Cutting Medicare Tests GOP Resolve on Budget

RISKING the wrath of older voters, Republicans this week are forging ahead with plans to substantially reduce the growth of Medicare spending. For GOP lawmakers this may be both the most fiscally important and politically delicate step in trying to eliminate the federal budget deficit by 2002.

Republicans are figuring on between $250 billion and $280 billion in Medicare savings, which would leave the program of federal health-care benefits for the elderly about 25 percent smaller after seven years than it otherwise would have become. Yet the specifics of such a hefty reduction remain unknown. So far, the GOP has released only a few rough options for reaching its goal.

''I don't believe that what they've put on the table will get them terribly far,'' says Joshua Wiener, a senior fellow at the Brookings Institution here.

Democrats claim that the GOP is planning to plunder the elderly to pay for tax cuts for the rich.

Republicans retort that a Medicare trust fund is teetering near bankruptcy, and that the program must be overhauled to survive mass retirements of baby boomers in the next few decades.

''We do not believe it is responsible to wait and wait until you get to the end of the cliff,'' Rep. Bill Archer (R) of Texas, House Ways and Means Committee chairman, said this week.

Few experts disagree that Medicare has serious problems. When Congress established the program in 1965, most never imagined that it would one day become the government's fourth largest expenditure, with a growth in cost that outpaces the growth of the nation's overall economy.

The baby boomer's retirement, which begins in earnest in 2010, will add even more stress to the Medicare system. Fewer and fewer workers will be paying taxes into the system, while more and more retirees will be drawing benefits out. Current predictions are that the Federal Hospital Insurance Trust Fund, which pays out hospital benefits for Medicare's 36 million beneficiaries, will be bust by 2002.

Putting Medicare on a fiscally sound basis, point out Republicans, doesn't require a reduction from the amount of money the program now spends. Their proposed $250 billion-plus reductions would simply slow Medicare's exploding rate of growth -- still allowing spending to rise from $178 billion per year in 1995 to $258 billion annually by 2002.

But these figures do not reflect inflation or the impact of more and more retirees drawing from the system, claim critics. They say proposed Republican reductions would inevitably make Medicare less generous for the beneficiary of 2002.

''Out of pocket costs for seniors will increase by $1060 in 2002 and $3500 over the seven years,'' claims a Democratic Party analysis of the GOP budget.

The most specific Medicare changes floated by the GOP so far were contained in a letter the House Budget Committee circulated earlier this month. The letter suggested three different ways proposed savings might be achieved:

*Make beneficiaries pay an additional $99 billion out of their own pockets over the next seven years. They would also receive incentives to join so-called ''managed care'' plans, in which health services are provided for pre-set overall costs.

*Provide beneficiaries with vouchers good for any private sector plan. By 2002, the voucher would be worth around $6,300 annually.

*Increase co-sharing payments and provide managed care incentives, as in the first option, while agreeing that undefined other cost-savings mechanisms would be triggered if Medicare's growth did not slow enough.

Republicans will likely have to go even further than these choices to reach their goals, say a number of Medicare experts.

One economist, Barry Bosworth of the Brookings Institution, challenged Capitol Hill lawmakers to take the politically painful step of imposing funding limits. ''Rules need to be put in place to ensure the amount of money for Medicare will last the entire budget year, much less for the next generation,'' says Mr. Bosworth.

There are two basic ways to achieve that, according to Merrill Matthews Jr. director of health policy at the Dallas-based National Center for Policy Analysis. One is to have Uncle Sam looking over Medicare patients' shoulders to restrict their spending, a tactic Matthews rejects.

The other is to give individuals a choice by establishing a medical savings account -- a pool of money individuals could draw from to pay doctors, hospitals, and private insurance plans, including managed care. This would essentially turn traditional Medicare users into fund managers who would have an incentive to choose services within their means. Their careful selection based on price and quality would decrease the use and depress the cost of health care.

Washington physician Richard Kaufman echoes what many say may be an inevitable way to cut costs: means-testing Medicare recipients. ''The wealthy elderly get a free ride,'' he says, while the government can't afford health care for the indigent.