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Medicare's big markups

Published Aug. 28, 2005

No doubt the rising cost of Medicare is a financial burden on retirees. A 17 percent increase in premiums next year, the largest ever, will erode much of the gain retirees are to get from a cost-of-living adjustment to their Social Security checks. Nor will it end there. As health care costs rise in the future, so will Medicare premiums. In 2007, wealthier recipients will also begin paying a higher percentage of doctors' fees than they do now.

President Bush seems vulnerable on the issue, and indeed John Kerry has accused him of hiding the real costs of Medicare. The Bush campaign fired back that Kerry voted for the law that ties premiums to rising doctors' fees. Both have a point, but neither gets at the heart of the problem: Retirees are spending an ever-larger percentage of their incomes on medical care with no relief in sight.

Most of the premium increase _ from $66.60 a month to $78.20 _ is related to higher fees paid to doctors. A 1997 law requires that recipients pay their portion of those fees, and Kerry voted for that law. One reason the adjustment is so large next year is that the fee schedule has not kept up with inflation. In fact, the fees were supposed to decline next year, but the medical lobby convinced Congress that an increase was needed to encourage doctors to continue accepting Medicare patients.

The Bush administration had a hand in another issue that contributed to a portion of the premium jump. About $1.25 of the monthly increase will go toward subsidizing managed-care plans offered through Medicare, a concept pushed by the administration. Under the guise of encouraging competition, Medicare pays private health care providers an average of 7 percent more for the same services provided by the traditional program. So far, the managed-care plans haven't caught on, and less than 12 percent of Medicare recipients are enrolled.

If the goal is to control the cost of Medicare, then a double standard for payments makes no sense. "There appears to be no good reason why private plans should be given more money per capita than is given through the traditional fee-for-service system," said former Sen. Dave Durenberger, a Minnesota Republican and health care expert. So recipients who get no benefits from the private plans shouldn't have to subsidize them.

But that issue, alone, is not what ails Medicare or the health care system overall. When it comes to rising premiums, Medicare recipients should expect to pay a fair share of the real cost for their medical care. The problem is that the cost of that care is growing out of control.

On that point, neither of the candidates has a good answer.