Bush's Aides Put Higher Price Tag on Medicare Law

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Bush's Aides Put Higher Price Tag on Medicare Law

By Robert Pear, the New York Times

January 30, 2004

WASHINGTON- The Bush administration said on Thursday that the new Medicare law offering prescription drug benefits and private health plans to the elderly would cost at least $530 billion over 10 years, or one-third more than the price tag used when Congress passed the legislation two months ago.

Conservative Republicans said the new estimate confirmed their worst fears, while Democrats said it vindicated their view that the law gave far too much money to drug manufacturers and insurance companies. The bill passed narrowly in the House after Republican leaders gave assurances that the cost would not exceed $400 billion.

The Congressional Budget Office said in November and again this week that the cost was about $400 billion for the 10-year period 2004 to 2013, the amount originally proposed by Mr. Bush. But White House officials said Thursday that the president's budget would put the cost at $530 billion to $540 billion.

At the same time, the officials said that the overall budget deficit for the current fiscal year would exceed $500 billion. The deficit for fiscal 2003 was $375 billion, a record amount.

Mr. Bush says his budget request, to be unveiled on Monday, will cut the deficit in half within five years, by promoting economic growth and keeping spending under control.

The Medicare law, which Mr. Bush signed on Dec. 8, will offer drug benefits to 41 million elderly and disabled people. It will also give insurance companies and private health plans a huge new role in the Medicare program.

A White House official said the new estimate reflected "the Medicare actuaries' best estimate of the future cost." The actuaries and White House budget officials often differ with Congressional budget experts, he said.
"Health costs are very volatile," the official said. "It's difficult to predict the behavior of 40 million people in a market that does not now exist."

The Bush administration did not explain how it arrived at its cost estimate, but health economists and budget analysts suggested two factors. The administration predicts that the new law will produce a sharp increase in the number of Medicare beneficiaries enrolled in health maintenance organizations and other private health plans. In addition, the law significantly increases Medicare payments to private health plans.

"For the foreseeable future, the private plans are more expensive than the traditional fee-for-service Medicare program," said Robert D. Reischauer, president of the Urban Institute and vice chairman of a federal commission that advises Congress on Medicare.

Republicans say the private plans will enhance competition and efficiency in the Medicare market, saving money in the long run.

Democrats have introduced legislation to augment what they see as a meager Medicare drug benefit.

The new cost estimate could strengthen the hand of Republicans who oppose any expansion of the benefit. But it could also strengthen the hand of Democrats who want to save money by controlling drug prices and reducing Medicare payments to private insurers.

The White House tried to persuade Congress to include stringent cost controls in the law. But Democrats balked, saying the proposals could have led to cuts in Medicare benefits.

Passage of the Medicare bill was a major political achievement for Mr. Bush and the Republican leaders of Congress. But lawmakers would probably not have approved the legislation in its current form if they had thought the cost would exceed a half-trillion dollars.

The bill was passed by a vote of 220 to 215 in the House, with reluctant support from some conservative Republicans who were deeply troubled by the cost.

The new estimate confirmed the fears of many conservatives. "We told you so," said Robert E. Moffit, director of the Center for Health Policy Studies at the Heritage Foundation.

Mr. Moffit said the new estimate "will create an enormous problem for the Congressional leadership, which repeatedly told Republicans that this was a fiscally responsible bill."

An aide to the Senate Republican leadership said that he did not know why the new estimate was higher.

Thomas A. Scully, the federal official in charge of Medicare from May 2001 to December 2003, said: "The estimate may be surprising to some people, but it's not shocking to me. It just reflects a difference of opinion among actuaries who make different assumptions about the growth of drug spending and enrollment in private plans."

William A. Pierce, a spokesman for the Department of Health and Human Services, said: "The Medicare bill had lots of moving parts. We could not make a final analysis of the cost until it became law."

Representative Jeb Hensarling, Republican of Texas, who voted for the bill, said he was surprised at the new figure. But he said, "Cost estimates for entitlement programs have been notoriously unreliable, often too low."
Representative Patrick J. Toomey, a Pennsylvania Republican who voted against the bill, said: "The new cost estimate is very disturbing, and I am concerned that the bill will end up costing even more than $540 billion. What could have changed so much in just a few months?"

Democrats said the new cost estimate vindicated their contention that the law was too generous to drug manufacturers and insurers.

"The news on the Republican Medicare bill gets better and better for drug company profits and H.M.O.'s, and worse and worse for seniors and the Medicare program," said Senator Edward M. Kennedy, Democrat of Massachusetts.

Administration officials said they had not concealed information about the cost of the new drug benefit. But in their zeal to secure passage of the legislation last fall, they played down concerns about the cost.
The drug benefit is scheduled to begin in 2006. The cost of preparations in 2004 and 2005 is relatively small. But the costs will surge as baby boomers turn 65 and become eligible for Medicare in 2011 and subsequent years.

Douglas J. Holtz-Eakin, director of the Congressional Budget Office, has estimated that the drug benefit could cost $1 trillion to $2 trillion in its second decade.

Trent D. Duffy, a White House spokesman, said spending on prescription drugs could reduce the need for more expensive types of care. Mr. Bush often says, for example, that ulcer drugs costing $500 a year can eliminate the need for surgery and hospital stays costing $28,000 a patient.
The $530 billion estimate apparently does not include the cost of another feature of the new law, which provides tax breaks to people who establish savings accounts for medical expenses. Mr. Bush says he hopes millions of people will set up such accounts.

In recent weeks, conservative Republicans have expressed alarm at the growth of federal spending, which increased more than 20 percent from 2000 to 2003, while revenues were declining. Some Democrats suggested that Mr. Bush was predicting a big deficit for 2004 so it would be easier to halve the deficit in five years.
Mr. Duffy, the White House spokesman, said that suggestion was ridiculous.