NCPA - National Center for Policy Analysis


March 16, 2005

Demographic changes and new medical technology will likely increase the cost of the Medicare prescription drug benefit over current estimates, say observers.

Joseph Antos of the American Enterprise Institute and Jagadeesh Gokhale of the Cato Institute note that current estimates of the prescription drug benefit are too low, since they do not reflect future legislative changes in the program that could increase outlays.

  • In November 2003, the Congressional Budget Office estimated the Medicare drug benefit would cost $409 billion through 2013.
  • The Centers for Medicare and Medicaid Services estimated the cost at around $690 billion over the next 10 years.
  • In September, the president's budget office increased the spending estimate an additional $42 billion, to $732 billion.
  • However, the 2006 budget (when the full drug subsidy becomes effective) reflects an additional increase of $470 billion -- a grand total of $1.2 trillion over the next 10 years.

Since its passage, the estimated cost of the Medicare drug benefit has crept upward by 80 percent over one year. Furthermore, Medicare spending growth as a whole has outpaced GDP growth since 1980; the two growth rates are expected to widen even further as the first baby boomers retire in seven years.

The goal for reforming Medicare, says Antos and Gokhale, should be to moderate spending growth without placing an undue burden on recipients, and Congress should push for market-based reforms.

Source: Joseph Antos and Jagadeesh Gokhale, "Medicare Prescription Drugs: Medical Necessity Meets Fiscal Insanity," Cato Institute, Briefing Paper No. 91, February 9, 2005.

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