The Biggest Medicare Fraud Ever

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The Bush administration admitted in February that its new Medicare drug prescription benefit would cost $1.2 trillion over the next decade — not the $400 billion that Bush had promised when he was pressuring Congress to enact the bill. His vast expansion of the welfare state is wrecking any effort to rein in government spending.

In order to better understand how this debacle happened, it is worthwhile to trace how the party of “less government” railroaded this expansion of Medicare through.

Throughout his first term, Bush was determined to expand Medicare by including prescription drug subsidies for seniors. Medicare is one of the fastest-growing parts of the federal budget, rising from $31 billion in 1980 to $245 billion in 2003. The value of the medical care that seniors receive far exceeds the Medicare taxes they have previously paid and are currently paying. But that was irrelevant to the political calculus.

Bush constantly portrayed the issue of new handouts in the loftiest moral terms. In a Florida speech on November 13, 2003, he declared, “The Medicare program is a basic trust that must be upheld throughout the generations.” And because it was an issue of trust, the Bush team was entitled to use deceit and any means necessary to ram the law through Congress.

The Republican leadership thought they could score victory in the House when the bill was brought to the floor on the evening of November 22, 2003. However, when the initial vote occurred at 3 A.M., the proposal lost by two votes. The Republican leadership violated House rules, which limit votes to a half hour or less, and proceeded to carry out the longest floor vote in House history — dragging out the tally until 6 A.M., when two Republicans switched their “nays” to “yeas” and the bill passed.

Rep. Nick Smith (R-Mich.), a veteran congressman in his final term, caught intense heat for opposing the bill. Efforts to sway Smith’s vote focused on his son, who was running for the congressional seat his father held. Columnist Robert Novak reported,

On the House floor, Nick Smith was told business interests would give his son $100,000 in return for his father’s vote. When he still declined, fellow Republican House members told him they would make sure Brad Smith never came to Congress. After Nick Smith voted no and the bill passed, Duke Cunningham of California and other Republicans taunted him that his son was dead meat.

Smith complained widely about the threats and bribes in the days after the vote. The House Ethics Committee eventually grudgingly launched a bribery investigation.

Barely a month after Bush signed the bill, his budget director, Josh Bolton, informed Congress that the estimated cost had jumped to $540 billion for the first decade, instead of the advertised $400 billion ticket price. The revision infuriated conservative Republican congressmen, but the congressional leadership tried to brush it off as a nonissue. Senate Majority Leader Bill Frist (R-Tenn.) declared,

In truth, nobody has any idea what the real figure will be at the end of the day, because we don’t know what those assumptions should be as we go further.

If Frist actually believed no one had any idea of what the legislation would cost, then he and other supporters were grossly negligent or deceptive in the claims they made to the American people when Congress considered the bill.

White House deceit

The Bush administration intentionally deceived Congress about the estimated cost of the bill. Thirteen conservative House members had vowed to vote against any bill costing more than $400 billion. Richard S. Foster, the top actuary at the federal Centers for Medicare and Medicaid Services, privately estimated in June 2003 — five months before the final vote — that the bill would actually cost $550 billion. He was contacted by Democratic staffers seeking estimates on the cost of the Bush proposal. By law, he was obligated to provide them the information. Thomas Scully, the chief Medicare administrator, is reported to have threatened to fire Foster if he provided the information. Foster later commented that “there was a pattern of withholding information for what I perceived to be political purposes.” The much higher estimate of the cost of the Medicare bill was apparently known by top officials at the White House.

On May 3, the Congressional Research Service released a legal analysis which concluded that “such ‘gag orders’ have been expressly prohibited by federal law since 1912.” The Supreme Court, in a 1927 ruling on the 1912 law, declared that a “legislative body cannot legislate wisely or effectively in the absence of information regarding conditions which the legislation is intended to affect or change.” But the Bush administration was too astute to fall for such radical notions.

Republicans sought to pooh-pooh the suppression of the more-accurate estimate. House Majority Leader Tom DeLay declared that the actuary’s numbers were “irrelevant to the policy that we passed.” Perhaps DeLay believes that Americans should feel lucky to have Republicans reelected at any price.

Politics trumps economics

Bush insisted on a Medicare fix that rains the vast majority of benefits on nonneedy elderly, on corporations, and on insurance companies. In his November 13 speech, he declared,

Three-quarters of seniors have some kind of drug coverage, and that’s positive news. Yet seniors relying exclusively on Medicare do not have coverage for prescription drugs — for most prescription drugs and for many forms of preventative care. That needs to be fixed. This is not good medicine. It’s not cost-effective.

Bush never explained how it is more cost-effective to offer handouts to all the elderly because a quarter of them lack insurance coverage for drugs. Though this makes no economic sense, it makes perfect political sense. For politicians, it is not cost-effective to let someone pay his own bills when his gratitude can be purchased.

The National Center for Policy Analysis estimated that only 6 to 7 percent of the expenditures in the Medicare reform bill will pay for additional drugs for the elderly. In order to provide $1 for the elderly who could not afford prescription drugs, the Bush administration apparently felt obliged to spend $15 subsidizing nonneedy elderly people and insurance companies. The new program also provides a huge windfall for corporations; the Congressional Budget Office forecast that

at least one-third of all private companies will dump their retirees into the Medicare system as a result of the new bill.

Bush faced intense resistance on the Medicare expansion because some Republicans and some conservatives refused to abandon their principles simply to help him get reelected. A group of 30 Republican congressmen favored a competing proposal that would have offered Medicare drug benefits only to seniors who lacked any private insurance coverage. The Bush team torpedoed this proposal. During the battle over the bill, Rep. Jeff Flake (R-Ariz.) declared, “I’m a Republican, and I didn’t come here to create the largest expansion of an entitlement program in history.” Republican aides made clear that conservatives who voted against Bush’s bonanza would suffer.

Throughout 2003, starting with his State of the Union address, Bush continually invoked the bill’s $400 billion price tag as proof of his benevolence. After meeting with congressmen on November 17, 2003, he boasted, “There’s 400 billion additional dollars available for our seniors in this bill.” Once the bill’s cost became a gauge of Bush’s generosity, any reform that targeted benefits would make him look less compassionate.

Bush painted his Medicare expansion efforts as distinguished service to humanity. At a White House talk on Medicare, he announced, “We’ve all come to Washington, those of us who have been elected to office, to serve something greater than ourself.” But most treatises on ethics do not recognize “reelection” as a specific category of “service.”

Federal propaganda

To publicize the new law, the Bush administration is spending tens of millions of dollars on television advertisements and other promotions. Some federally paid “information” advertisements show Bush receiving a standing ovation from a cheering crowd as he signs the act into law.

The feds also distributed video news releases to local television stations’ news programs that show someone pretending to be a reporter doing a phony news story about the wonderful new law. (Forty television stations aired the videos during news programs.)

The TV ads and videos urge people to phone an 800 number; callers are required to say out loud the words “Medicare improvement” to hear recorded messages about new drug benefits.

GAO concluded in May 2004 that the ads were illegal “covert propaganda.” GAO noted that the videos suffered from “notable omissions and weaknesses” and were “not strictly factual news stories.”

William Pierce, a spokesman for the Department of Health and Human Services, denied that the videos were covert: “TV stations knew the videos came from us and could have identified the government as the source if they had wanted to.” But the videos were targeted to viewers, not television producers, and there was nothing in them to warn people that they were seeing government propaganda.

In July 2001, when Bush put forward his Medicare fix, he declared that any reform must “strengthen the program’s long-term financial security.” But his fix is the worst financial blow Medicare ever suffered. A report by the official board of Medicare trustees four months after he signed the bill warned that Medicare’s finances have “taken a major turn for the worse.” Thanks in large part to the new law, Medicare is now forecast to go bankrupt seven years earlier than previous projections — in 2019, instead of 2026. The Washington Post noted that “the program has never before lurched seven years closer to insolvency in one year.” The trustees forecast that the new prescription drug benefit would cost up to $7 trillion over the next 75 years. The trustees also warned that the combined Medicare—Social Security deficit (the gap between promised benefits and expected revenues) is now almost $50 trillion — almost triple the Bush administration’s forecast in 2003 of $18 trillion.

Bush reiterates that the new law gives seniors more freedom. He is giving seniors “medical freedom” the same way he gave local schools “educational freedom” with the No Child Left Behind Act. The Supreme Court ruled in 1942, “It is hardly lack of due process for the government to regulate that which it subsidizes.” Bush’s rhetoric will provide no protection against further restrictions as future Congresses and presidents struggle to control the soaring costs of his drug giveaway. Bush’s Medicare expansion will inevitably increase government control over American medical treatment — a grave health danger to all Americans.

James Bovard [send him mail] is the author of The Bush Betrayal and Terrorism & Tyranny: Trampling Freedom, Justice, and Peace to Rid the World of Evil serves as a policy advisor for The Future of Freedom Foundation.

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