Too Good to Last

Medicare “as we know it” is a great deal for seniors but not for taxpayers.

Hardly a day goes by that a prominent Democratic member of Congress doesn't criticize Republicans on Medicare. From Senate Majority Leader Harry Reid and House Minority Leader Nancy Pelosi on down, Democrats are attacking House Budget Committee Chairman Paul Ryan and other congressional Republicans for trying to "end Medicare as we know it." Obviously, Democrats aren't doing it on a whim. Many in the party attribute their special-election win last month in New York's 26th Congressional District to their attacks on the Ryan plan.

Polling shows the issue's saliency. Most recently, the Pew Research Center's May 25-30 national survey of 1,509 adults illustrated the tough position that Republicans are in. On the question of whether respondents would be in favor of or opposed to changing Medicare "into a program that would give future participants a credit toward purchasing private health insurance policies," the numbers are fairly close, with 36 percent in favor and 41 percent opposed. But when you drill down into the data, it looks a lot worse for the GOP. Among those who feel strongly about the issue one way or the other, opposition beats support, 30 percent to 22 percent. Among respondents who have heard a lot about it (read: those really paying attention), 56 percent oppose the idea (50 percent strongly), and just 33 percent favor it (25 percent strongly).

Opposition among older Americans is great, as well. Adults ages 50 to 64 oppose the plan by 19 percentage points, 51 percent to 32 percent, while adults ages 65 and older reject it 51 percent to 25 percent. It's important to note that opposition is strongest among those who would be affected most. Needless to say, Medicare isn't something that many Americans younger than 50 think or care much about, although they should.

Correctly or not, Democrats smell blood on this one, and they don't seem to be gaining traction on any other issue while they try to hold their precarious Senate majority and capture the 24 seats necessary to regain control of the House. What has to frustrate Republicans enormously is that Democrats get a free ride on the issue. They can boast about their allegiance to protecting Medicare as we know it without really coming up with a way to finance Medicare as we know it.

"Social Security and Medicare Taxes and Benefits Over a Lifetime," a study by C. Eugene Steuerle and Stephanie Rennane for the Urban Institute that was released in January, demonstrates quite vividly why senior citizens like Medicare so much. A single man earning the average wage, $43,100 in 2010 dollars, who retired in 2010 will pay an average of $55,000 in Medicare taxes over his lifetime and will receive $161,000 in Medicare benefits. A similarly situated woman will pay the same $55,000 in Medicare taxes but will get $181,000 in Medicare benefits (because women live longer than men). A one-earner couple in that situation, again paying $55,000 in Medicare taxes, would receive $342,000 in benefits. If you're a Medicare recipient, why wouldn't you think that the program as we know it is a great deal?

But, obviously, it's not sustainable. With federal budget deficits soaring and worries about a national-debt crisis in our future rising, how is it possible to keep Medicare as we know it? If the federal government, over the long haul, isn't in a position to make up the gap between what people are paying and the benefits they're receiving, Medicare taxes have to go up, benefits have to be cut, or deductibles have to be raised on high-income retirees.

Ryan's proposal would transform the program for those 55 or younger from a defined-benefit plan to a defined-contribution structure. By any definition, it would change Medicare as we know it. Whether it's a good idea is for someone else to decide, but it certainly would alter the nature of the entitlement in a fundamental way. To Ryan's credit, his plan provided the starting point for a conversation about Medicare, albeit potentially at a great cost to his party. It had no chance of passage in a Democratic-majority Senate, and President Obama would have vetoed it anyway. The Urban Institute study makes clear that the Medicare numbers don't work now and won't work later as more baby boomers retire and fewer people pay into the system. Republicans got into an argument they couldn't possibly win at a time when they had plenty of other things on their plate.

But the real folly in the decision to launch and embrace Ryan's proposal was the fact that Republicans didn't make the case first and didn't prep the public effectively as to why the system needed to be changed. Although Ryan delivered speeches and issued press releases, the numbers on taxes paid and benefits received are a revelation for most Americans, even if they already knew that Medicare was a great deal for seniors.