The Costs Keep Rising (February 9, 2005)
According to the
latest official projections, the net, ten-year cost of the Medicare
Modernization Act (MMA) drug entitlement is $720 billion.
passed the Medicare Modernization Act in 2003, CBO and
Administration officials said that the initial ten-year cost (over
the period from 2004 to 2013) was going to be roughly $400 billion.
The near doubling of the cost is due to a change in the time window
(it is now 2006 to 2015) and to the fact that the initial ten-year
estimates included 18 months of the less expensive Medicare Drug
Discount Card (MDDC), which was created to fill the void between
passage of MMA and implementation of the full drug entitlement in
The MDDC delivers
discounts on prescriptions to enrolled seniors and includes a $600
cash subsidy targeted directly toward low-income seniors. Cost
estimates for the 18-month MDDC come in at just $5.1 billion,
whereas the first year of the drug entitlement in 2006 is estimated
to cost $43.7 billion. Nonetheless, Congress, under current law,
will let the MDDC shut down in 2006.
Estimates of the
10-year cost of the Medicare drug benefit will only balloon as the
baby boom generation starts to retire and join the Medicare rolls.
If Congress repealed the entitlement and instead adopted targeted
and expanded MDDC program, the new policy could save taxpayers
billions while assisting those seniors who actually need help. Congress should take
heed not only from the ever-rising cost estimates of MMA but the
recent history of drug entitlement proposals for Medicare: Delay
only increases the costs.
outcome of the current House-Senate conference on Medicare
legislation, taxpayers can depend on one thing: The cost
projections of the Medicare drug entitlement keep rising.
In less than one
month, the Congressional Budget Office (CBO) significantly
increased its estimates of the mammoth House and Senate bills.
Initial estimates put the cost of the program at $400 billion over
10 years. CBO now estimates that the drug benefit will cost:
- $432 billion from
2004-2013, in the Senate bill, and
- $425 billion from
2004-2013, in the House bill.
Benefit Drives Cost
House and Senate
leaders refuse to target limited taxpayer funds to low-income
seniors who do not have, or cannot afford, prescription drug
coverage. Instead, they insist on creating a universal Medicare
House and Senate
leaders also ignore the fact that most seniors already have
prescription drug coverage from a variety of sources, including
private, employer-based retiree coverage. Instead, they insist on
displacing existing private coverage in favor of a government
This means, of
course, not only that many seniors will lose their perfectly good
existing private coverage, but also that America's current and
future taxpayers are going to pay-big-time.
Higher Costs A "Down
passed House and the Senate versions of the proposed Medicare
prescription drug entitlement are expensive. Sponsors claimed the
provisions would cost about $400 billion over 10 years. Both bills
passed on June 27, 2003.
Then, on July 22,
2003, the Congressional Budget Office (CBO) issued another report
on the bills. The result: The drug benefit in the Senate version of
the Medicare drug provisions (S.1) is now estimated to cost $432
billion over the period 2004-2013. The House version (H.R.1) is now
estimated to cost $425 billion over the same period.
Thus, in less
than one month, CBO significantly increased its estimates of
the mammoth House and Senate bills. But today's CBO estimates do
not, and cannot, take into account what can happen when and if a
bill becomes law and is routinely subjected to the legislative
changes that Congress, under pressure from liberal seniors'
lobbies, can and will make at any time.
Kennedy (D-MA), indicating that $400 billion is just a start, made
it very clear in an interview with US News & World
Report that the current Medicare legislation is a "down
payment" on the Medicare drug benefit. With the congressional
leadership building the foundation of the Medicare drug
entitlement, it is only a matter of time before Members of Congress
erect a massive entitlement structure.
Ignoring Real Market
The current debate
over a Medicare prescription drug entitlement is hardly new. For
many years, Members of Congress have pointed to the absence of drug
coverage in Medicare as prima facie evidence that the program was
both slow to change and too hindered by legislative and
Instead of trying
to reform the program and attacking the bureaucratic inflexibility
at its roots by injecting real market competition into program,
however, many Members of Congress have insisted on simply adding a
Medicare drug benefit as an entitlement just like other Medicare
benefits, to be administered under the same type of structure that
governs other Medicare benefits. Likewise, the price tags for these
various Medicare drug proposals have risen significantly from year
In 1988, Congress
passed the Medicare Catastrophic Coverage Act, which included a
self-financing prescription drug entitlement. Original CBO
estimates put the five-year cost of prescription drugs at $5.7
billion. But less than 12 months later, CBO estimates put the price
at $11.8 billion, nearly doubling the earlier projections. These
Medicare Catastrophic drug projections, interestingly enough, were
positively puny by today's standards. Nonetheless, seniors did not
want to pay for the rapidly rising cost of the new benefits,
including the new drug benefits. Following protests by angry
seniors over how much the law was going to cost them, the law was
repealed in 1989.
For the Record: Recent Medicare
Prescription Drug Proposals
Given past history
on Medicare drug cost projections, no one can say with any
certainty how much any Medicare prescription drug entitlement will
cost. One thing is clear, however: Over time, the costs of
Administration and congressional proposals to add a Medicare
prescription entitlement have all gone in one direction: up.
Breaux-Thomas Proposal. The Bipartisan Commission on the Future
of Medicare announced the results of their study on how best to
improve Medicare. Along with an overhaul of the Medicare system to
include competition between private plans for Medicare recipients'
business, the majority of the members of the Commission, led by
Senator John Breaux (D-LA) and Representative Bill Thomas (R-CA),
called for $60 billion to cover prescription drugs for
low-income seniors. The Breaux-Thomas proposal included a
targeted drug benefit for low-income seniors within the broader
context of an overall reform of the Medicare program, based on the
best features of the successful Federal Employees Health Benefits
Program (FEHBP). The Clinton Administration strongly opposed the
Breaux-Thomas proposal, calling it "inadequate and inefficient."
- The First
Clinton Medicare Proposal. President Bill Clinton proposed a
prescription drug benefit as part of a broader package of changes
in the Medicare program. The overall Medicare proposal was
estimated to cost $374 billion over 10 years and $794 billion over
15 years. For the drug benefit provisions, the Clinton proposal was
to cost $118 billion over 10 years.
- The Gore
Proposal. Vice President Al Gore, as a presidential candidate,
called for adding a prescription drug benefit to Medicare that
would cost $253 billion over 10 years.
- The First Bush
Proposal. Governor George W. Bush, as a presidential candidate,
proposed an overall reform of Medicare at a cost of $198 billion
over 10 years, $158 billion of which was to be used to cover
- The Second
Clinton Proposal. President Clinton proposed another Medicare
prescription drug benefit, this time at a price tag of $160 billion
over 10 years.
- The House
Republican Proposal. House Republicans passed a Medicare
prescription drug benefit that was estimated to cost $157 billion
over 10 years.
- The Graham
Proposal. Senator Bob Graham (D-FL) introduced a Medicare
prescription drug bill that was estimated to cost $318 billion over
Breaux-Frist Proposal. Senators John Breaux (D-LA) and Bill
Frist (R-TN) introduced legislation to reform Medicare. The
proposal also included provisions to cover prescription drugs in
Medicare at a cost of $176 billion over 10 years.
Graham-Miller-Kennedy Proposal. Senators Bob Graham (D-FL),
Zell Miller (D-GA), and Edward Kennedy (D-MA) proposed an amendment
to the Greater Access to Affordable Pharmaceuticals Act of 2001 (S.
812) that was to spend $594 billion over seven years.
Tripartisan Proposal. A proposal sponsored by Senators James
Jeffords (I-VT), Olympia Snowe (R-ME), Charles Grassley (R-IA),
Orrin Hatch (R-UT), and John Breaux (D-LA) to add a prescription
drug benefit to Medicare was defeated in the Senate. It was
estimated that the proposal would have cost $340 billion over 10
- The House
Medicare Reform Proposal. The House or Representatives passed a
Medicare reform bill that provided $320 billion over 10 years for
prescription drugs in Medicare.
- The Second
Bush Proposal. President Bush proposed $400 billion over 10
years for a Medicare prescription drug benefit.
Medicare Bill (S. 1). On June 27, 2003, the Senate passed a
Medicare prescription drug benefit that the CBO estimates would
cost $432 billion over 10 years.
- House Medicare
Bill (H.R. 1). On June 27, 2003, the House of Representatives
passed a Medicare prescription drug benefit that the CBO estimates
would cost $425 billion over 10 years.
Democratic Proposal. House Democrats called for a
prescription drug benefit ranging from $800 billion to $1 trillion
over 10 years.
Over the past few
years, the cost of proposed Medicare drug provisions has steadily
increased. Yet the latest 10-year CBO estimates barely begin to
take into account the first wave of 77 million baby-boomers that
will begin to retire in 2011. When they do, and their enrollment
nearly doubles the size of the Medicare population, Medicare drug
costs will soar.
Congress should be honest with taxpayers. What members of the House
and Senate, as well as the current and the previous Administration,
have determined to be necessary to help senior citizens to pay for
prescription drugs has increased significantly over the past five
years. There is no way to know how much this new entitlement will
end up costing taxpayers.
latest $400 billion 10-year cost estimate is already outdated. The
CBO projection, in any case, has turned out to be a floor, not a
ceiling, for the next explosive growth in federal entitlement