Drug Benefit’s Cost Estimates Soar, Surprise

Times Staff Writers

New and much higher cost estimates for Medicare’s drug benefit touched off a storm of concern in Congress on Wednesday, potentially complicating President Bush’s ability to persuade lawmakers to support his plans for tax cuts and Social Security overhaul.

“This just brings us back to the Bush administration’s credibility gap,” said Rep. Charles B. Rangel of New York, the senior Democrat on the House Ways and Means Committee, which oversees Medicare. “How can we trust them on Social Security when they did not play straight with the facts on Medicare?”

Some observers who usually support the White House concurred. “It’s going to cast a trillion-dollar shadow over the conservative agenda,” said Robert Moffit, a health policy analyst with the Heritage Foundation, a conservative research center in Washington. “It’s going to be harder to preserve the tax cuts and make them permanent.”

The White House, however, insisted that the problem was not due to an unexpected surge in the cost of the drug benefit, but merely reflected confusion over accounting methods.


The new figures for the benefit, which is to take effect in 2006, were included in the budget Bush sent Congress on Monday.

Medicare administrator Mark McClellan said the prescription benefit was now projected to cost nearly $724 billion over the 10-year period, from 2006 through 2015.

The figure is far higher than the $400 billion the administration estimated in 2003, when Bush was lobbying for the benefit in the face of sharp objections from fiscally conservative Republicans -- and higher than the revised estimate of $534 billion given two months after the legislation had passed.

But the previous estimates were for a different time period, from 2004 to 2013. That earlier window includes two years of minimal cost to the government -- 2004 and 2005 -- before the benefit takes effect.


“Now ... we are looking further out into the future when there are more Medicare beneficiaries getting more assistance,” McClellan said. “And that is the only real source of changes.”

Nearly 37 million beneficiaries are expected to enroll in the voluntary drug benefit next year; by 2015, that figure should reach nearly 46 million. They will purchase coverage through private plans; the government will subsidize premiums.

Estimates of out-of-pocket costs for beneficiaries also went up. Monthly premiums are projected to rise from $37 in 2006 to $48 in 2010 and $68 in 2015, according to administration estimates released by the House Ways and Means Committee. The annual deductible will rise from $250 in 2006 to $472 in 2015.

Several senior Democratic and Republican congressional staffers who deal with healthcare spending said the administration’s explanation for the changes was essentially valid.


“From the pure estimating point of view, there is not a lot that is new in these estimates,” said Douglas Holtz-Eakin, director of the nonpartisan Congressional Budget Office. Its estimate shows the benefit costing $794.6 billion from 2006 to 2015, but Holtz-Eakin said it is not comparable to the new administration figure, which appears to be more precise.

The new cost figures hit with unexpected force among lawmakers pressed by rising deficits and facing difficult decisions on major programs. Many had apparently assumed that the cost of the drug benefit would remain in the range originally cited by the administration.

Some said the new numbers raised doubts about the seriousness of Bush’s vow to tame the deficit and the accounting for a number of his proposals.

Sen. Jeff Sessions (R-Ala.) said that when they passed the benefit, lawmakers didn’t believe they were voting for “an open-ended program that would grow completely out of control.”


Sen. Ron Wyden (D-Ore.) called the estimates “eye-popping news” and complained that the drug benefit’s cost “is going through the stratosphere” because Medicare is prohibited from negotiating bulk discounts with drug makers. He is sponsoring a bill to lift that restriction.

Others suggested setting limits on eligibility; currently any senior is allowed to sign up, regardless of income.

“We cannot let the Medicare prescription drug component go forward above what we thought we were voting for,” said Sen. Trent Lott (R-Miss.). “You can’t subsidize drugs for people who are middle income and upper income and high income.”

Moderates and independents of both parties -- a key swing group -- said the changes in Medicare estimates would cause them to take a harder look at new proposals.


This “obviously affects everything,” said Sen. Ben Nelson of Nebraska, a Democrat being lobbied by the White House to support private accounts for Social Security. “It just makes matters that much more difficult all the way around.”

Nelson said he had no regrets in voting for the drug benefit but added: “If the number had been put to us, it might have been a different-looking bill.”

Sen. Olympia J. Snowe of Maine, a Republican moderate, said she was, “frankly, confounded” by the news. “It really does undermine the integrity of this process,” she added. “If we got this wrong on Medicare prescription drug ... then what does that say about the future of that program, let alone all the other major questions we have to grapple with?”

At the White House, Bush conceded in a brief exchange with reporters that “there’s no question that there is an unfunded liability inherent in Medicare that ... Congress and the administration [are] going to have to deal with over time.”


Many experts believe that it is Medicare, not Social Security, that is in deep crisis.

Medicare’s long-term unfunded liability is estimated at $27.7 trillion over 75 years, overshadowing the government’s $3.7-trillion exposure for Social Security benefits. The prescription benefit accounts for $8 trillion of Medicare’s liability.

But Bush defended the new prescription coverage, saying it would provide a valuable benefit and could reduce costs over the long run by helping to keep people out of hospitals.

“The reforms haven’t begun yet,” he said. “I signed a piece of legislation ... and the major reforms of providing prescription drugs for our seniors kicks in next year.... I’m convinced they’ll have cost savings for our society, and I know it will make the life of our seniors better.”


“I don’t think there is any danger of repeal” of the benefit, said John Rother, a lobbyist for AARP, the nation’s largest senior citizen organization, which supported the benefit.



Medicare prescription costs


How estimates for Medicare’s new drug benefit have evolved:

2003 - White House commits to spending $400 billion from 2004 to 2013

2003 - Congressional Budget Office estimates that plan will cost $395 billion

2004 - White House acknowledges cost could go as high as $534 billion


2005 - Administration releases new estimates, for 2006-15, of $724 billion.


Sources: White House, Congressional Budget Office, Los Angeles Times