NCPA - National Center for Policy Analysis

Prescription Drug Coverage: A Bidding War Leading to Financial Mayhem

July 23, 2002

Both Republicans and Democrats are engaged in a shameless bidding war to court elderly voters and, if proposals being debated in the Senate are passed, will mortgage the future of our children and grandchildren.

Many seniors are paying two premiums -- one for Medicare and one for Medigap insurance -- and those with both types of coverage are wastefully spending about 30 percent more on health care, on average, than seniors covered by Medicare alone.

But even without a prescription drug benefit, the future of Medicare already looks bleak.

  • Tom Saving, a Medicare trustee and director of the Private Enterprise Research Center at Texas A&M University, estimates that current accrued liability under Medicare is almost $17 trillion -- more than five times the level of the official national debt.
  • By 2050, when today's teenagers reach retirement, Medicare's annual deficit will require one of every three income tax dollars collected -- and that's without a drug benefit.

Adding a comprehensive prescription drug benefit could shift as much as two-thirds of senior drug costs to Medicare -- and the impact would be devastating.

  • Another PERC economist, Andrew Rettenmaier, estimates that the GOP drug benefit will raise Medicare's claim on other revenues to more than one-fourth of income taxes by 2030 and 40 percent by 2050.
  • The even more expensive House Democrat proposal would require additional revenues equal to more than one-third of income taxes by 2030, and more than 50 percent by 2050.

In a study for the National Center for Policy Analysis, Milliman & Robertson, a leading health-care actuarial firm, estimated that if the average Medicare expenditure were combined with the average Medigap premium and paid to a single plan, there would be enough money to enroll seniors in the same types of health plans other Americans have now.

In other words, we do not need more money to pay for prescription drug coverage in the system. We just need to spend it more wisely.

Source: John C. Goodman (National Center for Policy Analysis), "A Prescription that Would Bust the Budget," Wall Street Journal, July 23, 2002.

For WSJ text,,SB1027378777102275920,00.html


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