Senate Drug Plan a Hard Pill to Swallow

June 23, 2003
Robert Genetski

As the details of the U.S. Senate plan to create a Medicare drug benefit emerge, it becomes apparent that the plan is about as bad as one can imagine.

To begin with, the existing Medicare system is already running huge deficits, and without reform will be hemorrhaging red ink when today's baby boomers retire.

Instead of addressing this problem, the Senate plan makes it worse. The Wall Street Journal reports that Medicare Trustee Tom Saving estimates that the present value of the Senate plan--the value of the entire future obligation in today's dollars--is something like two-thirds the size of the current $3.8 trillion in debt held by the public.

The new entitlement would include a prescription drug benefit for 40 million Medicare participants. All the bureaucratic inefficiencies that plague the current Medicare system would be carried over into the new drug plan.

The Senate plan takes an inefficient system that has huge unfunded future liabilities and adds another entitlement to the original one. There is no effective use of the private sector or of market pressures to introduce efficiencies.

The end result is what we have come to expect from government edicts.

For example, current estimates place the average bill for prescription drugs for seniors at about $900 a year. Under preliminary reports of the Senate plan, Medicare recipients would pay a monthly premium of $35, plus a deductible of $275 a year, plus 50 percent of the costs of the drugs over the deductible.

This means a healthy senior with no drug bills would have to pay $695 a year for this plan ($420 for the premium plus the mandatory deductible of $275).

Interestingly, a senior with an average bill of $900 a year would still pay the $695 and would also pay $312.50 (half of the post-deductible $625).

Hence, an average senior will pay close to $100 more a year for drugs under a plan that will cost their kids and grandkids at least $1,000 per recipient. When the drug bill hits $2,000 a year, the "insurance" pays for less than $500.

The incentive here is clear--use drugs!

This monstrosity of a plan would not go into effect until 2006, so those members of Congress voting for it won't feel the backlash until after the next election.

Both Democrats and Republicans share the blame on this, with the bulk of it going to the Republicans since they are the majority party. But even more blame goes to President Bush, who has insisted the bill be on his desk by July 4.

What we have here is a shameless, politically expedient way of neutralizing an issue against the Democrats in next year's election, but at a huge cost to future generations.

The tax cut that was passed and signed into law by President Bush earlier this month did not place a burden on our kids, because it will produce new incentives to create wealth and expand the economy.

But the extension of a prescription drug benefit in Medicare does place a huge new burden on the next generation. This poorly thought out, inefficient program transfers more funds from our kids and grandkids to pay for retired baby boomers. It's a classic example of bad policy.

If politicians had any sense of shame, they should all be hanging their heads over the burden they are placing on future generations.


Veteran Chicago economist Robert Genetski is chief executive of GenetskiFinancialAdvisors.com. He can be reached at rgenetski@genetskifinancialadvisors.com.



This article first appeared in the June 23, 2003 issue of the Chicago Sun-Times. You can read it online at http://www.suntimes.com/output/business/cst-fin-medi23.html.