President Signs ‘Budget-Busting’ Medicare Reform

Published January 1, 2004

After months of Congressional debate, President George W. Bush on December 8 signed a Medicare reform measure expected to increase spending on the program by $400 billion over the next 10 years. Supporters say it will begin the reform process and give much-needed prescription drug coverage to 40 million older Americans, while critics warn it could increase the power of government and bust the federal budget in 30 years or sooner.

As National Taxpayers Union President John Berthoud observed, “the nation is in a deep Medicare hole. Instead of stopping the digging, Congress and President Bush have just dug the hole a lot deeper. That’s why conservative, free market, and taxpayer groups were just about unanimous in strongly opposing this legislation.”

The Medicare measure provides for a prescription drug program that will be implemented beginning in 2006. Before that, senior citizens will be able to purchase, by mid-2004, a discount card proponents say will provide 10 to 25 percent off prescription drugs.

Starting Somewhere

Grace-Marie Turner, president of the Galen Institute, sees the new Medicare measure as the beginning of reform. “Changes to major programs and systems evolve over time. We must start somewhere. While the compromise agreement falls short of overall modernization, it contains important features to set consumer-friendly initiatives in motion. This is a starting place for reform.”

Congressional supporters of the bill, like Senator Dianne Feinstein (D-California), said it was “better than no bill at all” and hailed the vote as a victory for senior citizens. Advocates say the bill will help lead to better coverage for seniors. But the measure’s opponents disagree.

“I was struck by how vacant the galleries were and so few seniors citizens looking down,” said Senator Tom Dashle (D-South Dakota) after the vote. “What you saw instead were lobbyists packing the halls. They will do well. Our seniors will not, and that is why the fight will go on.”

The reform measure’s opponents say it wastes taxpayer funds, bloats the federal budget, and effectively moves more responsibility toward the government and away from individuals.

Sen. Barbara Mikulski (D-Maryland) said senators had “squandered the opportunity to truly change history and to truly change the lives of senior citizens” by providing them with “a skimpy benefit.”

Escalating Costs

Other observers agreed with Mikulski’s opposition to the bill, but hardly considered the measure “skimpy.”

Noted Brian Riedl and William Beach of The Heritage Foundation, “The Medicare debate has focused almost exclusively on what form of drug benefit to provide to senior citizens. Lost in the debate is what the huge new unfunded liability implicit in the drug legislation would mean to American taxpayers. There are no free lunches, and future taxpayers will have to pick up the commitment to senior citizens.”

Based on research they conducted for Heritage, Riedl and Beach warn, “The 10-year cost estimates performed by the Congressional Budget Office (CBO) do not capture the substantial cost that will likely be felt by taxpayers in 15, 20, and 30 years.”

Like the CBO, Riedl and Beach estimate the Medicare reform measure would cost approximately $400 billion over the next 10 years. Yet costs accelerate substantially beyond the 10-year budgeting window, they note. In the following 10 years, from 2014 through 2023, the drug benefit is projected to cost $772 billion. That rapid growth rate continues through 2030.

“Lawmakers who voted for the Medicare drug benefit are voting for a $2 trillion tax increase [over 30 years],” they concluded. “Responsible lawmakers who oppose such substantial tax increases should look beyond the 2004 election and examine the burden that a Medicare drug benefit will impose on future generations.”

Shifting Responsibility

Economist Bruce Bartlett of the National Center for Policy Analysis also objected to the Medicare reform bill, but for a different reason: The measure represents yet another transfer of responsibility from the individual to the government.

“As the government takes over all aspects of care for the elderly, their children are relieved of personal responsibility,” explained Bartlett. “The Medicare drug bill that has just passed Congress will be a kind of tax cut for those who would otherwise have had to pay for their parents’ prescription drugs. Indeed, the Roosevelt administration originally sold Social Security to the young exactly this way.” Today, Social Security and Medicare are two of the largest programs in the federal budget.

Two key Senate Democrats–Presidential candidates John Kerry (D-Massachusetts) and Joe Lieberman (D-Connecticut)–did not vote on the reform bill. Lieberman’s press secretary, Jano Cabrera, said the senator left for a campaign stop in Arizona after it became “ultimately clear the bill was heading toward passage.”

In a written statement, Kerry said he fought “tooth and nail against this special interest giveaway,” but returned to the campaign trail once he decided his vote would not make a difference.

The U.S. House of Representatives had passed the bill on November 22, three days before the Senate vote, by a 220-215 margin.

John Skorburg is managing editor of Budget & Tax News. His email address is [email protected].