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Robert Samuelson

Who Will Say No?

Retirement Benefit Costs Are Out of Control

By Robert J. Samuelson
Wednesday, December 15, 2004; Page A33

Tommy Thompson announced his resignation the other day as secretary of health and human services and, in the process, gave us a quick tutorial on why we can't control exploding federal spending for retirement benefits -- the nation's No. 1 budget problem. We have a generation of politicians, of both parties and of whom Thompson is symbolic, who want to say "yes" to voters: Yes, you can have what you want, and you can have it now. The solution to this problem requires leaders to say "no" to voters: No, you cannot have all the retirement benefits you've been promised or desire, because we can't afford them. Americans reject that message, and our leaders don't dare deliver it.

The result is political doublespeak that, on an abstract level, acknowledges the terrible problem of "entitlements" but, on a practical level, does nothing about it -- or even makes it worse. At his news conference, Thompson was asked about his greatest accomplishment. "You got to put the complete overhaul . . . of the Medicare [program] pretty much at the top of the list," he said. That would be the Medicare drug benefit passed in 2003 and to be introduced in 2006. Here is thunderous doublespeak: Far from a triumph, the Medicare drug benefit is one of the worst pieces of social legislation in decades.

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Let's see. Even before the drug benefit, the combined costs of Social Security, Medicare and Medicaid (which covers some nursing home care) were projected to grow by about 80 percent, as a share of national income, by 2030. This implies huge tax increases, immense budget deficits or dramatic cuts in other government programs. The drug benefit merely adds to the costs. In 2006 Medicare will spend an average of $2,069 on drug bills for each recipient, say Medicare's actuaries. By 2013, that reaches $3,367.

As baby boomers retire, Medicare drug spending rises rapidly. Without the drug benefit, Medicare spending was projected to grow from 2.6 percent of national income (gross domestic product) in 2003 to about 5 percent of GDP in 2030. Adding the drug benefit, total Medicare spending jumps to almost 7 percent of GDP in 2030 -- a huge increase. In today's dollars the extra drug spending would amount to $200 billion annually in 2030.

Well, if the cost is staggering, at least the need must be overwhelming. Actually, it isn't. True, drug costs are rising; the elderly pay more. But there's scant evidence that most Medicare recipients can't get the drugs they need.

Consider: Three-quarters of Americans older than 65 already have some insurance for drugs. Medicaid often covers the poorest of the poor. For many elderly people, drug costs aren't oppressive. About 10 percent have no drug costs at all, the Congressional Budget Office estimates. An additional 29 percent have annual costs of less than $1,000. Only 28 percent have costs exceeding $3,000. Those figures represent total costs, including what insurance pays. As for out-of-pocket drug spending, it averaged $623 for people older than 65 in 2000. In opinion surveys, only about 3 percent of Medicare beneficiaries say they can't get the drugs prescribed for them -- for economic or other reasons.

Let it be said that there is a case for a Medicare drug benefit covering truly catastrophic costs. But that benefit should have been a carrot for basic reforms, raising the eligibility age and slowly shifting more overall costs to retirees. No one attempted that bargain. Instead, President Bush, Secretary Thompson and every member of Congress who voted for the Medicare drug benefit knowingly worsened the long-term budget outlook without solving any major social problem. The main result is to allow the elderly to spend more of their money on things they want by shifting the cost of drugs to younger taxpayers.

What motivated this legislative atrocity? Here's Thompson's answer: "Seniors from Alaska to Florida demanded that we provide them a prescription drug benefit . . . and I'm happy to say we have delivered." Another interpretation would be that the Bush administration was trying to buy the support of retirees with hundreds of billions of dollars of new handouts. Either way, it's the politics of "yes." One narrow lesson: Be suspicious of the Bush administration's forthcoming proposals for Social Security "personal accounts." If the drug benefit is any guide, the motives are mainly political.

The larger lesson is that Americans are living in a self-created culture of delusion. The central truth about retirement "entitlements" is this: The only guaranteed way to cut spending growth is to cut benefits. But this truth is unspeakable, so no one speaks it. In this climate, Thompson's self-serving boast passes as a plausible claim when it's actually an absurdity.

There's a compartmentalization of thought and conversation. Rapid spending growth is considered "bad," but anything that might cut that growth can't be discussed. By and large, the news media abide by this protocol of deception. Not surprisingly, news coverage of the Medicare drug debate was abysmally one-sided. Hardly anyone mentioned who would pay the long-term costs or asked whether the benefit was justified. Much coverage focused on gaps in the proposed coverage. Meanwhile, a drumbeat of other stories deplored present and future budget deficits. The inconsistency was glaring.

In wealthy democracies -- welfare states all -- individual benefits once conferred are considered sacrosanct, but when their total costs threaten the collective good, they must somehow be controlled. There's the paralyzing contradiction. The politics of "yes" must ultimately yield to the politics of "no" -- and the longer it's delayed, the more painful it will be.


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