NCPA - National Center for Policy Analysis


May 9, 2005

The expected cost of Medicare over the next decade is much higher than originally predicted, according to Derek Hunter of the Heritage Foundation.

The Congressional Budget Office originally estimated the cost for the program from 2004 to 2013 at about $394 billion. However, this estimate did not account for the 10-year cost of the prescription drug benefit, since it does not take full effect until 2006.

As a result:

  • The Centers for Medicare and Medicaid came out with their own estimate, revising the cost upward from 2004 to 2013 to a total of $534 billion (which includes 8 years of the prescription drug benefit).
  • Furthermore, the cost of the program from 2006 to 2015 (accounting for 10 years of the prescription drug benefit) is estimated to total $724 billion.
  • By 2020, 25 percent of all federal income taxes will pay for Medicare; that figure will increase to 50 percent of federal income taxes by 2040.
  • Additionally, the drug benefit program (Part D) will cost about $8.7 trillion in unfunded liabilities over 75 years.

According to Hunter, the most common-sense approach would be to repeal the drug entitlement provisions before they take effect, and instead target drug benefits to seniors who are poor and without private prescription coverage. As a start to reducing some costs, Rep. Jeff Flake (R-Ariz) has introduced legislation which would delay the start of the full prescription drug benefit until 2007, saving about $40 billion in 2006.

Congress can no longer pretend it does not know about the looming deficits that future Medicare entitlements will bring, says Hunter.

Source: Derek Hunter, ?Medicare Drug Cost Estimates: What Congress Knows Now,? Backgrounder 1849, Heritage Foundation, April 28, 2005.


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