proposed massive reductions, $183 billion, in Medicare's funding for the next five years, plus expanding means testing to raise Part D premiums for those earning more than $80,000. Stein writes, "Implementing the 45 percent trigger as President Bush proposes would be one more nail in Medicare's coffin. ... No such limit exists for any other government activity. It forces Medicare to rely on payroll taxes and premiums."

The 45 percent cap on general revenues helps explain why premiums and deductibles have climbed ever higher and have become an increasingly heavy burden on lower income beneficiaries. Furthermore, $157 billion is to be spent from the general fund over the next 10 years, not for traditional Medicare, but to subsidize private Medicare Advantage plans, which are bringing billions in higher profits to UnitedHealth, Humana and other insurers.

(Some readers, who insist they save money on drugs and supplemental insurance when they quit traditional Medicare and sign up with a Medicare Advantage plan, ask, "What's wrong with saving money?" Aside from the possible failures of private insurance if there is catastrophic illness, each membership in a private plan and the extra money spent in these plans undermine and threaten to destroy traditional Medicare for the rest of older and disabled Americans.)

It's doubtful that this Democratic Congress will approve Bush's proposed cuts. Medicare is almost universally supported by Americans of all ages. Medicare provides health insurance for 95 percent of older and disabled people and has dramatically reduced poverty rates among beneficiaries and their families. But the 45 percent trigger and the rest of the 2003 provisions are still in the law and may be difficult to roll back.

Thus, the advocacy organizations I've mentioned, along with Families USA, the AFL-CIO, the Alliance for Retired Americans and Stein's center, have written the chairmen of the House and Senate Budget Committees, asking they reject the president's proposed cuts and go further to stop the privatization of Medicare by:

Rolling back and preventing further expansion of means testing for Medicare premiums. Medicare was designed as a "universal" program.

Repealing the 45 percent cap because it "represents an arbitrary measure of Medicare's health and ignores its financing structure, which was designed to rely on general revenues to finance about 75 percent of Part B and Part D."

Cutting government subsidies to Medicare Advantage plans to let them compete with traditional Medicare on an equal basis. Under the 2003 law, the letter says, "Medicare pays about $1,000 more a year to cover a beneficiary in a private plan than it would cost to provide care to that same beneficiary under traditional Medicare."

I asked AARP for its positions. We agree, said John Rother, group executive officer of policy and strategy, but "we were not asked to sign" because "we do our own letter."

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