Medicare Drug Legislation Cost Estimate Rises, Collision Course Ahead

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Medicare Drug Legislation Cost Estimate Rises, Collision Course Ahead

The cost of new prescription drug legislation may be far higher than the Congress originally expected. The White House recently concluded that adding drug benefits to Medicare may cost $534 billion over the next decade — $134 billion more than the $400 billion estimated just a few months ago.

The higher estimate confirms TSCL’s belief that the cost of the complex legislation may be impossible to estimate and the actual price tag may not be known for some time. TSCL believes the legislation does not go far enough in cutting drug costs because — among other things — it prohibits the federal government from negotiating drug prices, as well as continuing the ban on “re-importation” of less costly drugs from Canada.

Inadequate funding and a failure to contain rising health care costs would, however, create a crisis for Medicare almost as soon as the new benefit starts in 2006. A provision in the new Medicare drug legislation requires consideration by Congress and the White House when funding from general revenues exceeds 45% of Medicare spending. Analysts predict this could lead to cutbacks in Medicare benefits, increased shifting of costs to beneficiaries, and increased reliance on means testing.

Just last year U.S. Comptroller General David Walker testified that Medicare Part B expenditures already account for about 43% of total Medicare spending. Currently the government pays about 75% of Part B costs and beneficiary premiums cover the other 25%. The Congressional Budget Office estimates that shortly after the new drug benefit starts, expenditures under the new “Part D” will make up 22% of Medicare spending. Thus, with the added new government outlays, the new benefit could trigger cuts to the very benefit the legislation is supposed to be providing, in addition to cutting other Medicare benefits.

TSCL is currently reviewing bipartisan legislation recently introduced in the Senate by Senators Olympia Snowe (R-ME) and Ron Wyden (D-OR) that could lower drug costs. The bill contains a provision that would allow the government to negotiate drug prices with Medicare drug plans and would stop drug manufacturers from making it harder for American consumers to import less costly drugs from foreign countries.

Sources: “Higher Medicare Costs Suspected for Months,” Amy Goldstein, The Washington Post, January 31, 2004. “Medicare Observations on Program Sustainability and Strategies to Control Spending,” statement of David M. Walker, General Accounting Office, GAO-03-650T, April 9, 2003, page 9.

May 2004