Medicare resurfaces as entitlement titan

As President Bush stumped the case for Social Security reform, the talk on Capitol Hill this week often reverted to what many are calling a more urgent threat to the nation's fiscal health: the soaring liabilities in Medicare, especially its new prescription drug benefit.

Sold to Congress as a $400 billion add-on, the 10-year estimate for prescription drug coverage for seniors soared to $723 billion in the president's fiscal 2006 budget. To the green-eyeshade types who track such things, the higher estimate was no surprise: It's the first to include a full 10 years of the new drug benefit.

But the sticker shock and awe did focus the minds of many lawmakers, who are calling to reopen the issue - or enough of it to rein in future costs. It's an early glimpse of a debate likely to dominate American politics into the next decades.

Consider these numbers circulating on Capitol Hill: If current expectations about the role of government hold, American taxpayers face a "fiscal exposure" of at least $43 trillion over the next 75 years, including $3.7 trillion from Social Security and $27 trillion from Medicare, according to the US Government Accountability Office.

"Medicare presents a much greater, more complex, and more urgent fiscal challenge than does Social Security," GAO head David Walker told the Senate's Special Committee on Aging last week. Together, the burden is "unsustainable" for future generations, he added.

Yet for now, Republicans control the timing of the agenda, and President Bush has decided that revamping Social Security to include private accounts goes first. Long considered the third rail of American politics, Social Security is something that needs to be tackled early in the president's second term or not at all, GOP strategists believe. Republican leaders controlling both houses of Congress would probably go along.

But lawmakers on both sides of the aisle are testing the waters for alternatives, ranging from revisiting the hard-fought 2003 Medicare prescription drug bill to casting the Social Security debate in a much larger frame, including Medicare, pensions, and new savings initiatives.

House Democratic leader Nancy Pelosi called the new Medicare estimates "staggering." Meanwhile, House GOP conservatives, many of whom split with the White House and their own leadership over Medicare reform in 2003, are quietly considering whether and when to reopen the issue inside the Republican Party.

"We added trillions in unfounded obligation when we added that prescription drug entitlement. The only rational way to deal with that is to focus resources at the point of the need - and no more," says Rep. Mike Pence (R) of Indiana, the new chairman of the 100-member Republican Study Committee (RSC) and one of 25 House Republicans to vote against the 2003 bill.

At a retreat sponsored by the Heritage Foundation, he and about half the RSC membership discussed, but did not settle, how to make conservative concerns about both Social Security and Medicare register in the debate. "This is our first glimpse of the coming cost of an open-ended entitlement, and it's breathtakingly expensive, even before the baby boomers retire," says Robert Moffit, a domestic policy expert at the Heritage Foundation. "The new information should stiffen the spines of those members of Congress who believe it is of paramount interest to revisit the drug entitlement."

In addition to being a distraction to the Social Security debate, GOP leaders worry that such a move could be a rerun of the 1989 Medicare fiasco on Capitol Hill. At the time, Congress first added a new catastrophic benefit to Medicare, then was forced to retract it, after senior groups rebelled at add-on costs they had not expected. Yet some lawmakers are already working across the aisles to propose alternative fixes. These include repealing a feature of the 2003 Medicare prescription drug law that bans the government from negotiating lower drug prices for Medicare recipients, as it currently does for veterans, and lifting a federal ban on the reimportation of drugs from Canada or other nations.

At the same time, Rep. Bill Thomas (R) of California, chairman of the House Ways and Means Committee, hopes to expand the Social Security debate to include a larger package of tax reform, including possible elimination of corporate income taxes and creation of a new value-added tax. While attracting little enthusiasm from the White House or GOP leadership, the idea of broadening the debate to include tax reform appeals to some Democrats, including Sen. Kent Conrad of North Dakota, the ranking Democrat on the Senate Budget Committee.

At stake is whether the White House bully pulpit will set the terms of the debate on Capitol Hill. "You could argue that Medicare needs it more, but right now we have a better political opportunity to reform Social Security than Medicare," said former Rep. Pat Toomey, head of the Club for Growth.