MEDICARE HAS two basic problems which push in opposite directions. There are major holes in the benefit package. Yet projected costs already are far in excess of foreseeable revenues. The drug benefit the president proposed yesterday would help to solve the first of these problems, but at the inevitable expense of the second.
The benefit is tightly drawn. The president was probably right not to income-test it -- confine it to the poor. It may well be that someday all Medicare will have to be income-tested -- the subsidy reduced for people above certain income levels. But most Medicare recipients, while not officially poor, are bunched at income levels that make it difficult to pay for the cost of the care that, by virtue of their age or disability, they are almost certain sooner or later to need.
The cost of the benefit would be divided. Part would be paid by recipients through an increase in Medicare premiums (which, for the poor and near-poor, would be covered by Medicaid). Part would be paid by the drug companies, in that the plan assumes that Medicare could negotiate somewhat lower prices as a bulk buyer. Part would also be credibly covered by a series of sensible and, in some cases, rather elegant reforms in the way the government buys care, whether directly or in its dealings with the managed care industry. These are calculated to produce a system in which the companies do in fact compete on the basis of price. It is not clear that an earlier proposal by an advisory commission that the president rightly rejected as too vague would have achieved that. A small part of the drug cost would also be covered by a relatively small part of the anticipated budget surplus.
As to Medicare costs overall, the president proposes . . . not a lot -- surely no major form of cost constraint or permanent source of increased revenue. For the program as a whole, he would reserve about 15 percent of the surplus. Assuming the money materializes, the estimators think it would be enough to keep the program solvent through about the year 2025 instead of 2015. The White House said it would thereby "eliminate the need for future . . . radical restructuring." In fact, though the president's proposals might well, in the meantime, make the program more efficient, it would just postpone the day. That's not a trifling achievement, but it's not a structural one, either.
What happens next to the president's proposal isn't clear. Mr. Clinton has forced the granting of a drug benefit into the center of the political debate. To some extent he has changed the subject from the solvency of Medicare to its adequacy. Whether some form of the benefit becomes part of a budget deal is the legislative issue. The talk is of a trade-off in which Republicans say yes to a drug benefit in return for a Democratic yes to tax cuts. No skunks at the picnic; no one is left in the unpleasant position of having to say no.
But the talk used to be of a different kind of trade-off; the drug benefit was going to be the sweetener for long-term Medicare cost cuts. Medicare ought to include a drug benefit, and by itself the president's proposal is not objectionable. As bait for a deal in which a surplus that still exists only on paper would be used to help both parties buy votes in next year's election, it would be objectionable indeed.