Leadership and Crisis (30 page)

The best way to defuse a ticking time bomb like Medicare is to reform it early, before we’re forced to take really disruptive measures. Congress had a chance to do that in 1997...and blew it. But the
reform proposals that emerged back then point to a viable way to shore up Medicare’s long-term financing.

Although Washington commissions don’t typically accomplish much, Congress had a real shot at reforming Medicare when the National Bipartisan Commission on the Future of Medicare was created in 1997. Republicans, who controlled Congress at the time, wanted to reign in exploding entitlements, and Democrats were showing a willingness to tackle what had long been a liberal sacred cow. President Clinton had conveyed to Democratic Senator John Breaux of Louisiana, who was a co-chairman of the commission and a close personal friend of the president, that he was serious about reforming the program.

Congress and the president had just cooperated in overhauling welfare to cut dependency, reduce teenage pregnancies, and save money. That effort had forced both parties to make uncomfortable political decisions; Republicans had to commit to spending on child care, transportation, education, and other government programs, while Democrats had to reform their cherished Great Society programs by instituting work requirements for welfare recipients. But both parties had a stake in reform as well. This was especially true of President Clinton, for whom welfare reform became the political equivalent of Nixon going to China.

Medicare reform posed an even bigger challenge than welfare reform. The federal government’s approval of Medicare, which offered to help pay for the healthcare of nearly all Americans aged sixty-five and older, was an essential reform for the elderly, about half of whom had no health insurance when the program was approved in 1965. Understandably, the program was modeled on the typical employer-sponsored health plan of the 1960s. The problem is that the program
has hardly changed in more than forty years. As Senator Breaux said more than a decade ago, “Throwing more money into this 1965 program is like putting more gas in an old car, it still runs like an old car. ... Above all, we need to give this car a major overhaul first.”
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Medicare’s costs exceeded expectations from the beginning. Washington developed archaic and confusing stopgap plans to plug the holes, including price controls, payment schedules, and complex formulas for paying doctors, hospitals, and other providers. A core problem is that Medicare is designed as a pay-as-you-go system, meaning today’s taxpayers have to finance the benefits that are now being paid out. That might work fine when lots of young people are supporting a smaller group of retirees, but as Americans’ life expectancy has risen and the population has aged, the program has become unsustainable.

The Medicare Commission began as a good-faith attempt to solve these problems, though it still featured some typical partisan bickering. Even before the commission was named, there was a weeks-long fight over who would be chairman—it seemed like Congress would need a commission to appoint the commission. Eventually, both sides agreed the commission would have eight Republican and nine Democratic members. John Breaux served as chairman, while Republican Congressman Bill Thomas was named administrative chairman.

Knowing my track record of reform as head of the Louisiana Department of Health and Hospitals, Thomas asked me to serve as the commission’s executive director. The timing wasn’t great, coming just weeks after I had married Supriya. The job would last just one year—not exactly what you call job security. And we didn’t really want to live in Washington, so suddenly you are talking about one heck of a commute. But it was a great opportunity to help bring about long-term reform. This was the sort of thing I had studied in graduate
school—transforming large systems—and had been working on ever since in business and healthcare. I would have understood if Supriya had opposed the move, but as always she was incredibly supportive. She likes a good challenge as much as I do. So I took the job, packed my bags, and headed to Washington, while Supriya held down the fort back home in Baton Rouge.

I quickly realized my biggest task was keeping the chairmen working together. Breaux and Thomas are as different as you could imagine. Relying on loud, angry shouting to motivate his staff, Thomas had been voted the meanest member of Congress by staff and colleagues several years in a row. But he was also one of the smartest congressmen I’ve ever met. He would read your memo and then tell you why footnote number twenty-three was wrong, and he would correct lobbyists about their own industries. Democrats considered him a worthy opponent, a man both feared and respected in Washington.

John Breaux, in contrast, earned a reputation as every president’s favorite senator. He had managed to become good friends with George H. W. Bush, Bill Clinton, and later George W. Bush. He was a back-slapping moderate who voted for the creation of SCHIP under Clinton in 1997 and the Bush tax cuts in 2001. It was hard to find anyone who would say anything bad about him.

In short, Thomas and Breaux needed a buffer... and that would be me.

In the end, the two men actually complemented each other quite well as part of a well-balanced commission. The commission’s seventeen members comprised elected officials and bureaucrats, including some strong-willed members such as Senators Phil Gramm and Jay Rockefeller, Congressmen Jim McDermott and John Dingell, economist Stuart Altman, and former Clinton administration official Laura
Tyson. Eleven of seventeen votes were needed on the commission in order to make official recommendations.

I watched with a mix of bemusement and frustration as an early dispute broke out over where the commission would meet. Various people and groups offered us office space, but commission members feared we’d be beholden to whoever gave us space. There was also a big fight over whether to use House or Senate space. (There’s an old saying in Washington that the other party is the opposition, while the other chamber is the enemy.) Someone even suggested renting space downtown just to avoid the issue. I said that was ridiculous; we were not going to waste taxpayer money just because some people were acting like children. Eventually we ended up working behind stacks of books at the Library of Congress. It was the quintessential Washington solution—split the difference to fix a problem that should not have existed in the first place.

Once we got down to work, Republicans and Democrats quickly agreed Medicare was on an unsustainable path, as the ratio of workers to retirees was expected to decline from 4-1 to 2-1. That would force the Part A trust fund into insolvency even before the baby boomers retired. In 1997, 37 percent of Medicare funding was coming from general tax revenues and other sources, because the payroll taxes or premiums that people paid into the system weren’t covering the costs. Everyone on the commission knew the situation would get worse without major reform, and I think we’ve been proven right in the thirteen years since then. By 2007, Medicare was taking $179 billion from general revenues to cover the shortfall; that’s equivalent to about half the federal corporate income tax receipts the government takes in every year. The Medicare Trustees calculate that as of 2009, Medicare’s total excess costs are an astonishing $85.6 trillion.
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The government was keeping the program alive, as it still is today, through short-term budgeting gimmicks that allowed Medicare to limp on for another five- or ten-year budget window. Instead of structural reform, it considered band-aid solutions such as means-testing, raising the eligibility age, price controls, and arcane payment rules. Government planners dictated how much to spend on a particular service or procedure, and then cut the volume necessary to meet that line in the budget. As economist Len Nichols put it at the time, Medicare was setting 10,000 prices in 3,000 different counties. Senator Breaux and others realized how ridiculous this was. “I never went to medical school,” Breaux said. “Why are elected officials determining how medical decisions are made?”

In 1997 Medicare still closely resembled 1960s-era private insurance, having failed to incorporate new technologies, procedures, and private-sector benefits. Over time, the program was covering fewer and fewer healthcare costs. You still had separate hospital insurance and medical insurance, there was a nearly $800 hospital deductible, and there was no real coverage for outpatient medicines, no limit on out-of-pocket spending, and limited coverage of preventative care. Seniors were still left paying for half their healthcare, causing 89 percent of them to enroll in some other program such as Medicaid, Medigap, private Medicare plans, or employer-provided coverage. This resulted in duplication and a lack of coordination.

Overall, we found Medicare to be an inefficient, wasteful system that was mired in red tape. Mayo Clinic president Dr. Robert Waller testified to the commission that more than 130,000 pages of laws, regulations, guidelines, rulings, and other stipulations applied to Medicare procedures and services. The American Hospital Association reported that because of Medicare and other regulations, nurses were
often spending as much time filling out paperwork as they were tending to patients.
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This created bizarre and frightening situations for some patients. A retired judge told our staff how he had been rushed to the hospital with chest pains. The doctor wanted to perform a certain procedure, but he suddenly withdrew the recommendation after the judge said he had Medicare. The judge quickly figured out the doctor had changed his mind simply because Medicare would not cover the procedure. But when the judge offered to pay for the procedure out of his own pocket, the doctor informed him it was illegal for Medicare members to pay for separate procedures! (Congress did try to fix this problem in its typical head-scratching way—it allowed providers to collect private payments from Medicare patients if the providers quit Medicare for two years.) The judge’s story was an aggravating reminder of the dysfunction of Medicare; if you are a Medicare member, you can pay for a vacation, but you may not be able to pay for your own healthcare.

We also heard an ambulance driver discuss the obstacles erected by the Medicare bureaucracy. Because rules were determined by fiscal intermediaries based on geography, the driver could only pick up patients in certain areas who had certain conditions. It was maddening to imagine having to decide which patients to pick up and which to leave behind based on geography, not their medical conditions. Beneficiaries had their own frustrating stories about Medicare paying more to rent equipment than it would cost to buy the same equipment, or paying for the treatment but not the cheaper cost of preventing many ailments.

The more complex you make a program or system, the easier it is to exploit the confusion and swindle people. Thus, it wasn’t a complete
surprise that we discovered it was incredibly easy to rip off Medicare. As one convicted felon told the U.S. Senate, “The government actually made it easy for me to steal. I became rich very fast billing the Medicare system.” The guy was a Miami nightclub owner who knew nothing about healthcare, but he got a Medicare provider number over the phone for a fake medical supply company. He collected more than $32 million from Medicare over six years using 2,000 senior citizens’ Medicare insurance numbers.
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When I joined the commission, I knew something about medical fraud from my two-year stint as head of the Louisiana Department of Health and Hospitals. In Louisiana we had identified fifteen psychiatric hospitals that had been overpaid in Medicaid funds and had gotten sweetheart political deals. There was a lot of squealing when we went after them and others—these included politically connected providers with ties to a former lieutenant-governor and other important officials. Billing Uncle Sam or some state for medical reimbursements was a very profitable business.

Medicare reform may not be the most fascinating topic, but the commission’s meetings were livened up by some strong, animated personalities. Republican Senator Phil Gramm from Texas was an extremely intelligent economist who habitually cited his mother as an example for every absurdity in the system; one day she couldn’t get a surgical procedure, the next day she couldn’t find a specialist who accepted Medicare. (We discovered later she was, in fact, quite healthy. She passed away in 2008 at the age of ninety-one.) When I met Gramm and he learned I was from Louisiana he asked me, “How could somebody so smart come from Louisiana?” It seemed he had not
yet forgiven Louisiana for not supporting him in the 1996 Republican presidential primary.

Another committee member was Democratic Senator Bob Kerrey from Nebraska. Kerrey was a likeable, courageous figure. Liberal Democrats were pressing him to defend the status quo in Medicare and to reject all reforms aside from raising payroll taxes. When I told Senator Breaux I was concerned Kerrey wouldn’t support reform, Breaux told me not to worry. Senator Kerrey had served his country in Vietnam, and Breaux claimed when Kerrey was really determined to get something done, he’d get a certain look in his eye, like he was ready to take a hill in ‘Nam. And he had that look when it came to Medicare reform, Breaux said. He was right; in the end Kerrey bucked the pressure from his own party and voted for change.