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Medicare drug benefit will cost more than reported { February 9 2005 } Original Source Link: (May no longer be active)
http://www.washingtonpost.com/wp-dyn/articles/A11008-2005Feb9.htmlhttp://www.washingtonpost.com/wp-dyn/articles/A11008-2005Feb9.html
Medicare Drug Benefit May Cost More Than Reported
New Estimate Dwarfs Bush's Original Price Tag
By Ceci Connolly and Mike Allen
Washington Post Staff Writers
Wednesday, February 9, 2005; 1:55 PM
The White House released budget figures yesterday indicating that the new Medicare prescription drug benefit will cost more than $1.2 trillion in the coming decade, a much higher price tag than President Bush suggested when he narrowly won passage of the law in late 2003.
The projections represent the most complete picture to date of how much the program will cost after it begins next year. The expense of the new drug benefit has been a source of much controversy since the day Congress approved it, with Democrats and some Republicans complaining that the White House has consistently low-balled the expected cost to the government.
As recently as September, Medicare chief Mark B. McClellan said the new drug package would cost $534 billion over 10 years. Last night, he acknowledged that the cumulative cost of the program between 2006 and 2015 will reach $1.2 trillion, but he cited several major savings and offsets that he said will reduce the federal government's bottom-line cost to $720 billion.
The disclosure of the costs yesterday prompted new criticism by Democrats about the administration's long-term budget estimates. It also showed that Medicare, the national medical insurance program for seniors, may pose a far more serious budgetary problem in the coming decade than concerns about the solvency of Social Security.
At a House Ways and Means Committee hearing, Rep. Rahm Emanuel (D-Ill.) taunted Treasury Secretary John W. Snow about the rhetorical discrepancies.
"If you're looking for a crisis, I would suggest you look at a crisis that was self-made in just last year, because the crisis exists in what's happened to Medicare by weighing it down," Emanuel said. "Those of us who told you it was going to cost twice as much were right."
Bush, questioned by reporters about the new numbers while meeting at the White House today with the Polish president, said that "there's no question that there is a unfunded liability inherent in Medicare" that the administration and Congress will "have to deal with over time."
"The same issue that . . . creates a problem with Social Security creates a problem for Medicare," he said. "In other words, baby boomers are retiring with fewer payers going into the system." But he argued that reforms instituted in the Medicare program last year will improve the situation and said Congress should deal with the Social Security reform he has endorsed first because "once we modernize and save Social Security for a young generation of Americans, then it will be time to deal with the unfunded liabilities in Medicare."
At the recent confirmation hearing of Health and Human Services Secretary Mike Leavitt, Senate Budget Committee Chairman Judd Gregg (R-N.H.) pressed the administration to hold down the cost of the prescription drug program to the $400 billion that Bush had originally promised.
In a telephone briefing last night, McClellan said that the annual cost of the program will remain relatively the same but that for the first time the benefit will be fully operational for an entire 10-year budget time frame. "Our cost estimates for the drug benefit are the same as they've been in the past," he said.
From the outset, the cost of the Medicare drug benefit has sparked nearly as much controversy as the details of the program itself. Liberals have said that Bush devised a "stingy" benefit in which many seniors would be faced with thousands of dollars' worth of drug bills. Conservatives have argued that an open-ended entitlement to prescription drug coverage would cost far more than the Treasury could afford.
Beginning with his January 2003 State of the Union address, Bush pledged to keep the total cost of the drug benefit to $400 billion over 10 years. An estimate by the Congressional Budget Office was close to Bush's figure.
But shortly after Bush signed the program into law in December 2003, the White House revised its projection to $534 billion, but it never offered a detailed breakdown of that estimate.
Last March, Richard S. Foster, Medicare's chief actuary for nearly a decade, said administration officials threatened to fire him if he disclosed his belief in 2003 that the drug package would cost $500 billion to $600 billion. Lawmakers in both parties accused the administration of concealing important information that could have derailed passage of the bill.
Last night, in response to media inquiries, McClellan revised the numbers once more. The most significant change, he said, is that the new budget projections tally the cost of drug benefits for 10 years. Projections made in 2003 included the two transition years before the drug coverage is fully implemented in 2006.
Providing prescription coverage for more than 41 million seniors in 2014 and 2015 will cost more than $107 billion annually, he noted.
Administration accountants have factored in new premium payments by beneficiaries, which will lower the program's overall cost. Moreover, McClellan said, some seniors will be shifted from Medicaid to Medicare, resulting in about $190 billion in savings over the next decade. That is because states will be required to reimburse the federal government for some of those services, and the federal government will not be required to pay out as much in matching funds to states.
The new budget projections also show that seniors will face higher bills each year. A 10-year chart prepared by the Medicare actuaries estimates the drug premium will rise from $35 a month next year to $68 in 2015. Annual deductibles will start at $250 in 2006 and rise to about $472 in 2015, and the maximum annual out-of-pocket expense would be $6,800 that year.
Meanwhile, administration officials struggled to defend Bush's Social Security and budget plans, which Democrats attacked as fiscally deceptive in day-long hearings on Capitol Hill.
During his testimony, Snow was asked by Rep. Lloyd Doggett (D-Tex.) how the administration could describe Social Security as headed for bankruptcy when many private companies have pension plans for which they cannot currently meet all their obligations.
Bush said in his State of the Union address last week that unless Congress acts now to restructure Social Security and create individual investment accounts for younger workers, the system will "be exhausted and bankrupt" by 2042.
Snow acknowledged that "there is a major difference between not being fully funded and being bankrupt." But he said Social Security is "doomed by our country's demographics" and "is offering empty promises to future generations."
Democrats pointed to the discrepancy in Medicare cost projections as further reason to distrust Bush's 2006 budget, which they said uses tricks and omissions to paint a rosier fiscal picture than the facts justify.
Republicans had expected their opponents to focus on the 150 major cuts to programs in the president's budget, although the White House has so far declined to release a complete list. Instead, Democrats used their time to build a case that Bush is portraying Social Security as worse off than it really is, as a way to build support for personal accounts, and at the same time is trying to make the trend in deficits look better than it is.
Testifying at the same time as Snow, White House budget director Joshua B. Bolten acknowledged that "the private accounts, the personal accounts, do not, in themselves, solve the full Social Security problem."
"Other reforms will need to be made," he said.
© 2005 The Washington Post Company
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