April 1, 2004 | WebMemo on Health Care
The Congressional Budget Office (CBO) estimates that the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 will cost $395 billion over 10 years, while actuaries for the Centers for Medicare and Medicaid Services (CMS) estimate $534 billion. Why this discrepancy? The chief culprit is the drug benefit, which accounts for about $100 billion of the difference, according to CBO Director Douglas Holtz-Eakin. And if history is any guide, the final cost of the 2003 Medicare Act will be far higher still than today's estimates.
The heightened concern over the costs of the legislation comes in the wake of the recent release of the 2004 report of the Medicare Trustees, which projects a sharp deterioration in the financial health of the troubled Medicare program. 
Today's heightened concern over costs comes in the wake of the 2004 report of the Medicare Trustees, which projects a sharp deterioration in the financial health of the troubled Medicare program. While Congress is right to take Medicare's rising cost seriously, there is no reason to believe that the differences in the CMS and CBO cost estimates are anything but legitimate differences in analysis.
CMS estimates the cost of the Medicare law to be $139 billion more than CBO because they use two different sets of assumptions, both of which may prove to be wrong. The lion's share of the difference lies in the drug benefit itself and differing estimates of how many seniors will participate, and not in the projected payments to private plans in Medicare Advantage. While only the future will tell which estimate is more accurate, the 2003 Medicare Act-and especially the prescription drug benefit-will likely cost far more than many of today's estimates, if history is any guide.
Derek Hunter is Research Assistant in the Center for Health Policy Studies at The Heritage Foundation.
 Douglas Holtz-Eakin et al., "Comparison of CBO and Administration Estimates of the Effect of H.R. 1 on Direct Spending," Congressional Budget Office, February 2, 2004. /static/reportimages/D90DA099C4728D13E97E335680D41326.pdf
 On this issue, see Robert E, Moffit and Brian M. Riedl, " Medicare's Deepening Financial Crisis: The High Price of Fiscal Irresponsibility," Heritage Backgrounder No. 1740, March 25, 2004.
 For more information see Edmund F. Haislmaier, "How Congress's Medicare Drug Provisions Would Reduce Seniors' Existing Private Coverage," Heritage Foundation Backgrounder No. 1668, July 17, 2003. http://www.heritage.org/Research/HealthCare/bg1668.cfm
 Holtz-Eakin et. al.
 For more information see Derek Hunter, "The Sky's the Limit: Medicare's Upwardly Mobile Drug Cost Projections," Heritage Foundation WebMemo No. 326, August 12, 2003. http://www.heritage.org/Research/HealthCare/wm326.cfm
 Holtz-Eakin et. al.