- The Washington Times - Wednesday, June 25, 2003

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.

Robert Moffitt at the Heritage Foundation said the debate reminded him of the 1988 Medicare Catastrophic Coverage Act, which received strong support from interest groups and was passed overwhelmingly in Congress, but was repealed just one year later.

The intervening year was noteworthy for the memorable occasion of seniors chasing House Ways and Means Committee Chairman Dan Rostenkowski, Illinois Democrat, through the streets of Chicago and beating on his car to complain about the legislation.

“We’re looking at a replay of this thing,” Mr. Moffitt said.

Democrats have been clear that this year’s bill is a foot in the door, and what they don’t get passed now they will demand in the future.

“Many of these amendments are ones you’ll recognize later,” said Senate Minority Leader Tom Daschle, South Dakota Democrat. “It may be next month, it may be next year, it may be at some point in the future. So the more we can build and make the record, we think, the better our prospects are the next time we offer it.”

Democratic leaders’ preferred plan would cost $900 billion, and observers say cost increases could come as pieces of their plan pass in future years.

The first expansion target will be the bill’s “doughnut hole,” where seniors whose drug costs fall in a certain range must pay 100 percent of the costs.

“This one has got cost expansion written all over it because of the doughnut-hole thing,” said Mr. Bixby at the Concord Coalition. “Filling in that doughnut hole is going to be the Holy Grail of politicians and seniors’ advocates over the next few years.”

On top of the growth in prescription drug costs themselves, Congress has not created a designated stream of funding for the program, as it has for Social Security and Medicare through payroll taxes. Therefore, the drug benefit will create an entitlement that Congress must fund through general revenue.

The president’s own fiscal year 2004 budget said the prescription drug benefit program that House Republicans proposed last year would add $4.4 trillion over the next 75 years, bringing the total expected liability to $17.9 trillion. Most observers say both the House and Senate bills this year would add at least that much.

Covering the cost of that liability would require a tax increase of about $3,000 a year for the average family, the president’s budget says, arguing that the long-term number is even more important than the short-term costs.

“What a proposed reform is estimated to cost over its first five or 10 years is less important than whether it reduces or worsens the unfunded (and unfundable) liabilities of the system,” the budget says.

Congressional Republicans, though, say their proposals will reduce the long-term liability through cost savings that would result from introducing free-market competition into the Medicare equation — something that is part of the overhaul.

“What we are putting our faith in is what we’ve always put our faith in philosophically and in principle, and that is competition keeps the cost of health care down while it raises the quality of health care,” said House Majority Leader Tom DeLay, Texas Republican.

Without those reforms, Republicans say, Medicare costs will balloon anyway because of an aging population and growing health care costs.

“The alternative is just horrendous,” Mr. DeLay said.

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