NCPA - National Center for Policy Analysis

Prescription Drug Benefit Costs: Up and Away

June 26, 2003

Based on the past growth of health care entitlements, experts warn that a Medicare prescription drug benefit will be much more costly than current estimates. That is partly because many members of Congress want the program to be more expensive -- generous -- in covering seniors' drug costs. Also, the easy availability of drugs will inflate demand.

  • The estimated 10 year cost of the current House bill is $400 billion, adding $4.4 trillion to the unfunded Medicare liabilities over the next 75 years.
  • Democratic leaders' preferred plan would cost $900 billion over 10 years, and observers say costs could increase as pieces of their plan pass in future years.
  • With the smaller benefit, Medicare's expected 75-year revenue shortfall is $17.9 trillion -- since none of the drug proposals adds any revenues to Medicare.

Covering those liabilities would require a tax increase of about $3,000 a year for the average family, according to the president's 2004 budget.

Medicare spending has exceeded expectations from the beginning, says the Concord Coalition's Richard Jackson: When the hospital insurance program was instituted in 1965, the projected 1990 cost was $9 billion, but ended up being $67 billion -- more than seven times greater.

  • In 1988, when the Medicare home care program was established, the 1993 projected cost was $4 billion; the actual cost was $10 billion.
  • The 1990 budget deal projected $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," Jackson said.

The first expansion target will be the "doughnut hole" in the Republicans' proposed bill, says Robert Bixby of the Concord Coalition. That is the range of drug costs where seniors must pay 100 percent.

Source: Stephen Dinan, "Entitlements have history of cost overruns," Washington Times, June 26, 2003.


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