August 12, 2003

August 12, 2003 | WebMemo on Health Care

How Much Will the Senate Drug Bill Cost a Family of Four?

The Congressional Budget Office estimates that the Senate Medicare prescription drug bill will cost $400 billion over the next 10 years. This cost, however, is not the whole story. 

 

Since Medicare prescription drugs is a new entitlement that will continue indefinitely, Jeff Lemieux of the Progressive Policy Institute calculated how much of an increase in actual spending as a percent of Gross Domestic Product (GDP) that would mean by the year 2030. 

 

In the words of Lemieux, "…the cost impact of these bills is more than a one-time bump. It is a permanent acceleration of spending growth."[1] See chart below:

 

 Medicre_WM306

 

Source: Lemieux, Jeff, Drug Benefit Costs 1 Percent of GDP by 2030 (If CBO's Right), Centrists.org, June 25, 2003.

 

In the year 2030, 1 percent of GDP is projected to be $481 billion. Taking into consideration projected population growth, that means a family of four's share of the new prescription drug benefit will be $5,485 just for the year 2030.[2]

 

Taking into consideration that 1 percent of GDP in 2001 was slightly more than $100 billion, if you take that and divide it by U.S. households in 2001, on average, a family of four contributed roughly $1,439 to the GDP. In 2001, consumers spent, on average, $1,142 on meat, poultry, fish, and eggs combined and $1,810 on gasoline and motor oil.[3]

 

Considering the average household is projected to spend $5,485 on the new prescription drug benefit in the year 2030, The Heritage Foundation's Center for Data Analysis has projected how much consumers will spend on those necessary goods above in the year 2030 for comparison.[4]

 

The Senate Medicare Drug Bill will cost a family of four $5,485 in the year 2030.

How will that compare with other expenditures?

 

 

 

 

2001

2030

Family of four's share of 1% of GDP (what the Senate Bill is projected to cost in 2030)

$1,439

$5,485

Amount spent on meat, poultry, fish, and eggs

$1,142

$2,081

Amount spent on gasoline and motor oil

$1,810

$3,299

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In 2030, under the Senate bill a family of four's share of the cost of prescription drugs for seniors will be more than they will total amount they will spend on meat, poultry, fish, and eggs and gasoline and motor oil for their own family.[5]

 

Intern Ian Ellis also contributed to this piece.




[1]Jeff Lemieux, Drug Benefit Costs 1 Percent of GDP by 2030 (If CBO's Right), Centrists.org, June 25, 2003.  http://www.centrists.org/pages/2003/06/25_lemieux_health.html

[2]Consumer Expenditure Survey (2001). Bureau of Labor Statistics, U.S. Department of Labor.  http://www.bls.gov/cex/csxann01.pdf

[3]National Population Projections. U.S. Census Bureau.  http://www.census.gov/population/projections/nation/summary/np-t1.pdf

[4] Projections of consumer spending, inflation, and other economic indicators used in this report were prepared by the Center for Data Analysis of The Heritage Foundation based on forecasts through 2028 from Global Insight, Inc., one of this country's premier economic forecasting companies. The GI model is widely used by Fortune 500 companies and government agencies, including the Congressional Budget Office. It is the successor model of the widely respected DRI and WEFA U.S. Macroeconomic Model.

[5] Ibid.

About the Author

Derek Hunter Research Assistant
Center for Health Policy Studies

William W. Beach Director, Center for Data Analysis and Lazof Family Fellow
Center for Data Analysis

Related Issues: Health Care