ANDRES: Means test Medicare

OP-ED:

The current financial crisis teaches us why people should not live beyond their means.

The rash of real estate foreclosures demonstrates the risks of Americans purchasing homes they can’t afford. Easy credit also allowed many to run up extravagant debt in other consumer purchases. Reasonable borrowing is obviously necessary for the sound functioning of the economy. But “over-leveraging” has its downsides - consequences we’re seeing all around us today in the economic slowdown and sharp dip in equity markets.

In the midst of all this private sector upheaval, we’re witnessing unprecedented demands for even more federal spending. Just this year, Congress passed two economic stimulus bills - one early in the year and then another later providing loan guarantees to auto companies to help with environmental mandates. Congress also passed other tax incentives, and most notably the $700 billion Troubled Asset Relief Program. More is likely on the way early next year. All of this spending will contribute to a growing federal debt.

It’s like Washington is operating in a parallel universe from the consequences of ever-rising debt. Some might say the federal government needs to learn some lessons from the private markets about the perils of over-leveraging.

Despite these risks, Washington continues to spend. Stimulating aggregate demand to get the economy growing is the excuse. But policymakers seem to only “kick the can” to another year when it comes to addressing our mounting national debt. The lack of serious discussion in 2008 about how to address budget deficits and growing financial obligations was jarring. The political explanation for why this happens is clear: spending is easy, cutting is hard.

However, at some point we must face the fiscal music. Take Medicare, for example, an unsustainable program based on its current configuration. As Tyler Cowen wrote in The New York Times on July 20: “Even if the government is conservative in its spending, just paying out promised benefits implies that tax rates will rise to a crushing level - a range of 60 to 80 percent of income - well before the end of this century.”

But the presidential campaigns were largely devoid of serious cost containment discussions.

When John McCain raised the issue of slowing the growth of the Medicare program (not actually spending less) by cutting waste, fraud and abuse, he was immediately attacked by the Obama campaign for allegedly decimating senior healthcare benefits. Any discussion of cost containment was always trumped by the 30-second attack ad. Therefore, both sides ended up in a defensive, don’t rock the boat posture, denying voters the opportunity to consider any new ideas.

One solution proposed by Mr. Cowen and others is means testing for Medicare.

As Mr. Cowen notes, some form of means testing is already in place in the Medicare prescription drug program. Higher-income, older Americans pay larger premiums and receive lower prescription drug benefits.

Further, means testing of Medicare may be less controversial than conventional political wisdom suggests. In the August American Survey (August 18-22, 2008; 800 registered voters) we asked registered voters their opinion about the concept. By almost a 2-to-1 margin (61-34 percent) registered voters say they support means testing for Medicare. Majorities of self-identified Republicans (54 percent), Independents (64 percent) and Democrats (67 percent) endorse the concept. Even seniors favor the idea, 55 to 34 percent.

These strong levels of political support for means testing should embolden policymakers to take a serious look at new options to put this important entitlement program and others on a stronger long-term financial footing - and help staunch our ever rising federal government debt.

Gary Andres is Vice Chairman of Dutko Worldwide.