Bush Administration Explains Medicare Cost Estimate Discrepancies

Bush administration officials had "indications for months" that the new Medicare law (HR 1) would cost "considerably more" than the nearly $400 billion over 10 years estimated by the Congressional Budget Office, according to sources familiar with the issue and internal documents, the Washington Post reports. An unnamed source who worked on the legislation said, "There were whispers from the administration long before" Congress acted to pass the bill, adding "it was an open secret" that administration officials believed "there is no way this is $400 billion" (Goldstein, Washington Post, 1/31). Last week, administration officials announced that according to the Office of Management and Budget the new legislation will cost $534 billion over the next 10 years, $134 billion more than previously estimated. Also last week, CBO reiterated its estimate of $395 billion over 10 years (California Healthline, 1/30). President Bush said he did not receive a complete budget estimate for the Medicare law until two weeks ago, adding, "The Medicare reform we did is a good reform; it fulfills a long-standing promise to our seniors" (Kemper/Simon, Los Angeles Times, 1/31). HHS Secretary Tommy Thompson said, "Congressional staff knew our actuarial numbers. Our actuaries communicated with the [CBO] throughout the negotiations [on the legislation]. There was no attempt to keep our number camouflaged" (Pear/Andrews, New York Times, 2/2). Senate Majority Leader Bill Frist (R-Tenn.) said, "In truth, nobody has any idea what the real figure will be at the end of the day, because we don't know what those assumptions should be as we go further. What is important is that the CBO has not changed one iota" (Davis/Wegner, CongressDaily, 1/30).

Explaining the Difference

White House Press Secretary Scott McClellan on Friday said that it is "not surprising" that the cost estimates differ, according to the Post (Washington Post, 1/31). Administration officials said that CBO "grossly underestimated the cost not only for prescription drug benefits, but also for private health insurance plans," according to the New York Times. Three-quarters of the difference is "attributable to the fact that the White House believed the new drug benefit would be more expensive than Congress had assumed," and one-fourth of the difference is because the "administration expects Medicare to spend much more on private health plans than Congress assumed," the New York Times reports. According to the administration, the per-capita cost of the drug benefit will be 4% higher than what Congress had assumed, accounting for $16 billion of the difference in the cost estimates, the New York Times reports. Accounting for another $16 billion of the difference in estimates, the administration also assumed that 94% of Medicare beneficiaries would opt to participate in the drug benefit, compared with 88% of beneficiaries estimated by Congress, according to the New York Times. Another reason for the discrepancy comes from CBO's estimate that giving subsidies to low-income beneficiaries for their drug expenses would cost $192 billion over 10 years, compared with the administration's estimate of $47 billion higher than that. Further, the administration estimated a $46 billion cost of giving extra payments and subsidies to encourage private health plans to participate in Medicare, compared with $14 billion estimated by Congress. According to the New York Times, the Bush administration anticipates that many beneficiaries will enroll in private health plans (New York Times, 2/2).

Lawmakers' Reaction

On Friday, Senate Minority Leader Tom Daschle (D-S.D.) and other Democrats called for hearings on the new estimate. In a letter to the Senate Finance Committee, Democrats said, "If the administration possessed this analysis prior to final congressional action, its failure to share these figures would be both misleading and inexcusable." Democrats also made public a June analysis of the cost of the legislation that they said "cast doubt" on Bush's assertion that he did not learn of the true cost until two weeks ago, according to the AP/Las Vegas Sun. They added that the higher cost estimate "adds to a mountain of evidence that the law needs to be changed," according to the AP/Sun (Sherman, AP/Las Vegas Sun, 1/31). Daschle said, "The Bush administration owes Congress and the American people an explanation about why it took them so long to reveal their cost estimates" (Koffler, CongressDaily, 1/30). Rep. Mac Collins (R-Ga.) said the higher cost is "very concerning to those of us who were very reluctant to vote for the bill to begin with," adding that Bush needs to help Congress "hold the line" on spending (Los Angeles Times, 1/31). Rep. Mike Pence (R-Ind.) said the news "gave conservatives ... an enormous amount of ammunition (in the fight to maintain) our historic commitment to fiscal discipline" (Davis/Wegner, Congress Daily, 1/30). Sen. Trent Lott (R-Miss.) said that the new estimate "confirm[s] my concerns that it was going to be way more expensive than we were told last year. The bad news is that I don't think this is going to be the end of it. I think it's going to be more." According to Lott, the final cost of the legislation could be "closer to $600 or $800 billion" over 10 years (Stevenson, New York Times, 1/31).

Reaction From Groups

John Rother, policy director of AARP, said the higher cost estimate from the Bush administration was "well known in the fall ... it's just now (being made) public." However, Keith Ashdown, vice president of the Taxpayers for Common Sense, said that fiscally conservative lawmakers were "suckered by a classic financial bait-and-switch" by the Bush administration. Fred Smith, president of the Competitive Enterprise Institute, said, "Every pressure tactic known to mankind was used to get [the legislation] through the House at $400 billion. At another $150 billion, it wouldn't have gotten through." Robert Reischauer, president of the Urban Institute, said the discrepancy in estimates amounts to "sort of a domestic weapons-of-mass-destruction scenario: Was Congress given the best information at the time they were making the decision?" Robert Blendon, a professor of health policy and political analysis at Harvard University's School of Public Health and John F. Kennedy School of Government, said that the negative reaction to the new estimates "really makes [Medicare] much more difficult an issue for Bush" (Los Angeles Times, 1/31). Karen Ignagni, president of the American Association of Health Plans-Health Insurance Association of America, said that if more beneficiaries "take advantage" of the drug coverage subsidies and more beneficiaries enroll in private health plans as the Bush administration expects, it would be "very good for beneficiaries." She added, "We can help them stretch the dollars they spend on prescription drugs" (New York Times, 2/2).

Impact on Federal Budget, Deficit

The administration's new cost estimate, which is included in the budget proposal Bush plans to announce Monday, comes as the United States faces a "record budget deficit," according to the Los Angeles Times (Los Angeles Times, 1/31). Administration officials said the higher cost estimate largely will not impact their efforts to cut the federal deficit by 50% over the next five years, in part because "most of the costs relative to the [CBO] projection come in the second five years of the 10 years covered by the estimates," the New York Times reports (New York Times, 1/31). However, conservative Republicans warned that Bush's plan to freeze some federal spending to reduce the deficit could mean "painful cuts in programs ranging from veterans health to medical research," according to Reuters/Philadelphia Inquirer (Entous, Reuters/Philadelphia Inquirer, 2/1).

Flyer Questioned

Sen. Frank Lautenberg (D-N.J.) and four other Democrats on the Joint Committee on Printing have asked the Government Printing Office to delay the printing and mailing of an HHS flyer because they say that it misrepresents some provisions of the new Medicare law, CongressDaily reports. For example, critics of the flyer say that it violates a federal law banning the use of federal funds for propaganda and publicity because it "minimizes" the gap in prescription drug coverage and indicates that seniors will pay a $35 monthly premium for drug coverage, a figure not specified in the law, according to CongressDaily. A Democratic staff member said that GPO is now consulting with the joint committee and the General Accounting Office, which will determine whether the flyer violates the law. Senate Minority Leader Tom Daschle (D-S.D.) and Sen. Edward Kennedy (D-Mass.) earlier this month sent a letter to HHS Secretary Tommy Thompson "questioning the propriety of the flyer's contents," CongressDaily reports. An HHS spokesperson dismissed the complaints about the flyer, for which printing and mailing costs were estimated at $10 million (Heil, CongressDaily, 2/2).

Ethics Investigation

In a Jan. 20 letter to House Speaker Dennis Hastert (R-Ill.), House Minority Whip Steny Hoyer (D-Md.) called for an ethics investigation into bribery accusations related to the House vote in November on the Medicare law, the New York Times reports (Hulse, New York Times, 2/2). In December, retiring Rep. Nick Smith (R-Mich.) said that unnamed Republican leaders promised to donate $100,000 to his son's congressional race in exchange for his support on the Medicare bill. However, Smith later backed away from that comment, saying that suggestions that he was bribed are "technically incorrect." He added that some Republican lawmakers had said they would oppose his son's campaign but did not offer to donate any money to the campaign as had been previously reported. Smith voted against the Medicare legislation (California Healthline, 1/29). A spokesperson for Hastert said that the matter should be addressed by the House Committee on Standards of Official Conduct and that Hastert did not intend to request an investigation into the matter. Rep. Joel Hefley (R-Colo.), chair of the ethics committee, said that he does not plan to launch an investigation because no lawmaker has filed a formal request for one (New York Times, 2/2).

Broadcast Coverage

The following broadcast programs reported on the new cost estimates for the Medicare legislation:

ABCNews' "World News Tonight": The segment includes comments from Concord Coalition Executive Director Robert Bixby, Bush, presidential candidate Sen. Joseph Lieberman (D-Conn.) and White House Press Secretary Scott McClellan (Moran, "World News Tonight," ABCNews, 1/30). A video excerpt of the segment is available online in RealPlayer.
CBS' "Evening News": CBS' John Roberts reports on the estimates (Roberts, "Evening News," CBS, 1/30). The complete segment is available online in RealPlayer.
CNN's "Wolf Blitzer Reports": The segment includes comments from Bush and Daschle (Malveaux, "Wolf Blitzer Reports," CNN, 1/30). The complete transcript is available online.
C-SPAN's "Washington Journal": The segment includes comments from Gail Wilensky, a senior fellow at Project HOPE and a former CMS administrator ("Washington Journal," C-SPAN, 2/2). The complete segment will be available online in RealPlayer after the broadcast.
NPR's "All Things Considered": NPR's Julie Rovner discusses the estimates and their "political fallout" (Rovner, "All Things Considered," NPR, 1/30). The complete segment is available online in RealPlayer.

This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.