Tax Increases Required To Cover Cost of Medicare Prescription Drug Benefit, Study Finds

Enacting a Medicare drug benefit similar to those approved by the House (HR 1) and the Senate (S 1) would result in "substantial long-term tax increases," according to a study released last week by the Heritage Foundation, the Washington Times reports (Fagan, Washington Times, 8/5). Researchers Brian Riedl, a budget analyst for the Heritage Foundation, and William Beach, director of the foundation's Center for Data Analysis, analyzed cost estimates compiled by Dr. Thomas Saving, director of the Private Enterprise Research Center at Texas A&M University and a public trustee of the Medicare trust fund, and Dr. Andrew Rettenmaier, executive associate director of PERC (Riedl/Beach, "The New Medicare Drug Entitlement's Huge New Tax on Working Americans," 7/30). According to the report, a Medicare drug benefit would add $2 trillion to the estimated $5 trillion budget shortfall Medicare is expected to have in 2030. The report estimates that a household headed by a 40-year-old would pay an additional $16,127 in taxes between now and retirement to fund a Medicare drug benefit. Further, the report says that by the time a child born in 2003 reaches age 27 in 2030, he or she would pay an additional $1,125 in taxes because of a drug benefit, in addition to a 15.3% payroll tax to fund Medicare and Social Security and $2,855 in additional taxes to cover the projected Medicare shortfall. The study authors say that Congress could avoid significant tax increases by targeting a Medicare drug benefit to "only those seniors who truly need it" and by requiring fee-for-service Medicare to compete with private health plans, the Times reports. Jill Gerber, a spokesperson for Senate Finance Committee Chair Charles Grassley (R-Iowa), called the study's findings "purely speculative," adding that the Heritage Foundation "does not want a prescription drug benefit for seniors," the Times reports. She said that members of the House-Senate conference committee reconciling the two chambers' Medicare bills are "doing everything [they] can to keep the cost down" (Washington Times, 8/5). The study is available online. Note: You must have Adobe Acrobat Reader to view this report.

Investor's Business Daily today examines how the proposed Medicare drug benefit could affect employers who cover their retired employees' drug costs. The Congressional Budget Office has estimated that 32% of Medicare beneficiaries who currently have drug coverage through their former employer would lose that coverage under the House Medicare reform bill, and an estimated 37% would lose employer-sponsored drug benefits under the Senate bill (Higgins, Investor's Business Daily, 8/5). A separate study -- conducted by the Kaiser Family Foundation and Hewitt Associates before the current legislative proposals -- says that 18% of 435 large private-sector companies surveyed would eliminate prescription drug coverage for retirees ages 65 and older, while 5% would eliminate drug coverage for such retirees and pay their added Medicare premium if Congress approved a Medicare prescription drug benefit that included a "significant" subsidy for employers. A third study, by the Employee Benefit Research Institute, indicates that between 2% and 9% of Medicare beneficiaries who currently obtain prescription drug benefits through their former employers would lose that coverage if a Medicare drug benefit is enacted (California Healthline, 7/22). Officials with AARP have said the potential loss of employer-based drug benefits is a "critical concern" and indicated that the group might oppose a drug benefit unless Congress addresses the issue. Still, supporters of the current Medicare drug benefit proposals say predictions that employers would drop retiree drug coverage are "overblown," Investors' Business Daily reports. An unnamed Senate aide said that a Medicare drug benefit could prevent the loss of private benefits because of proposed employer incentives to keep retiree drug benefits. The aide added, "With or without a Medicare drug benefit, employers are already cutting back" (Investor's Business Daily, 8/5).

NBC's "Nightly News" yesterday reported on how the House and Senate Medicare bills would offer beneficiaries a "far less generous" drug benefit than members of Congress receive under the Federal Employees Health Benefit Program. The segment includes comments from President Bush's Jan. 29 address on Medicare reform, Rep. Tom Davis (R-Va.), Sen. Mark Dayton (D-Minn.) and Kenneth Thorpe, chair of the health policy department at Emory University's Rollins School of Public Health (O'Donnell, "Nightly News," NBC, 8/4). The full segment is available online in RealPlayer.