The net cost of
the Medicare drug entitlement is now projected to be a stunning
$720 billion over the period from 2006 through 2015, according to
the Bush Administration. Some journalists and Members of Congress
reacted to this news with horror, claiming that the Administration
hid the real cost of the program from Congress. While that is an
absurd charge, suggesting perhaps a misunderstanding of moving
averages, the projections underscore a simple fact: the drug
entitlement was a costly mistake that needs to be repealed or
Administrator of the Centers for Medicare and Medicaid Services,
the agency tasked with implementing the Medicare Modernization Act,
has been reported as saying the drug entitlement will cost $720
billion from 2006 to 2015.
On the face of it, this estimate seems higher than the earlier
Administration projection of $534 billion. But that was for the
10-year period from 2004 through 2013. The current estimate is for
the 10-year period from 2006 through 2015. That replaces the first
two years, which have been inexpensive, with two full years of drug
entitlement spending after the baby boomers have begun to retire.
By 2014, when the huge baby-boom generation is retiring in large
numbers, the annual cost of the Medicare drug benefit alone will be
more than $107 billion and rising annually.
For Members of
Congress to react with shock at this "rise" in the projection
indicates either that they are playing politics or simply do not
understand that 10-year projections change with each passing year.
This was widely understood in 2003-or should have been. During the
Medicare debate, many independent analysts continually warned
Congress that the costs of the drug entitlement would turn out to
be far larger than the original official projections, in part
because 10-year projections do not indicate the full cost of an
entitlement-especially when annual spending rises sharply in the
"out" years-and in part because actual health care costs invariably
Those warnings were routinely dismissed.
The problem is not
with the honesty of the Administration's estimators. Administration
officials have always explained that the program's costs would rise
over time. The problem is that the drug benefit itself imposes
staggering new unfunded liabilities on future generations. These
cannot be honored without huge deficits, huge tax increases, or
slashing other programs.
enacted the Medicare Modernization Act in December 2003, senators
and representatives were assured that the bill would have an
initial 10-year price tag of approximately $400 billion over the
years 2004 through 2013. But this reached only 10 years into the
future and did not include the rapidly rising costs after 2013
attributable to baby boomers receiving full benefits. Still, in
January 2004, the Bush Administration upped that 10-year projection
to $534 billion. But even these figures stopped the estimating
clock at 10 years. In December 2003, shortly after President Bush
signed the bill, Douglas Holtz-Eakin, Director of the Congressional
Budget Office (CBO) estimated that the cost of the Medicare drug
entitlement could reach $2 trillion during the second decade of the
Congress has continued to ignore subsequent warnings by other
analysts over the long-term burden on taxpayers from the drug
entitlement, including those of former senior CBO officials.
Revisiting the Real
Medicare drug debate, Members of Congress were well aware that most
senior citizens, roughly three out of four, had some form of drug
coverage from a variety of sources. They knew that the problem of
access to drug coverage was a problem for only a minority of
seniors who were often poor and could not afford-or did not have
access to-private, employer-based, or Medicaid coverage. But rather
than solve that problem and target taxpayer dollars directly to
poor seniors without coverage, Congress insisted on creating a
costly and unnecessary universal drug entitlement that would
largely displace existing spending with new federal spending and
disrupt most seniors' existing coverage.
enormous short term costs that will threaten much of the
conservative domestic policy agenda, including control over federal
spending, securing the permanency of the Bush tax cuts, defense
transformation, and even the much-needed reform of Social Security.
And the much larger long-term unfunded liabilities of the Medicare
drug entitlement will impose trillions of dollars in additional tax
burdens on young working families.
Time to Reverse
The Medicare drug
entitlement is scheduled to go into full effect on January 1, 2006.
Even before the latest Medicare drug cost projections were
released, many Members of Congress experienced a growing anxiety
about the future cost of the drug entitlement. Recent cost
projections should provide one more jolt of realism to Congress.
The country cannot afford this runaway new entitlement.
The best option
for digging out of this costly fiscal hole is to repeal the drug
entitlement before it goes into effect in 2006 and target the
increasingly limited taxpayers' dollars to those seniors without
drug coverage, the seniors who need help the most. Procrastination
will only ensure that the problem will get worse.
Robert E. Moffit,
Ph.D., is Director of the Center for Health Policy Studies
at The Heritage Foundation.