Healthy Skepticism Library item: 1429

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Publication type: news

Hallam K.
U.S. Deficit Cuts Republican Support for Bush's Medicare Plan
Bloomberg News 2003 Sep 23

Full text:

Republicans in Congress say the ballooning of the U.S. budget deficit to $401 billion this year may spur lawmakers to reject President George W. Bush’s proposal to expand Medicare unless the plan includes cost controls. Bush has pledged to provide prescription-drug coverage for the 40 million elderly recipients of Medicare for the first time since the program was established in 1965. Congressional concern about the cost threatens to undermine the unity of the president’s Republican Party as an election year approaches. Some House Republicans have vowed to withdraw support for legislation that would create the new benefit for seniors, and Senate proponents say they’ll have a tougher time rounding up votes, if lawmakers don’t stick to an agreed budget limit of $400 billion for the first decade the legislation is in effect. ``Faced with historically high national deficits and an unquenchable thirst for additional federal spending, we must not further hemorrhage our federal budget,’‘ Representative Pat Toomey, a Pennsylvania Republican, told reporters. Republican lawmakers are caught between party members suspicious of big-government programs and voters favoring the drug benefit. Seventy-six percent of adults said they back the prescription-drug legislation, in a poll conducted by Cable News Network, the Gallup Organization and USA Today. Nineteen percent said they oppose the measure, and 5 percent had no opinion.

Bush Priority

Republican Senator Don Nickles, chairman of the Budget Committee, has warned colleagues that without cost controls the 10-year price tag may surge to $800 billion, with the number of Medicare beneficiaries projected to double to 80 million by 2030. The U.S. can’t afford a more expensive plan, with federal budget-deficit projections widening to $480 billion by the end of the next fiscal year, lawmakers say. Higher deficits can weaken overseas confidence in the U.S. economy and may force interest rates higher, increasing borrowing costs for companies, consumers and the government. Adding a drug benefit to the program is one of Bush’s top domestic initiatives and will boost insurers such as Cigna Corp. and Aetna Inc., drugmakers including Barr Laboratories Inc. and hospital operators such as Triad Hospitals Inc. Barr’s stock has risen 12 percent since the House and Senate approved separate versions of the legislation on June 27, and Triad shares have gained 29 percent. The insurers have remained largely unchanged.

`Iron Out Differences’

House and Senate negotiators are now trying to agree on a single measure that both chambers can support. ``I am confident that when they get back from the July 4 break, they will iron out the differences in a constructive way,’‘ Bush said several days after the June votes. Since then, the Congressional Budget Office has estimated the federal deficit will widen to $1.4 trillion in the next decade — without accounting for a Medicare drug benefit. Bush has also asked for $87 billion more to manage postwar Iraq and Afghanistan, in what would send next year’s deficit to more than $500 billion, a record. Even Democrats who have long advocated a Medicare drug plan, including Senate Minority Leader Tom Daschle, have said the bill may not pass. Lawmakers from both parties have suggested scaling back the legislation to build support.

`Very Close’

``It will be very close in terms of whether this bill comes out’‘ of negotiations, said Senator Jon Corzine, a New Jersey Democrat. ``The deficit, on the margin, is making that even more difficult than it was before.’‘ The House and Senate bills include provisions to help the elderly afford prescription medicine and would open bidding for Medicare contracts to more companies. The bills also would speed access to generic drugs made by Barr Laboratories and other companies and adjust Medicare reimbursements to health-care providers including rural hospitals operated by Triad and medical equipment made by companies such as Invacare Corp. Lawmakers discovered in July that their proposals would breach the $400 billion budget cap for the program’s first 10 years. The Congressional Budget Office said the Senate bill exceeded the target by $61 billion and the House version by $5 billion. If the legislation isn’t whittled to $400 billion or less, it will face obstacles. In the Senate, a more costly bill would violate a budget resolution and would need 60 votes for passage, said Senator Charles Grassley, an Iowa Republican and a lead negotiator on the Medicare overhaul.

`Overpromised, Underfunded’

``If you’re not careful, you’ll have a system that’s over- promised and underfunded, and that can lead to very negative consequences,’‘ Nickles said. Congress has debated Medicare costs since the program was created to help pay medical bills for older Americans. Back then, Medicare hospital costs were forecast to reach $9 billion, as measured in 1990 dollars. The U.S. ended up paying $67 billion in 1990. ``The $400 billion, 10-year estimate for this add-on will almost certainly spiral out of control, just as Medicare’s costs have ballooned far beyond original estimates,’‘ said Representative Jeff Flake, an Arizona Republican. As a portion of the U.S. economy, the gulf between Medicare spending and revenue from taxes and premiums will equal about 3.5 percent of gross domestic product by 2077. With a drug benefit, Medicare’s widening shortfall may trigger higher taxes, a cut in benefits or reduced spending for other programs, analysts said.

Cheaper Than Hospitals

To close the gap in Medicare’s hospital costs alone, benefits would have to be reduced by 42 percent, or income from payroll taxes would need to be increased by 71 percent, Medicare trustees reported earlier this year. Lawmakers tried to design the bills to rein in costs. First, proponents say using drugs to treat or prevent illness is cheaper than hospital care. The Pharmaceutical Research and Manufacturers of America, the main trade group for drugmakers, supports the legislation, and companies such as Pfizer Inc. and Eli Lilly & Co. may benefit. Both bills also envision using competition to drive down costs by inviting insurers to participate in Medicare. The House bill goes further by requiring that insurers directly compete with Medicare in 2010, a provision that more than 40 House Republicans insist must be in the final legislation to win their votes. They’ll face off with Democratic senators who said they’d reject such a provision.

Helping Buffett

Lawmakers are considering other cost-saving measures, such as requiring that seniors pay part of the expense for certain procedures and means-testing to give the wealthy fewer benefits. Some are pressing for a smaller bill that would help only low- income seniors and seniors with very high drug bills. ``What seniors and taxpayers want is aid for seniors who truly are in need,’‘ said Representative Marsha Blackburn, a Tennessee Republican. ``Reform doesn’t have to mean big money. It should mean big savings.’‘ ``Warren Buffett doesn’t need my help,’‘ said Representative Roscoe Bartlett, a Maryland Republican. To get a better sense of the legislation’s impact on the federal deficit, some political analysts say lawmakers should consider all future liabilities, calculated in today’s dollars, that would come from adding the Medicare drug benefit. It’s a number the U.S. government doesn’t use in its budget, though it has gained credence with some government entities. Social Security trustees estimated in this year’s annual report that the program’s liability for which funds are not appropriated totals $10.5 trillion.

$12 Trillion Liability

In a study by Joseph Antos and Jagadeesh Gokhale of the American Enterprise Institute, a private research group, the unfunded liability from the Senate legislation is $7 trillion to $12 trillion. They don’t have an exact figure for the House bill, though they said it’s in that range. A study by Texas A&M University researchers Andrew Rettenmaier and Thomas Saving puts the amount of unfunded liabilities at $7.5 trillion. They said costs through 2077 will be $3.2 trillion. The difference between the two studies lies in how they count the number of beneficiaries and how they account for rising spending on drugs, which has escalated to become a larger portion of overall health-care expenses. Some lawmakers balk at calculating the cost on that basis. ``A number that has no timeframe is a meaningless number,’‘ said Christin Tinsworth, a spokeswoman for California Representative Bill Thomas, a Republican architect of the House bill and chairman of the Ways and Means Committee. ``We want Medicare to be a long-term sustainable program, and quality of care has to be considered.’‘