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Medicare's Magical Movie Shocks Washington: Andrew Ferguson

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Medicare's Magical Movie Shocks Washington: Andrew Ferguson
Source: Bloomberg Columnists
Andrew Ferguson is a columnist for Bloomberg News. The opinions expressed are his own.

March 23 (Bloomberg) -- Last week, as the debate in Washington over the federal government's Medicare program took surreal and unexpected turns, I happened to be reading "Things Worth Fighting For,'' a posthumous collection of articles by the great journalist Michael Kelly, who was killed a year ago at the dawn of the Iraq war.

I was delighted to discover the following passage, which I adorned with little exclamation points and smiley faces.

Nowadays, Kelly wrote, "politics is not about objective reality, but virtual reality. What happens in the political world is divorced from the real world. It exists for only the fleeting historical moment, in a magical movie of sorts, a never-ending and infinitely revisable docudrama. Strangely, the faithful understand that the movie is not true -- yet also maintain that it is the only truth that really matters.''

The latest episode of the infinitely revisable docudrama, this ``magical movie,'' began last December when Congress passed and President George W. Bush signed an expansion of Medicare to include a prescription drug benefit.

A majority of Democrats opposed the bill as flawed, but enough of them went along to assure its passage. Bush had insisted that any bill would have to cost $400 billion or less, and sure enough, the new benefit's cost was publicly predicted to be roughly $400 billion over the next 10 years.

Sheepish Revision

A few weeks later, the government's accountants made a sheepish revision. "Oops,'' they declared. (I'm paraphrasing.) The cost over the next 10 years would instead be $534 billion.

Members of Congress of both parties were outraged. They said so themselves.

"Very disturbing,'' said Representative Patrick Toomey, Republican of Pennsylvania.

"The news on the Republican Medicare bill,'' said Senator Edward Kennedy, ``gets worse and worse for seniors.''

Then last week there was evidence that -- you may want to sit down -- the administration knew from the very beginning that buying a nearly limitless supply of expensive drugs for 40 million old people for the next 10 years might cost more than $400 billion!

I am using that exclamation point to signify shock. Because here in Washington, all our public servants are shocked. They say so themselves. Right there in front of the television cameras.

Firing Offense

Some conservative Republicans say they feel betrayed. Democrats, including Kennedy, are calling for a full-bore investigation. They point to recent comments from Medicare's chief actuary, who says his boss threatened to fire him last fall if he released the $534 billion estimate. (The boss denies the threats.)

"Surreal'' is a term seldom applied to debates among accountants over statistical projections, but it is becoming increasingly appropriate to Washington's magical Medicare movie.

Think for a moment about those Republicans who say they relied on the lower cost estimate in supporting Medicare's expansion.

Estimating costs for any entitlement program is difficult because consumer demand for something with no cost to the consumer will prove to be infinitely elastic. Entitlements for medical care are even more uncertain, thanks to the constant and unforeseeable introduction of costly innovations, including new drugs.

Unpredictable Costs

That's why actuaries have never reliably predicted Medicare costs. Steven Hayward, an analyst with the Washington-based American Enterprise Institute, notes that in 1966 congressional accountants estimated the total program would cost $12 billion in 1990, allowing for inflation. Then reality intervened. In 1990 Medicare cost $107 billion. Oops, indeed.

"The $400 billion price tag is almost certainly a complete fiction,'' said a news story in Congressional Quarterly last fall. Analysts from the Cato Institute, the Heritage Foundation, and other research groups sympathetic to Republicans said the same. Any member of Congress or senator claiming ignorance of this history should be dismissed for negligence or stupidity.

The outrage of Democrats is especially, well, outrageous. Republicans and Democrats differ on the best way to control the cost of the drug benefit. Republicans hope to introduce competitive pressures in the market while Democrats want to let the government negotiate purchases directly with drug companies, which will effectively allow Medicare to set drug prices.

Insufficiently Generous

But the most common objection raised by Democrats who opposed the bill -- and who now complain that it will cost more than $400 billion -- was that it was insufficiently generous.

"The seniors are going to spend $1.7 trillion (for prescription drugs) over the next 10 years,'' Kennedy told CNN last June. "We're only providing $400 billion. That's only 22 percent. I'd like to do much better. . . I think we ought to have a more expansive program.''

In fact, Kennedy called the drug benefit merely a "down payment.''

"We're going to come back again and again and again and fight to make sure that we have a good program,'' he said. For Kennedy, of course, another term for ``good'' is "more expensive.''

All such comments, however, are quickly forgotten as the magical movie of Washington politics unspools. What really counts is the present moment and whether it can be used for partisan advantage. Michael Kelly had it right, as he usually did. So let's give him the final word:

Contemporary politicians, he wrote, "believe in the extraordinary! disastrous! magnificent! scandalous! truth of whatever it is they believe in at the moment. Above all, they believe in the power of what they have created, in the subjectivity of reality and the reality of perceptions, in image.''

To contact the writer of this column:
Andrew Ferguson in Washington at Aferguson2@bloomberg.net.

To contact the editor of this column:
William Ahearn in New York bahearn@bloomberg.net



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