February 9, 2005—President Bush on Wednesday said the long-term solvency of Medicare was on his second-term agenda, but not until his plan for overhauling Social Security becomes a reality.
Bush said Medicare's costs would have to be addressed, especially following a new administration estimate that the program's prescription drug benefit would cost $720 billion over 10 years. "There is an unfunded liability inherent in Medicare that Congress and the administration's going to have to deal with over time," Bush said.
The $720 billion figure dwarfed previous estimates, causing a flare-up in the press and on Capitol Hill. Yet Bush gave no sign of trying to scale back the drug benefit, saying that changes to Medicare will, in the long run, have "cost savings for our society."
A reported estimate that the drug benefit may cost $1.2 trillion over 10 years is off "by about one-half a trillion dollars" said White House adviser Doug Badger, who added that the administration's cost estimates have been increased by only 1 percent since the benefit (PL 108-173) was enacted.
Badger was not clear on whether the administration would consider cuts in Medicare provider payments to reduce costs, but emphasized that the White House continues to work on a plan to halve the deficit with Senate Budget Committee Chairman Judd Gregg, R-N.H.
A year ago, the administration pegged the cost of the Medicare overhaul law at $534 billion from 2004–2013. Of that figure, $511 billion was the cost of the drug benefit. Badger said the administration's new estimate of the drug benefit's cost in that period is about the same—$518 billion.
The full Medicare drug benefit starts in 2006, which means the 2004–2013 estimate included only eight years of the benefit's full costs. Estimates for those eight years essentially haven't changed, administration officials said. Measuring the benefit's cost over its first full 10 years brings the figure to $720 billion because the new figure includes costs through 2015.
The $1.2 trillion estimate, provided by Medicare's actuary, fails to subtract factors such as beneficiary premium payments and reduced federal Medicaid costs associated with implementing the drug benefit, the administration says.
A Democratic estimate, compiled by the minority staff of the House Ways and Means Committee, puts the net cost of the benefit at $913 billion from 2006–2015. The discrepancy relates to data differences over savings on federal Medicaid costs.
"More than anything, this is an opportunity to make the case to require price negotiation and other efforts to aggressively lower drug prices," the Democratic staff memo emphasized.
Gregg accepted an explanation Wednesday by White House budget chief Joshua B. Bolten that the administration figures haven't changed and were higher because of apples-to-oranges comparisons.
But Gregg and House Budget Chairman Jim Nussle, R-Iowa, said Tuesday they intend to use the fiscal 2006 budget resolution to order spending reductions in entitlement programs including Medicare and Medicaid.
House Ways and Means Health Subcommittee Chairwoman Nancy Johnson, R-Conn., said the numbers flap will "undoubtedly" increase pressure and spark discussion in Congress over cutting provider payments.
Johnson said she doesn't like the new estimates but believes the current course is the correct one because the law will make Medicare more efficient by providing for more organized care, including preventive treatments like pharmaceuticals, and reducing costs per patient over time.
Fellow House Republicans who are upset about the new estimates are not seeing it in the proper context, Johnson said, referring to more efficient forms of care. "We are doing the right thing," she said.
Democrats jumped on the issue to argue both for giving Medicare power to negotiate lower drug prices and to allow wider importation of cheaper drugs from Canada and other nations.
Sen. Edward Kennedy, D-Mass., said the new estimate "makes action on drug importation even more urgent. The problem is not caused by its being too generous toward seniors. In fact, it is not generous enough. Too much of the cost of the program goes to increase the drug industry's already inflated profits."