Decision Points

mentor for others leaving prison. What a testimony to the redemptive power of Christ: George Mason and George W. Bush together in the West Wing.

    With George Mason.
White House/Tina Hager

    Created by President Johnson in 1965, Medicare had helped countless seniors enjoy healthier lives. But while medicine had advanced, Medicare had not. Benefits were determined by a government bureaucracy that was wasteful and very slow to change. When private insurers added mammogram coverage to protect against breast cancer, it took Medicare ten years and an act of Congress to catch up.
    Medicare’s most antiquated feature was that it did not cover prescription drugs. The program would pay $28,000 for ulcer surgery, but not $500 a year for pills that would prevent most ulcers.
    I was struck by the stories of older Americans who had to choose between buying groceries and medicine. One sixty-nine-year-old woman I met, Mary Jane Jones of Virginia, had to work twenty hours a week just to afford her nearly $500-a-month bill for prescription drugs and insulin. She told me she sometimes used needles three or four times to save money.
    Medicare wasn’t just outdated; it was going broke. The combination of rising health costs and the upcoming retirement of the Baby Boom generation had created a $13 trillion unfunded liability. The next generation would get stuck with the bill.
    The rising costs bankrupting Medicare affected the whole health-care system. America’s health spending had doubled from about 7.5 percent ofGDP in 1972 to more than 15 percent in 2002. Part of the explanation was the cost of new medical technology. Junk lawsuits also played a role. But the primary cause was a fundamental flaw in the system: Most people had no idea what their health care cost.
    Seniors and the poor had their bills paid by the government through Medicare and Medicaid. Most working Americans received coverage through their employers and relied on a third party, an insurance company, to negotiate prices and determine payments. Many self-employed Americans couldn’t afford health insurance because the tax code disadvantaged them and regulations prohibited small business owners from pooling risk across jurisdictional boundaries.
    What the system lacked was market forces. There was no sense of consumerism or ability to shop around for the best deal, no competition for customers’ business, and no transparency about quality and price. As a result, there was little incentive for doctors or patients to limit the resources they consumed, which was crucial to holding down costs.
    I saw reforming Medicare as a way to solve two problems. First, by adding a prescription drug benefit, we would modernize the program and provide seniors with the quality health care their government had promised. Second, by delivering the drug benefit through private insurance plans that compete for seniors’ business, we could inject market forces into the health care system. Reforming the program would also create an opportunity to expand Medicare Plus Choice, later renamed Medicare Advantage, which allowed seniors to obtain all their health care through flexible, affordable private insurance plans.
    I knew Medicare reform would be a tough political issue. Introducing market forces into a government health program would upset the left. Adding an expensive prescription drug benefit would be unpopular with the right. But I decided to take on the challenge.
    Under our plan, seniors who wanted the new prescription drug benefit would have to choose private plans instead of government-run Medicare. We would change Medicare’s funding formula so that the government-run program had to compete with private plans on a level playing field. Both reforms would introduce more market forces and help address the rising costs of health care.
    Before announcing my plan publicly, I previewed it with Republicanleaders in the House. They told me my proposal didn’t stand a chance on Capitol Hill. Democrats would never support a bill that required seniors to give up their government-run Medicare coverage to receive a prescription drug benefit. Some Republicans wouldn’t either.
    I faced a tough decision. I could fight for a lost cause or make a compromise. I decided to propose a prescription drug benefit that would be administered by private health plans but open to all seniors, including those who wanted to keep government-run Medicare coverage.
    My Medicare team ** worked closely with Senate