Commentary: Lawmakers Call for Medicare Drug Entitlement Delay

Published January 1, 2006

Delay the Medicare drug benefit: That’s what Sen. John McCain (R-AZ), Rep. Jeff Flake (R- AZ), Rep. Jim Cooper (D-TN), and several other members of the U.S. House and Senate urged their colleagues and taxpayers to do before the end of 2005.

The spending explosion of the Medicare drug entitlement is set to go off on January 1, 2006, and it will be funded mostly by general federal revenues. Over the next 10 years, Medicare drug benefits will cost roughly $850 billion. According to March 2005 Congressional Budget Office (CBO) estimates, the first-year (2006) cost of the program will be $32.8 billion. In 2007, it jumps to $55 billion; in 2008, $63.9 billion; in 2009, $70.3 billion; in 2010, $78.4 billion.

The Katrina and Rita hurricane relief and recovery efforts were estimated to cost more than $200 billion. Based on the CBO numbers, a four-year delay in the drug entitlement would yield roughly $222 billion in savings.

Official estimates of the cost of the drug benefit have varied, but members of Congress have been expressing deep concern about the mounting costs, which will add almost $9 trillion to the unfunded liabilities of the Medicare program.

Unfunded Liabilities Threaten Disaster

In October, two alumni of the Congressional Budget Office (CBO) staff–Joseph Antos of the American Enterprise Institute and Tracy Foertsch of The Heritage Foundation’s Center for Data Analysis–released an econometric analysis of Medicare and its unfunded costs.

In “Paying for Medicare: An Economic Look at the Program’s Unfunded Liabilities,” the authors demonstrate that if Congress decided to pay all the unpaid bills of Medicare simply by raising the existing Medicare payroll tax, the result would be an increase from the current 2.9 percent to 13.4 percent of the taxable earnings of workers. Just for Medicare.

That kind of tax hike would have a profound effect on the functioning of the economy, the authors note. Tax increases reduce disposable income, and thus both consumption and investment. Reduced investment would reduce productivity and job opportunities. Antos and Foertsch estimate that under this tax regime the Gross Domestic Product (GDP) would fall by $90 billion annually, and each year the American economy would lose almost 900,000 jobs.

While McCain and others, especially Rep. Mike Pence (R-IN) and the House Republican Study Committee, are warning of the future economic impact of entitlement spending, the Bush administration and the Republican Congressional leadership have dismissed a Medicare drug benefit delay as a non-starter. Former House Majority Leader Tom DeLay (R-TX), who helped to muscle the Medicare bill through the House during an infamous three-hour vote, is opposed to a delay.

The White House says seniors are expecting the benefit and will depend on the drug entitlement staying on course, while House leaders are loathe to open a debate on legislation they worked so hard to enact.

Medicare Advantage Looks Promising

Whatever one thinks of the drug entitlement in Title I of the Medicare Modernization Act (MMA) of 2003, the Medicare Advantage program (the new system of private plans under Title II of the law) looks promising. Participants who choose a Medicare Advantage plan do not need a Medigap policy; the plans often offer more choices and, sometimes, extra benefits, such as extra days in the hospital. The private plans offer a full range of benefits at affordable premiums.

The danger is that Medicare Advantage could fall victim, if not this year then maybe next year, to the same problems that beset the ill-fated Medicare Plus Choice program. The latter, begun in 1997, was undermined by congressional funding rules (2 percent cap on reimbursements while cost increases were going into double digits) plus a level of regulation that discouraged innovation and flexibility in caring for the elderly. Medicare Plus Choice was governed by 900 pages of rules and regulations. Medicare Advantage is spelled out in the MMA in a relatively slim 44 pages.

There is cause for cautious optimism about Medicare Advantage, but the future of the program will rest in maintaining the funding for private plans (the congressional Left doesn’t like private health plans in Medicare or any other places) and making sure the regulatory system allows maximum flexibility. The proof will be in its performance in 2006 and beyond.

Innovative Health Plans Might Arise

The Medicare Advantage program also could be another vehicle for innovative health plans, including association plans, ethical health plans, or plans sponsored by faith-based or religious organizations. Ethical health plans are those that exclude coverage for medical services incompatible with religious teachings on certain issues, such as abortion, sterilization, contraception, and artificial insemination.

Ethical health plans could be an attractive option for the aged. In 2004, the Sisters of the Order of St. Francis offered a health plan in Illinois under the Federal Employees Health Benefits Plan (FEHBP). The plan, consistent with Catholic beliefs, was the first of its kind to be offered under FEHBP. The very idea of it was scandalous to the Left because it did not provide for abortion or contraception.

Given the growing concern among the elderly and others about the quality of end-of-life care, it would make sense for the government to allow individuals to choose options that respect their deepest convictions.

Now more than ever, patients need to be aware of the governing values of those who provide and pay for their care, such as whether physicians adhere to the traditional Oath of Hippocrates, which explicitly forbids euthanasia. With the increasing financial pressure of costly Medicare and Medicaid entitlements, patients have every right to be frightened at the prospect of being “cared for” by white-coated champions of the “quality of life.”

Robert Moffit, M.D. ([email protected]) is director of the Center for Health Policy Studies at The Heritage Foundation, Washington, D.C. This article was adapted from Moffit’s column in the November 2005 issue of AAPS News and is reprinted with permission.

For more information …

For more information, see “Paying for Medicare: An Economic Look at the Program’s Unfunded Liabilities” by Tracy L. Foertsch, Ph.D., and Joseph R. Antos, Ph.D., available online at