New Medicare Prescription Drug Benefit To Cost $6 Trillion Over 75 Years, GAO Estimates

The new Medicare prescription drug benefit will cost current U.S. workers and retirees $6.3 trillion over 75 years and as much as $8.1 trillion over 75 years if future workers are included in the estimate, according to figures released last week by the Government Accountability Office, the Wall Street Journal reports.

During negotiations over the Medicare law, lawmakers used a Congressional Budget Office estimate that the drug benefit would cost less than $400 billion over 10 years. Later, an estimate from the White House Office of Management and Budget projected the cost at $534 billion over 10 years. The GAO figures released last week, part of the annual consolidated financial statements of the U.S. government, projected the cost of the prescription drug benefit over 75 years, subtracted anticipated revenue during that period and calculated the present value (Wessel, Wall Street Journal, 12/20).

In total, the government's unfunded promises to retirees under Medicare is $27.7 trillion over 75 years, and the new prescription drug benefit is responsible for $8.1 trillion of that figure, GAO said. By comparison, Social Security has an unfunded liability of $3.7 trillion over the same period, the Los Angeles Times reports (Alonso-Zaldivar, Los Angeles Times, 12/20).

According to GAO, as of the end of the last fiscal year in September, the U.S. governments' gross debt, which includes borrowing between branches of the government, was $7.4 trillion, or about $25,000 per U.S. resident. With the gap between funding and the cost of promised benefits under Social Security, Medicare, the Veterans Administration and other unfunded liabilities, the total federal debt is $45.9 trillion, or about $145,000 per U.S. resident, GAO said, the Journal reports.

"The new prescription drug benefit ... is one of the largest unfunded liabilities ever undertaken by the federal government," U.S. Comptroller General David Walker said, adding, "Without reform, known demographic trends, rising health care costs and projected growth in federal spending for Social Security, Medicare and Medicaid will result in massive fiscal pressures that, if not effectively addressed, could cripple the economy, threaten our national security and adversely affect the quality of life of Americans in the future" (Wall Street Journal, 12/20).

Walker said, "The Medicare problem is about seven times greater than the Social Security problem," and it has "gotten much worse in the last year, primarily due to the passage of the drug bill." He added that the Medicare issue "is going to be much more difficult to effectively address" than the Social Security funding problem.

U.S. Treasury Secretary John Snow said, "Medicare suffers from all the demographics that Social Security has and has the added problem of rising health care costs."

John Palmer, a professor at Syracuse University's Maxwell School and a Medicare and Social Security trustee, said, "If you stand back and say, 'Which program has the greater need, which is going to be more of a problem?' the answer is clearly Medicare."

Robert Moffitt, a health policy analyst at the Heritage Foundation, said that policymakers seem unwilling to accept the implications of the funding situation, adding, "The president wants to cut the deficit in half, and he wants to keep the tax cut, but how are they going to deal with the exploding costs of health care?"

According to White House spokesperson Trent Duffy, the new Medicare law contains some cost-control measures. However, the Times reports that some of those ideas have been tested in private health care systems and have had "mixed results." Further, traditional fixes for rising Medicare costs -- including reducing payments to providers and expanding the wage base to tax -- "are less likely to work this time," as the baby boomer generation begins to receive Medicare benefits, according to the Times.

Paul Fronstin, director of health research at the Employee Benefit Research Institute, said, "That's the big bubble that's emerging. The baby boomers are going to need health care services on a grand scale."

Other options for eliminating the Medicare funding gap include doubling the payroll tax to 6.02% -- which could be politically unpopular -- and reducing Part A benefits by half -- an option AARP Policy Director John Rother said the public would not accept, the Times reports. Rother said U.S. residents would prefer that Bush raise taxes than impose such cuts. According to the Times, Congress also could "try to scale back" the new prescription drug benefit, but lawmakers "are reluctant to tamper with legislation that was so recently hailed as a major accomplishment."

The Bush administration "holds out hope that new tax-free health savings accounts" -- established under the new Medicare law -- could be adapted for use under Medicare, according to the Times (Los Angeles Times, 12/17). Participants on Thursday at the White House Economic summit discussed such an idea, CQ Today reports.

William Roper, dean of the School of Medicine at the University of North Carolina, was "handpicked" by the Bush administration to "deliver the message" about HSAs to the summit, according to CQ Today. He said that Medicare should "move toward more choices for individuals, more competition in market forces and health care and more organized integrated care." Roper added, "We need to see that the philosophy of private accounts applies to Medicare just as we've been talking about Social Security."

Following Roper's remarks, Bush "praised the idea of more individual control in health care decision-making," according to CQ Today (Barshay/Carey, CQ Today, 12/17). However, "it's not clear that such accounts would be attractive" for many retirees, according to the Times (Los Angeles Times, 12/20).

Uwe Reinhardt, a professor of economics and public affairs at Princeton University, said that "there are many problems with this idea," including the difficulty and cost involved in transitioning current workers and retirees into a new system (CQ Today, 12/17).

Robert Reischauer, president of the Urban Institute, said, "We are not sure we know what therapy will be successful. The condition is clearly serious, and the consequences are obviously catastrophic. But we are, at this stage, at a loss as to what to do" (Los Angeles Times, 12/20).

The Detroit News on Sunday examined how local health care advocates are "making a last-ditch attempt to persuade low-income seniors to sign up" for the Medicare prescription drug discount card program.

Low-income beneficiaries have until Dec. 31 to sign up for the program and qualify for a $600 annual subsidy for prescription drugs available for this year (Hall, Detroit News, 12/19).

• Merrill Matthews, NPR's "All Things Considered": The "huge" political and policy fight over reforming Social Security will "pale in comparison" to the one over how to reform Medicare, Matthews, resident scholar at the Institute for Policy Innovation, says in an NPR commentary. According to Matthews, although Medicare is in "much worse financial shape" than Social Security and U.S. residents under age 65 are "largely oblivious" to the program's problems, the focus on a "reasonable plan" for reforming Social Security is "much more politically acceptable" than asking how to ensure that Medicare beneficiaries receive health care "at a price they or society can afford" (Matthews, "All Things Considered," NPR, 12/17). The complete segment is available online in RealPlayer.
  


• Mark McClellan, Washington Post: Providing Medicare beneficiaries with "accurate answers to questions ... is a top priority at Medicare," and "recent independent evaluations involving many thousands of calls" to the program's hotline "show that about 90% of the callers get answers that are fully responsive to the questions asked," CMS Administrator McClellan writes in a letter to the Post to respond to a Dec. 14 editorial about a recent study illustrating problems with the hotline. He added that the GAO report about the hotline was just a "snapshot," and while it "provided some insights that we are using to improve our service ... its findings are not a basis for generalizing about the performance of customer service representatives." McClellan said that CMS already is giving customer service representatives additional training in responding to complicated questions and has launched a call-routing strategy to better respond to beneficiary inquiries (McClellan, Washington Post, 12/20).