NCPA - National Center for Policy Analysis


June 11, 2004

The Medicare Modernization Act (MMA) provides seniors and people living with disabilities a prescription drug benefit, more choices and better benefits under Medicare. The Congressional Budget Office (CBO) estimates the cost to be $395 billion, while the Centers for Medicare and Medicare Services (CMS) project the cost to be closer to $534 billion.

However neither estimate is right, says Joseph Antos of the American Enterprise Institute. The actual cost of MMA will be much higher than either estimate reveals because the drug benefit represents a permanent commitment of resources to seniors rather than a benefit that will expire in a decade:

  • The biggest disagreement between CBO and CMS is the popularity among seniors of private Medicare Advantage plans; CBO assumes that only 9 percent of seniors will choose a private pan instead of traditional Medicare, while CMS assumes that 32 percent will enroll in such plans.
  • CBO assumes slightly lower enrollment in the Part D drug benefit and slightly lower drug costs per enrollee; CBO assumes that seniors will be attracted to the low-income subsidies offered to them, but less quickly that does the administration.
  • CBO also uses slightly higher projections of spending in Medicaid.

These kinds of small differences add up to more than a $100 billion discrepancy between CBO and CMS cost estimates, say AEI experts. But even so, the discrepancy is only important if one assumes that Congress will make no future legislative changes, a tall order, say experts.

A more reasonable assumption, but one impossible to quantify, is that Congress will make the drug benefit more generous and make a host of other changes over the next few years that on balance are likely to raise federal outlays significantly, says AEI.

Source: Joseph Antos, "Don't Ask, Don't Tell," Health Policy Outlook, March-April, 2004, American Enterprise Institute for Public Policy Research.

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