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Entitlements have history of cost overruns
Question of the Day
Adding a prescription drug benefit to Medicare will cost many times its estimated $400 billion price tag for the next decade, judging from past growth in health care entitlement programs.
In addition, the drug benefit would burden Medicare with an expected liability of $4.4 trillion over the 75-year period used to map the program’s long-term soundness, but without providing any means of covering that cost.
The House is scheduled to vote on its version of the bill today, while the Senate has been considering its bill for two weeks and hopes to finish its version before the end of this week.
Both bills add a prescription drug benefit to Medicare as part of a 10-year, $400 billion overhaul of the program, and Republican leaders in both chambers are fighting to keep conservatives from revolting against the proposals and their long-term costs.
Those who have studied past health care entitlement programs, though, say the costs are almost inevitably higher than predictions, and often are many times higher.
“We can expect the same thing here,” said Robert Bixby, executive director of the Concord Coalition, a budget-hawk advocacy group.
Medicare has exceeded its projected costs from the beginning. When the initial program, hospital insurance, was instituted in 1965, the projected cost in 1990 was $9 billion. The actual cost in 1990 was $67 billion — more than seven times the estimate.
Richard Jackson, who studied the issue for the Concord Coalition, presented other examples:
In 1987, Medicaid’s special hospitals subsidy was projected to cost $100 million per year by 1992, but the actual cost by then was $11 billion.
In 1988, when the Medicare home care program was established, the 1993 projected cost was $4 billion, while the actual cost in 1993 was $10 billion.
The 1990 budget deal projected finding $43 billion in savings in Medicare over five years, “precisely none of which materialized — or maybe more to the point it did materialize, but other [Medicare] spending grew more rapidly,” Mr. Jackson said.
Mr. Jackson said estimating the number of beneficiaries can be just as suspect. When Medicare began to cover kidney dialysis in 1972, the projection for 1995 was 90,000 beneficiaries. By 1994, the number of beneficiaries came to 194,000.
Neil Howe, an adjunct scholar at the National Taxpayers Union who has worked with Mr. Jackson to study the issue, said several factors affect the growth.
Mr. Howe said the easy availability of drugs will create additional demand through an “out of the woodwork” phenomenon in which people who have forgone medication in the past demand it now as a necessity. Also, he said, the program over the long term could create a new force to develop and bring drugs to market.
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