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Medicare drug bill: An impending disaster

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Updated: 1/13/2006 9:56 am

By Stuart M. Butler
The Heritage Foundation
(KRT)

With the support of the Bush administration, or at least with its acquiescence, Congress appears on course to enact a huge new entitlement aimed at middle-income Americans. President Bush likely will sign whatever bill emerges. As Nancy-Ann DeParle, a Medicare administrator for President Clinton, puts it, "In signing it, as he will surely be forced to do, he will preside over the biggest expansion of government health benefits since the Great Society."

The legislation makes a mockery of sensible budget control or prudent reform. Rather than combining steps to help some seniors while reforming the unsustainable finances of the Medicare program, the "reforms" will reduce choice and innovation and impose staggering financial burdens on our children and grandchildren.

Congressional proponents of the legislation maintain that the new drug benefit will cost $400 billion over the next 10 years. But this is a guess. Since the program is an entitlement, there's no fixed budget.

Moreover, evidence from both the private and public sectors in recent years suggests that future costs will likely exceed projections. But even if they're accurate, it isn't the next 10 years that matter. It's the years after that, when the full force of the baby boom generation hits Medicare and Social Security. Within 15 years, Medicare already faces a Niagara Falls of red ink. Adding a drug benefit without serious reforms and constraints on future spending means massive tax burdens on generations to come.

The bill is needed, say leaders of both parties, to help seniors who face heavy prescription-drug costs. To be sure, many lower-income elderly do need help. But today about three-quarters of all seniors already have private insurance against onerous costs. Congress' approach would institute a government-sponsored drug program for all Medicare recipients, not just those who need help. For several reasons that approach is unconscionable.

First, there will be powerful incentives for current and future middle-income seniors to forgo private insurance protection at realistic prices in favor of government-sponsored drug coverage at subsidized prices. Moreover, corporations and other entities facing high retiree health benefits will soon find creative ways to shift retire drug costs to the taxpayer. The result: taxpayer costs will rise further.

Second, proponents are naive when they claim that seniors will have many choices of coverage under the legislation - private plans as well as traditional Medicare benefits. Hard lessons from the past suggest that few private plans will join the program. Mass withdrawals of plans from the existing Medicare+Choice program show what happens when Congress imposes regulations and controls in an effort to cut costs.

And in an effort to curb a surge in spending, the government will no doubt gradually tighten regulations on any private plans that do join the drug program, leading to fewer and fewer private plans. It remains to be seen how seniors will respond: When Congress last tried to provide a drug benefit that jeopardized coverage many seniors already had (in 1988) the backlash was so severe that Congress repealed the legislation within a few months.

Third, proponents are wrong when they claim the new program is modeled after Congress' own health program, which includes drug coverage. The Federal Employees Health Benefits Program (FEHBP) is open to virtually any private plan or insurer meeting some basic benefit requirements and consumer protections. Premiums vary and reflect the benefits included in the plans, and federal workers choose from among many competing plans.

By contrast, Congress will determine the benefits in the current legislation, and the government will decide how many of the lowest bidding preferred provider plans can offer coverage to seniors in any area. And because Congress would take a prominent role in influencing prices and benefits - unlike in the FEHBP - the political dynamics would work the same way they do today in Medicare. Politicians would be pressured to keep prices down for their constituents, while drug companies, doctors and seniors would press for ever-more generous coverage. The result: larger and larger subsidies and costs to future generations.

President Bush and Congress had an opportunity to combine help for some Americans in genuine need with sensible reforms so that our children and grandchildren might look forward to an affordable, high-quality Medicare program. With the baby-boom generation approaching retirement, this legislation probably is the last opportunity for hard decisions.

But rather that take a firm leadership role in the legislative process, President Bush sent Congress a framework and invited lawmakers to fill in the details. The result was predictable. The process is becoming a political feeding frenzy, in which short-term partisan advantage trumps responsible action. Today's politicians may reap the benefits, but future generations will have to pay for this unforgivable failure of leadership.

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ABOUT THE WRITER

Stuart M. Butler is vice president for domestic and economic policy studies at The Heritage Foundation. Readers may write to the author in care of The Heritage Foundation, 214 Massachusetts Avenue NE, Washington, D.C. 20002; Web site: www.heritage.org.

This essay is available to Knight Ridder/Tribune News Service subscribers. Knight Ridder/Tribune did not subsidize the writing of this column; the opinions are those of the writer and do not necessarily represent the views of Knight Ridder/Tribune or its editors.

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© 2003, The Heritage Foundation

Distributed by Knight Ridder/Tribune Information Services

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