A Bad Senior Moment

In a middle-of-the-night vote held open for an unprecedented three hours on Nov. 21-22, Republican leaders finally corralled enough conservatives to ram through the House of Representatives a bill restructuring Medicare and authorizing a limited prescription-drug benefit. The vote was 220-to-215. Three days later, the Senate passed the same bill by a broader margin, 54-to-44. In early December, President Bush happily signed the Medicare restructuring into law, crowing that it fulfilled his party's campaign promises -- not only to help seniors pay for prescriptions but also to "modernize" their health care.

"Modernize" is Republican-speak for the idea that seniors' health care should be made more like the patchwork health system for everyone else. If subsidized, private health plans grow as planned, the new law could end up raising premiums and shrinking guaranteed coverage. At the same time, a new drug benefit for seniors has been created -- and so Republicans, oddly enough, appear to have championed a landmark expansion of the American welfare state.

Rarely has Washington seen a more curious set of political divisions. Democrats could not agree whether to take a modest prescription benefit now and seek to make it more generous later, or to fight off the poison pills for traditional Medicare built into this legislation. At the other end of the political spectrum, market conservatives such as former House Majority Leader Dick Armey (R-Texas) and the editorial board of The Wall Street Journal found it anathema to vote for a new "entitlement" that would grow in the future. Most Republicans, though, were persuaded to follow Bush in an attempt to keep their governing coalition in office. In an op-ed urging fellow conservatives to vote for the Medicare bill, former Speaker of the House Newt Gingrich (R-Ga.) explained that Republicans must sacrifice purity for the realities of governing. Moreover, according to current House Majority Leader Tom DeLay (R-Texas), this legislation presented "a historic opportunity to put a conservative imprint on a major entitlement program in need of reform."

However reluctantly, enough Republicans acquiesced to this Medicare enhancement because seniors constitute a critical bloc of swing voters who represent 25 percent of all voters in presidential elections and 30 percent of voters in off-year congressional elections. Seniors have demanded a new drug benefit for some years now. In the last two elections, Republicans sought, with some success, to steal the issue from Democrats by promising to deliver. If they failed to carry through when they controlled the presidency and both houses of Congress, Republicans feared seniors would blame them in 2004.

According to a spring 2003 national poll by the Harvard School of Public Health conducted for the Kaiser Family Foundation, clear majorities of seniors wanted a universal and seamless prescription-drug benefit added directly to traditional Medicare, and they hoped the federal government would use its clout to control drug prices. But that's not what they got. Because of the tight federal budgets caused by the Bush tax cuts -- and because so many subsidies for hospitals, doctors, insurance companies and for-profit health plans were built into the Republican measure -- there were insufficient funds to pay for a full prescription benefit. With some extra subsidies for the very poor and those with high drug costs, the prescription benefit projected to start in 2006 has big gaps and is likely to give very little help to seniors with typical drug expenses.

Millions may end up worse off. According to the Center on Budget and Policy Priorities, many low-income seniors will lose what are currently more generous Medicaid benefits. High-income seniors will pay higher premiums for both the drug benefit and outpatient benefits that they currently receive for the same premiums as others pay. Perhaps the nastiest surprise is that, according to Congressional Budget Office estimates, about one-third of nonfederal retirees will experience reductions in employer-provided prescription benefits. Although the law includes tax breaks to encourage employers to retain retiree benefits, many may still use the existence of this new Medicare benefit as an excuse for eliminating or trimming drug programs for retirees.

There's no question that drug manufacturers -- who have given hundreds of millions in campaign contributions, 80 percent of which has gone to the GOP -- got exactly what they wanted: more customers and unrestrained prices. Amazingly, this law forbids Medicare administrators to use program clout to bargain for lower drug prices. And early provisions that might have allowed the importation of cheaper, publicly regulated drugs from Canada were stripped from the final legislation.

Seniors have been toyed with in this episode, and there's plenty of political fallout. Democrats lost control of an issue that should have favored them, and the question now is whether they can reclaim it for 2004 and beyond.

Because most Democrats wanted a prescription-drug benefit in line with the hopes of most seniors, how did the party end up divided, outmaneuvered and cornered? As Yale University social-policy expert Jacob Hacker puts it, "What started out as a winning Democratic issue was not just co-opted by Republicans, it was also turned against the very goals that advocates of a stronger Medicare program hold most dear." Unfortunately, this was a sequel to a bad movie we have seen before. As had happened in the battles over tax cuts and education reform, bipartisan "compromises" were fashioned with the help of Senate Democrats. Then conservative Republicans used their control of the presidency and the House to force a second round of concessions.

During the entire W. presidency, Republicans have operated with extraordinary unity and ruthless partisanship. In the critical conference committees that reconcile different bills passed in the House and Senate, Republican leaders secretly bargain among themselves -- excluding dissidents in their own party and all but the most compromising Democrats. Final bills are "marked up," "costed out," and released to Congress and the public only at the very last minute, with crucial votes scheduled just before legislative recesses. This precludes countermobilization by Democrats and their allies. Republicans can thus pass bills with provisions that majorities of Americans oppose because most citizens have no idea what is in the legislation until long after it passes. The Republicans also publicly highlight short-term benefits desired by ordinary Americans, while quietly building in massive, longer-term concessions to business and conservative ideologues.

In the recent Medicare battle, all these tactics and more were on display -- and the dean of liberal Democrats, Massachusetts Sen. Edward Kennedy, found himself thoroughly outdone. Back in the late spring, Kennedy had urged reluctant Democrats to support a compromise in the Senate authorizing a prescription benefit to be administered largely by private insurers, but leaving the rest of Medicare largely untouched. President Bush had originally wanted to provide a prescription benefit only to seniors who signed up with private health-care-delivery plans; this would have forced seniors out of traditional Medicare and gutted the program altogether. After Kennedy got this idea dropped in the Senate, he prematurely declared that "the president's plan to privatize Medicare is dead."

Alas, after contrasting bills passed the Senate and the House, Republican leaders dominated the conference committee and undertook the usual exclusive negotiations. They refused to talk at all with Democrats appointed from the House, and included only two moderate Democratic senators: John Breaux of Louisiana, who has long favored the partial privatization of Medicare, and the very pliant senior Democrat on the Senate Committee on Finance, Max Baucus of Montana. Baucus angered fellow Democrats when he caved in on major House Republican demands -- including planned "experiments" pitting subsidized, private plans against traditional Medicare and a provision for tax-free Health Savings Accounts (which will allow well-to-do taxpayers of all ages to shelter income for all kinds of loosely health-related expenses).

When the final conference-committee report appeared in mid-November, Kennedy balked on the grounds that the bill contained huge payoffs for business interests and would put Medicare on the road to privatization. His last-minute opposition was much too late -- even though Democratic congressional leaders and six presidential hopefuls also swung into opposition. Using carrots, sticks and endless cajoling, House Republican leaders got enough of their partisans in line to pass the conference bill, while many Democrats in the Senate did not want to use the minority tool of a filibuster, which would open them to the charge of "obstructing" a new benefit for the elderly. As political scientist Eric Schickler explains, "Republicans genuinely seem to regard themselves as on the same 'team' in a way that Democrats are not accustomed to thinking of themselves." Besides, Republicans loaded the final bill with all kinds of subsidies for hospitals and doctors. Hard-pressed rural hospitals, in particular, are scheduled to receive extra payments. Such goodies, in addition to the promise of a drug benefit, made it difficult for legislators to oppose this measure in a pre-election year.

Opponents were also undercut by the AARP, which claims to speak for 35 million older Americans, close to a majority of those aged 50 and above. Just after the conference-committee report appeared, the AARP board, led by CEO William Novelli, endorsed the Medicare legislation and launched a $7 million advertising drive on its behalf. Democrats cried foul, correctly pointing out that the AARP was going against the wishes of most elders and near-retirees.

But no one should have been surprised. Since its inception in 1958, the AARP has always been more of a corporate enterprise with benefit-seeking adherents than a true popular membership association. The AARP did not originally champion Medicare in 1965, although subsequently, during the 1970s and '80s, the organization grew while presenting itself as the defender of senior entitlements. Critics claim that the AARP backed the current restructuring of Medicare because Novelli is a closet Republican and an admirer of Gingrich, and because the organization stands to make millions by selling new insurance products after the law takes effect.

Yet something more subtle may also be going on. Back in the 1990s, the AARP set a goal under former CEO Horace Deets of receiving more than half its income from membership dues. But since 1994, the share of income from dues has declined from 38 percent to 30 percent. Currently totaling some $636 million a year, AARP's revenues rely overwhelmingly on insurance royalties and other kinds of commercial income.

Moreover, despite efforts since the 1980s to build state and local chapters, only a tiny fraction of AARP members do anything more than send in annual dues checks to maintain eligibility for discounts. With few chapters and no representative conventions, the organization has no way to foster group deliberations or channel rank-and-file opinion to the top. Governance occurs through a self-selecting board, not through elected leaders. This leaves the national staff free to respond to insider opportunities in Washington. Given current Republican hegemony and the nation's looming budget crisis, AARP leaders no doubt thought they should take the almost $400 billion budgeted by Congress for the prospective drug legislation.

What about the political fallout? Politics may create policies, but as the political scientist E. E. Schattschneider once explained, new policies also create new politics -- by changing group interests and refashioning political alignments.

President Bush and congressional Republicans expect the new legislation to work to their advantage in 2004 and 2006. "We kept our promise," they will claim. Republicans and their business allies will spend millions on advertisements highlighting the new benefits, most prominently a new prescription discount card that will go on sale next spring. Republicans will be counting on people not perceiving all the gaps and drawbacks until after 2006, when the permanent drug benefit finally takes effect.

Recent opinion trends give Republicans reasons to hope that they can tip the balance with a swing constituency that leaned toward the Democrats in the 1980s and '90s. The percentage of respondents in Kaiser polls saying that the Democrats generally do a better job of dealing with prescription-drug coverage for seniors fell from 33 percent in December 1999 to 24 percent in May 2003; and in May, congressional Democrats had no advantage compared with the president. In the words of pollster and political analyst Stanley B. Greenberg, Democrats have to worry about the public's sense that they are "adrift and weak relative to Bush."

There are immediate risks for Republicans, though. In the Kaiser polls, the percentage of seniors saying that neither party does a good job doubled from 16 percent to 32 percent. And the new Medicare law contains Republican approaches that many seniors deeply distrust, including subsidies for HMOs and efforts to squeeze future Medicare funding and raise premiums for seniors. On the eve of the final Senate passage, a clear majority of seniors and near-retirees told pollsters for the National Annenberg Election Survey that they opposed passage of the Republican bill. (The margin was 49 percent of those over 50 years of age opposed to passage versus 36 percent in favor; a similar margin appeared among supporters of the AARP.) Loud opposition by many Democrats in the days leading up to final passage clearly succeeded in raising popular doubts.

Senior worries about this new legislation create opportunities for Democrats leading into next year's presidential election. Even though the AARP, Republicans and private insurers will flood the airwaves with advertising touting promised benefits, Democrats and their allies can highlight the ways in which costly giveaways to insurance and pharmaceutical companies will raise costs and shrink benefits for seniors, not to mention threaten the future of Medicare's guaranteed coverage. Seniors are unusually attentive to the details of public programs affecting them, so they may not be fooled by vague Republican promises.

"Because the battle centers on market reforms, not just funding," explains Greenberg, "there is a considerable opportunity for Democrats to battle the Republicans successfully, unless the Democrats are corrupted by industry money. That is the greatest danger: that Democrats will be too entangled with the insurance and pharmaceutical industry to be real proponents of seniors." The new law, of course, exacerbates this threat because it guarantees that insurers, drug companies and health providers will be even more mobilized in future political battles than they already are. They will have profitable subsidies at stake.

The years to come will witness fierce Medicare battles. Will the gaps in drug coverage be filled in? Will for-profit interests continue to receive generous subsidies as federal budgets tighten? Will "experiments" favorable to private health plans really go forward in 2010, forcing seniors in traditional Medicare to pay higher premiums? Democrats must find a way to weigh in strongly during these coming struggles. This will be a huge challenge for a party that has recently shown little finesse or discipline in legislative maneuvering -- and many of whose members take contributions from insurance and pharmaceutical interests.

Still, the Democrats should turn pitfalls in the new legislation into opportunities. Republicans like to say that building private competition into Medicare will lead to efficiencies and cost savings. But, in fact, Medicare has very low administrative costs compared with private health plans that spend money on advertising and administrative duplication. Assuming that many seniors choose to move into them -- not a sure thing, given seniors' previous bad experiences with HMOs -- subsidized, private plans will likely cost taxpayers more, not less. And unrestrained drug prices will also rise sharply. This will lead to massive federal budget problems, as ever more rapidly rising Medicare costs intersect with the shortfalls in revenue built into the out-years of the Bush tax cuts.

Medicare is currently funded by a combination of payroll taxes and general revenues, but the legislation just passed requires a "crisis" to be declared when more than 45 percent of Medicare funding is projected to be drawn from general revenues seven years in the future. Republicans will use such "crises" to try to raise premiums in Medicare or shift financing onto payroll taxes paid mostly by lower- and middle-income Americans.

Indeed, the real conservative strategy may be much more about future politics than cost controls. Conservatives may actually like the idea of a fiscal train wreck, as it would allow them to intensify arguments that this entitlement is "unsustainable." Democrats can respond by highlighting all the ways that Republicans are squeezing benefits for the elderly by promoting tax cuts for the rich and subsidies for business interests.

Democrats need to be wary of Republican efforts to divide seniors. In her book, How Policies Make Citizens, political scientist Andrea Louise Campbell shows that the American elderly have become very attentive citizens, unusually united in their determination to maintain Social Security and Medicare. Low- and moderate-income senior citizens vote at higher rates than their younger counterparts, and higher-income seniors have defended public programs in which they have a shared stake. But if subsidized for-profit health plans and prescription-insurance providers gradually draw healthier and wealthier seniors out of traditional Medicare, the effect will be to fragment the once-united elder coalition. Subgroups of the elderly will develop sharply different interests. It could become much easier for conservatives to squeeze Medicare if better-off seniors are not defending it.

Democrats can take some comfort from the fact that the editorial board of The Wall Street Journal expects long-term struggles to play out to their benefit. In urging conservatives to vote against the Medicare bill, Journal editors projected what, for them, would be a nightmare scenario: Few seniors would be satisfied with the new drug benefit. In the face of criticism over their role in this episode, the "GOP's rent-a-friends in the AARP will soon return to lobbying alongside their natural big government allies." Most seniors would shun HMOs, even with new subsidies, killing possibilities for Medicare privatization. Democrats would be able to champion improvements in the drug benefit long into the future, regaining the edge with senior voters.

It could all turn out this way, but not unless Democrats find ways to reframe the debate. The challenge for Democrats is to retake their place as the effective champions of universal, adequate and equitable entitlements for the elderly -- without letting the needs of the elderly take over the party's entire domestic political agenda. The needs of working-aged voters and their families for education, new job opportunities, and universal health care and pensions must receive at least equal attention.

Clearly, issues of tax equity and adequacy will also need to be revisited -- and the good news is that, by large majorities, ordinary Americans prefer funding social programs to preserving tax cuts for the rich. But if they are to successfully champion the hopes of the elderly and preserve the integrity of Medicare, Democrats must unite behind strategies for using government clout to control rapidly rising pharmaceutical costs and promoting efficiency with equity in health care. The best choice for Democrats may be to combine advocacy for Medicare with advocacy for cost-effective benefits for near-retirees -- even for all Americans.

If the Republicans want to make the health-care system the same for everyone, why shouldn't Democrats respond by linking the concerns of seniors to the concerns of all other Americans? That strategy would resonate with a public increasingly concerned about health-care costs and the coverage offered by employer health plans. Despite the recent Medicare maneuvers by Republicans, there remain many political openings for Democrats -- if they can achieve clarity and discipline in the battles to come.

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