THERE ARE two ways to read the record jump in Medicare premiums, which the administration slyly announced on the eve of the holiday weekend. The first is to say that Medicare remains a bargain. Premiums may have risen 17.5 percent, but this is only because costs are also increasing: The Medicare law sets premiums at 25 percent of the projected cost of doctors' visits and outpatient services for an elderly beneficiary. Moreover, the 25 percent rate is lower than it used to be, and many who can't afford the increased payment, $78.20 a month, will get some or all of the bill paid by the Medicaid program. Viewed this way, the scandal is not that premiums have risen. It is that they remain too subsidized, at least for better-off retirees. Why should comfortable seniors be subsidized by today's workers, millions of whom lack insurance, and by the children of those workers, who will eventually inherit the debts created by unaffordable entitlement programs?
There is another way of reading last week's news, however. The Bush administration, which has presided over hefty premium increases in recent years before the latest record one, is failing to manage Medicare's costs. In the late 1990s, costs were contained successfully: Medicare premiums actually fell slightly between 1995 and 2000. Between 2000 and 2005, by contrast, premiums are on pace to rise by a cumulative 72 percent.
Not all of this is the fault of the administration. The cost containment of the 1990s provoked a backlash from doctors and other medical providers, who lobbied Congress successfully for higher payments, saying that they would stop looking after seniors otherwise; Congress caved, even though Medicare's expert advisory board found little evidence that seniors' access to service had genuinely been impaired. But the Bush administration has contributed to the exploding costs in the Medicare system, partly by pushing the prescription drug benefit through Congress, and also by promoting private managed care as an alternative to the government-run Medicare program. To encourage managed-care companies to serve retirees, the administration has paid the plans more to look after each retiree than it would have cost the Medicare program to do so. This may make sense as a way of introducing choice and competition into the system. But the purpose of competition is generally to contain costs, and the administration is not achieving that.
Whoever gets elected in November needs to grapple seriously with this cost explosion. Researchers at Dartmouth Medical School have demonstrated that Medicare's costs could be cut by about 30 percent if the nation were to match the efficiency of its most cost-effective regions. Because Medicare costs are projected to grow rapidly as the baby boomers retire and as new technology expands the range of health services, opportunities to save money need to seized -- and this is not something the Bush administration has done.