NCPA - National Center for Policy Analysis

Costly Prescription Drug Benefits

June 4, 2003

Adding a prescription drug benefit to Medicare would simply worsen the country's central budget problem, says columnist Robert J. Samuelson: the huge retirement costs of the baby-boom generation.

From 2010 to 2030, the over-65 population is projected to rise by about 30 million; meanwhile, the working-age population (20-64) will increase by only 10 million.

The pressures on younger families to pay for Social Security and Medicare benefits must rise, and piling new benefits atop the old compounds the pressures.

  • The Congressional Budget Office projects that the costs of today's Social Security and Medicare benefits will nearly double by 2030 -- from 6.4 percent of national income (gross domestic product) to 11.1 percent.
  • That increase equals 25 percent of today's federal budget, implying a massive transfer from the working-age population to retirees through higher taxes, higher deficits or cuts in other government programs.
  • The administration estimates the cost of adding a drug benefit at $400 billion over the decade (2004-2013), and some Democratic plans would double that -- but those estimates do not include rapidly rising costs after baby boomers reach eligibility starting in 2011.
  • Today's most generous proposals cover half or less of the elderly's drug costs, which the CBO estimates at $1.8 trillion over the decade, while covering all of retirees' drug costs would raise Medicare spending by nearly 50 percent.

In reality, this "crisis" of drug costs is exaggerated, says Samuelson: only 5 percent of Medicare recipients in 2000 had out-of-pocket drug costs exceeding $2,000, according to CBO data. Many retirees have private insurance and Medicaid covers some poor retirees.

Source: Robert J. Samuelson, "A Costly Freebie," Washington Post, June 4, 2003.


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