July 12, 2003

The Medicare Prescription Drug Benefit Is Bad for America's Health

An article from the American Enterprise Institute on how the new prescription drug benefit is fiscally irresponsible and will impose a heavy tax burden on younger Americans:

The new prescription drug subsidy is an unfunded benefit. There has been no mention on either side of the Senate as to how and when this additional federal expenditure will be financed. The politicians are keeping quiet about this detail for a good reason. The cost of the long-term plan is astronomical.

The political debate focuses on the $400 billion cost to taxpayers. But that is only for the next ten years. This is particularly misleading because it does not account for the increased cost associated with the baby-boomers retiring. Using the same long-term spending assumptions applied to Social Security, the present value of all future Medicare expenditures associated with the administration's original proposal for extending prescription drug coverage could generate an unfunded federal obligation of $6 trillion.

That sounds pretty bleak. And it gets worse. The original White House proposal included strong incentives for competition that would have yielded future cost savings. The proposal making its way through the Senate has dropped those incentives. Take the lack of competition into account and the result is striking. Depending on the future growth of demand for prescription drugs under Medicare, the Senate plan would increase the government's unfunded obligation of between $6 trillion and $7 trillion to $12 trillion. Yet Medicare is already in deep trouble. Under conservative assumptions of future healthcare spending growth, its long-term shortfall amounts to more than $30 trillion. And this is without a new prescription drug benefit.