March 23, 2005

March 23, 2005 | Commentary on Health Care

Clock Ticking for Cleaning Up Medicare Mess

The cost of the Medicare drug bill, set to go into effect fully on Jan. 1, 2006, is not only high, but is certain to soar. Bush Administration officials now say that the 10-year cost will be $724 billion. And Congress will have to act quickly to stanch a potential spending tsunami.

Many members of Congress are furious, saying that when they enacted the law in 2003, they were under the impression--based on a Congressional Budget Office (CBO) estimate they got at the last minute--that the initial 10-year price (from 2004 to 2013) would be approximately $400 billion. Less than a year later, the Bush Administration, using different assumptions, recalculated the cost over the same period at $534 billion, conceding also that administration actuaries had actually arrived at a much higher estimate than the CBO during the bitter Medicare debate (but had never revealed it). Of course, over the last two years, the short-term cost predictions have steadily risen, even before the universal drug entitlement has actually gone into effect.

The low point of the debate occurred on the morning of Nov. 22, 2003, when, after keeping the floor open for an unprecedented three hours to reverse an apparent defeat, the House GOP leadership whipped through the Medicare drug bill by just five votes. Twenty-five conservative House Republicans, bravely led by Rep. Mike Pence (R.-Ind.) and Rep. Pat Toomey (R-Pa.), refused to buckle to the intense pressure. Doubtless there are now far more House Republicans who deeply regret their vote.

Still, Congress has no business being shocked and surprised. An open-ended universal drug entitlement, as independent analysts had incessantly warned, will crowd out existing drug coverage and impose staggering costs on current and future generations. The Washington insider disputes over competing 10-year estimates, differing assumptions, time-frames and methodologies illustrate what G.K. Chesterton, the great English writer, once called an extravagant exercise in the fine art of missing the point.

The point is this: The latest $724 billion estimate is our first peek at the enormity of what is coming. With each passing year, that number will grow, the financial crisis will deepen and the burden on young workers and their families, as well as seniors, will increase. The Medicare trustees' latest estimate is that the drug entitlement alone will add more than $8 trillion in unfunded promises to the Medicare program.

This would bring Medicare's long-term, unfunded benefit promises to a total of $28 trillion, dwarfing the unfunded obligations of Social Security. Heritage Foundation budget analysts say that, within just 20 years, the Medicare shortfall alone will require a permanent tax increase of at least $2,000 per household, adjusted for inflation. And that's on top of existing payroll taxes.

Worse, this is totally unnecessary. There is no general problem of access to drug coverage among today's seniors, and there is no need for a universal entitlement. Three out of four seniors today already have some form of drug coverage, either through employers, private insurance or other government coverage. The problem exists only among a minority of seniors who don't qualify for public assistance or who are too poor to afford private drug coverage.

The obvious solution: Help that minority without coverage with direct and targeted assistance. Curiously, this was precisely what President Bush offered in 2001 when, as part of his original Medicare reform proposal, he included his "Immediate Helping Hand" initiative, providing $48 billion to states over a four-year period to provide drug coverage to poor seniors without it. But lawmakers showed no interest in this reasonable, low-cost answer. They, and eventually the Bush Administration, were more interested in creating a massive, universal--and extremely expensive--entitlement.

So what now?

Given that the President pledged in his first term to give seniors a drug relief program, there are two things Congress can still do to head off the worst effects of Medicare's new entitlement, whose costs begin to soar significantly just about nine months from today.

The Congress can fulfill the President's promise of aiding seniors by making permanent the new but temporary Medicare discount card program in which private drug companies are required to offer card-holding seniors drug discounts and are currently doing so at competitive, cost-cutting prices. These cards, with their free-market component, enable seniors to secure serious savings. (Unfortunately, this part of the Medicare drug plan expires on January 1 of next year, whether seniors like it or not.) Congress should also continue that portion of the drug program that provides the elderly poor with $600 annually to help offset their drug costs.

The initial cost of these two proposed features, judging from the past 19 months they have been in effect, is a relatively reasonable sum: less than $2 billion annually, although these costs are also certain to rise in future years. Moreover, many conservatives believe the drug companies should also be required to provide discount card holders catastrophic coverage to protect them from high-end drug costs, which will have the added advantage of keeping seniors off the ever expanding Medicaid program.

Budget conscious lawmakers may balk at creating a permanent Medicare drug discount card, with an added catastrophic requirement, as well as continuing the direct federal subsidy to the impoverished elderly. But others believe all this would be a small price to pay in exchange for repealing full implementation of the frighteningly more expensive universal drug entitlement scheduled to go into effect on Jan. 1. Just the first year of the new entitlement is projected to cost a stunning $37.4 billion.

Fortunately, there are still voices of reason in Congress. Senate Budget Chairman Judd Gregg (R.-N.H.) says Congress must take steps to control these costs. Rep. Mike Pence (R.-Ind.), the energetic head of the Republican Study Committee, says Congress needs to revisit the Medicare drug issue. Rep. Jeff Flake (R.-Ariz.) thinks Congress ought to delay the drug entitlement and extend the drug discount card. Their comments are indicative of a growing realization among conservatives in Congress that they must take action this year, before the drug entitlement is locked in place.

Bush, meanwhile, has absurdly threatened to veto any effort to trim the massive costs of his Medicare drug entitlement. This is surreal. If Congress were to adopt a targeted drug benefit focused on the needy, he would not only be vetoing a policy he once championed, but guaranteeing an explosion in health care costs that not only threaten all of his tax cuts, the cornerstone of his domestic agenda, but the economy itself. There would be a further irony if he would veto legislation to lower costs: Bush would be casting his very first veto to maintain a program that threatens a permanent fiscal crisis.

The clock is ticking. By next January, taxpayers--and young Americans, especially--will find out if there are any true statesmen left in Congress

Robert Moffit is director of the director of the Center for Health Policy Studies at the Heritage Foundation.

About the Author

Robert E. Moffit, Ph.D. Senior Fellow
Center for Health Policy Studies

Related Issues: Health Care

First appeared in Human Events