February 13, 2004

February 13, 2004 | Commentary on Health Care

Sky's the Limit On Medicare Drug Costs

"A billion here, a billion there. Pretty soon it adds up to real money."  -- former Sen. Everett Dirksen, R-Ill.

Some politicians may act surprised -- shocked even -- that the Medicare prescription-drug bill signed into law recently is expected to cost around $540 billion over 10 years, rather than the approximately $400 billion they estimated just last November.

But if they didn't know better, they should have. One thing never changes about Medicare: It always has cost more than expected.

When Medicare was enacted in 1965, government actuaries estimated the hospitalization plan would cost $9 billion in the year 1990. It ended up costing $67 billion. Admittedly, it's hard to judge what something will cost 25 years in the future. But it shows how wildly off the mark such predictions can be.

Cut to 1988, when Congress first enacted a prescription-drug benefit for Medicare. Government actuaries estimated the cost at $5.7 billion over 5 years. A mere year later, those estimates had doubled to $11.8 billion. The plan would have cost seniors so much more out-of-pocket than originally estimated that they revolted. Indeed, following a public event in Chicago with House Ways and Means Committee Chairman Dan Rostenkowski, some jumped on the hood of chairman's car in protest, rocking the vehicle and hitting it. Rostenkowski escaped unharmed, and the bill was quickly repealed.

That marks the only previous time lawmakers have managed to add a drug benefit to Medicare. There have been many attempts since to add a benefit, and each time, the 10-year cost estimates quickly soared.

Former President Bill Clinton proposed a Medicare drug plan in 1999 with a price tag of $118 billion, but the plan never got off the ground in Congress. The next year, he came back again, and in just that one year, the price tag had climbed to $160 billion.

One can see the problem of ever-rising costs in recent proposals. In 2001, Sens. John Breaux, D-La., and Bill Frist, R-Tenn., put forth a plan that would've cost $176 billion. The next year, a "tri-partisan" proposal carried a $340 billion price tag. In 2003, Democrats in the House put forth a plan that would've cost more than $800 billion.

In the 2000 elections, Vice President Gore had a $253 billion drug plan, and then-Gov. Bush had a plan that he said would've cost $158 billion. It sounded like a lot back then, but both price tags look pretty good now.

These are not all of the plans proposed over the last five years, but the pattern is clear. This looks more like an auction than it does any sort of reform or attempt to stabilize a Medicare system that is fast going bankrupt.

What makes any projections even more suspect is that, unlike the president's tax cuts, the Medicare drug provision isn't set to expire. It will live and grow forever or until it is repealed or changed.

And all of these projections go out only 10 years, which means they end in 2014. That's three years after the tip of the 77 million baby boomer iceberg begin to qualify for Medicare, nearly doubling its size from the current 40 million. These current estimates barely begin to take this demographic calamity into consideration.

Adding more liabilities to Medicare is like punching a hole in the bottom of a sinking ship to let the water out. It's simply won't work.

But it isn't too late. The major, ever-growing expense of the drug bill isn't set to take effect until 2006. In the meantime, all seniors will be issued a drug-discount card that could save them up to 25 percent on the prescriptions, with low-income seniors receiving an additional subsidy of $600 per year each to help cover costs.

That's a good idea, because 78 percent of seniors already have some form of drug coverage. It allows us to help those in need without creating an ever-growing entitlement that future generations won't be able to afford.

Hopefully, lawmakers will listen to the ever higher price tags associated with this drug bill, and fix the problems, before we, and our children and grandchildren, have to pick up the tab, with "real money."

About the Author

Derek Hunter Research Assistant
Center for Health Policy Studies

Related Issues: Health Care

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