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Our nation’s political leaders are looting the federal treasury and they expect ordinary citizens not to notice.  Last week’s coverage of the release of the Social Security and Medicare Trustee’s Report proves one thing about contemporary news:  Those who control the mic, control the sound byte…and our perception of reality. 

Despite the Trustee’s report clearly showing the more immediate financial problems facing the Medicare program – which they projected will become insolvent in the year 2020 – most mainstream news sources focused on the Trustee’s less dramatic Social Security estimates which moved up the date at which the trust fund is expected to be “exhausted” from 2042 to 2041.

How has it come to pass that we are actually facing a short-term crisis in Medicare but the nation is fixated on the more distant Social Security shortfall?  More importantly, how does this bait and switch tactic obscure the likely impact of Medicare’s financing problems on the millions of African American elderly, disabled, and poor people who rely on the program as their only source of health care?

We can’t blame “Medicare Myopia” on the Trustee’s report which clearly relayed that the system would need an immediate 107 percent increase in income (tax increase) or an immediate 48 percent decrease in outlays (benefit cut) in order to bring its financing into balance.  We could, however, look to how the report was released for clues as to why many media sources overlooked the most important part of the story.

Ironically, out of six total Trustees only the four members serving in the Bush Administration participated in the report’s release.  And they – perhaps knowing that the media would focus on their spoken words instead of reading the report – chose to focus their remarks almost exclusively on Social Security.

But the stark nature of Medicare’s financing problem, its relationship to Medicaid, and the reliance of African Americans and other vulnerable populations on these vital programs, (see "Structured Inefficiency: The Impact of Medicare Reform on African Americans,” Rockeymoore) means that it is critical to move beyond mainstream sound bytes and headlines to figure out what is really going on. 

The Medicare Slight of Hand

When the Medicare Prescription Drug, Improvement, and Modernization Act was signed into law by President Bush in December of 2003, many fiscal conservatives expressed outrage that the Administration and their Congressional counterparts would ignore their party’s philosophical tradition of fiscal conservatism that called for relieving taxpayers of “unnecessary” burdens, particularly entitlement programs like Medicare, by shrinking big government.

So when President Bush and Congressional Republicans pushed through a historic expansion of Medicare to include an uncapped prescription drug benefit, health savings accounts, and huge subsidies for Health Maintenance Organizations (HMO) and Preferred Provider Organizations (PPO), it came as a nasty surprise to fiscal conservatives who were dismayed at the estimated $400 billion price tag reported at the time.

Many political observers inside and outside the beltway assumed the push for expanded prescription drug benefits represented an election year ploy to attract or neutralize senior citizens, a reliable voting bloc, and to make good with pharmaceutical companies and health maintenance organizations who would likely respond in kind with generous campaign donations.   

It seemed a distracting curiosity when it was revealed that the Administration went to great lengths to hide the true cost of the bill prior to its passage – threatening to fire Medicare’s chief actuary Richard S. Foster if he revealed his higher cost estimates of $500 billion to $600 billion to Congress. 

The ante was raised in early February of 2005 when the White House finally acknowledged that the actual cost of the Medicare drug benefit would reach anywhere from $720 billion to $1.2 trillion in its first decade of operation alone – more than double the cost of the original estimates.

Now that we see the Administration’s approach to Social Security privatization and examine it in light of its contorted approach to the Medicare bill, it may be that the election-year motives originally ascribed were too simplistic in hindsight.  For a pattern is emerging that may very well signal a more ominous plot to destroy the social insurance nature of Medicare and Social Security.

Privatizing Social Insurance

A simple analogy may help us understand the nature of the issues our country is facing.  When the Jackson family’s spending habits showed that soon they would be unable to pay their bills, family members worked more hours (found additional income) and ate oatmeal in place of steak (trimmed expenses) to prevent financial ruin.  If the Jackson’s had ignored their looming fiscal insolvency and instead decided to purchase a Ferrari and an Olympic-sized swimming pool, they were certain to default on their mortgage and lose their home.

Like the Jackson family, Medicare’s Hospital Insurance (HI) trust fund was already facing a long-term inability to meet its financial obligations due to rising health care costs and reduced tax revenue caused by the recession when the 2003 Medicare legislation was enacted.  Instead of generating additional revenue or trimming expenses to place Medicare on a solid financial footing, the Administration and Congress bought a Ferrari, swimming pool and an island in the South Pacific – in effect, adding prohibitively expensive programmatic expenditures in the form of an uncapped drug benefit that enables pharmaceutical companies to charge seniors and the government as much as they like and massive subsidies to prop up HMO’s that have already proven their inability to provide consistent, quality care for seniors. 

As a result, passage of the Medicare legislation sped up the date at which the program would be unable to pay full promised benefits by seven years – from 2026 to 2019.  (The latest Trustees report pushes this date back one year to 2020.)  

So what is the real reason why conservatives disregard their fiscally conservative political base to add expensive program features that are not sustainable?  It is highly probable that they are setting Medicare up for failure and building the case for privatizing all social insurance programs within the next 10-15 years.

This theory would sound conspiratorial except for the fact that we now see a similar pattern emerging in the Social Security debate.  Basic facts are the same: the Trustees estimate that Social Security will face a long term funding shortfall in the year 2041.  Instead of addressing the shortfall, the Administration proposes to create expensive private retirement accounts that add huge financial burdens to the system that cannot be sustainable in the long term. 

Like Medicare, the Center for Budget and Policy Priorities estimates that the addition of private retirement accounts, expected to cost 4.9 trillion over two decades, would accelerate the date of Social Security’s insolvency by about eleven years – from 2041 to 2030. 

Once social insurance programs have imploded under the weight of their fiscal pressures, the Administration schemes leave an escape hatch for privatization.  In the case of Social Security, they will simply transition individuals completely into private retirement accounts – making them solely responsible for shouldering the burden and risk of meeting their retirement needs through private savings and stock market investments.  Under this scenario, Social Security’s survivor and disability benefits – if maintained – become dramatically reduced and morph into means tested, welfare-like programs that depend upon general revenue transfers to stay afloat.

 

In the case of Medicare, the privatization escape hatch are the Health Savings Accounts and the HMO’s/PPO’s that received such favorable and prominent treatment in the 2003 legislation.  Touted as a new way to help Americans save for future health needs, the Health Savings Accounts will likely be expanded in a future where individuals are expected to carry a heavier financial responsibility for their health care.  Similarly, the 2003 Medicare law expanded the role of private insurers by providing them with government subsidies and other benefits to give the illusion that they are more efficient when compared to the traditional Medicare program.  Thus, setting the stage for the elimination of Medicare.   

In either scenario, it doesn’t take a rocket scientist to project the type of arguments that will be made as the looming date of insolvency approaches for both programs and the nation buckles under the weight of the costs.  In early March, Federal Reserve Board Chairman Alan Greenspan gave us a glimpse of them when he reportedly warned House Budget Committee members that benefits promised under Social Security and Medicare were unsustainable and would cause severe economic consequences for the economy if not retooled.  What did Greenspan identify as his preferred alternative to social insurance?  Private individual accounts.

Impact on African Americans

There is no doubt that the destruction of Medicare would have drastic consequences for African Americans of all ages – but especially black seniors and many with disabilities who also rely on Medicare for health coverage. 

Medicare has had a particularly positive impact on the quality of life for African American seniors.  Prior to the program’s implementation in 1966, African Americans received substandard treatment in segregated hospital facilities when they received treatment at all.  By requiring hospitals to prove they weren’t practicing racial discrimination in order to receive federal funds, however, the Medicare program served as the catalyst that enabled older African Americans to receive equal access to affordable health care coverage.  It is important to note that since the passage of Medicare life expectancy has increased by 20 percent.

Today, reflecting historical education and labor market inequities, African Americans are more likely to be among Medicare’s lower-income beneficiaries.  According to the Kaiser Family Foundation, while 40 percent of all Medicare beneficiaries have incomes below 200 percent of the federal poverty level, 65 percent of African American seniors fall below this level.  As a result of their lower economic status, African Americans are also more likely to rely on Medicaid to supplement their Medicare coverage. (See , Rockeymoore, February 10, 2005.) Black seniors are also twice as likely as whites to lack employer-sponsored supplemental health insurance.  Complicating matters is that African American seniors are much more likely to be in poorer health and to report having one or more chronic health conditions.

So, facing all of these complex challenges, what will happen to African American seniors or those who are disabled when Medicare is replaced with a privatized system of health care coverage?  It is likely that we will return to a pre-1966 two-tiered system where large swaths of the population will be unable to afford access to health care. Unfortunately, Medicaid won’t be there to help these people since the Administration is intent on also slashing that program’s funding. 

Thus, this scenario will likely result in even shorter life expectancies for African Americans.  But perhaps that won’t matter either, since Social Security won’t be there to provide them with guaranteed income support in old age if the Administration is successful in its privatization efforts.

Conclusion

In sum, it is clear that the Administration is following the tenets of its own version of the ownership society: give away the federal treasury to the “have and have mores” by bestowing tax cuts on wealthy individuals, huge subsidies for wealthy HMO’s, no-bid contracts for wealthy defense firms, and large transfers to wealthy Wall Street money managers hungry for Social Security payroll taxes.  Perhaps it is the height of irony that an Administration that came into office with historic surpluses is striving to leave office with a legacy of having set the stage for bankrupting the nation’s two premier social insurance programs – successfully mismanaging taxpayer’s money and trust in the process.

Dr. Maya Rockeymoore previously served on the Social Security Subcommittee of the U.S. House of Representatives Committee on Ways and Means, she is the co-editor of Strengthening Communities: Social Insurance in a Diverse America and author of The Political Action Handbook: A How To Guide for the Hip Hop Generation.

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April 7 2005
Issue 133

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