$158 billion missing in U.S. Medicare drug benefit cost estimate

Thursday, February 10, 2005  U.S. Medicare drug benefit cost estimates rise to $558 billion in latest Congressional Budget Office (CBO) estimates.

The CBO estimated that the Medicare Modernization Act, "would result in additional direct spending of about $395 billion over the 2004-2013 period." The estimate included $552 billion mandatory spending for Medicare Part D, offset by savings of $13 billion from changes to Parts A and B, and "estimated savings of $145 billion in Medicaid and other federal programs because the Part D benefit would reduce spending in those federal programs."

Although the projections only slightly modified the net costs, from $552 billion to $558 billion, the $158 billion in offset from previous estimates were completely removed with a limited justification. "The estimated savings to Medicaid and other federal programs are incorporated in our baseline projections and are not separately identifiable," the CBO said.

The $552 billion dollar figure is missing from the November 2003 estimates, with a total cost for 2004-2013 presented as single line item of $410 billion as "Prescription Drug Benefit (Title I)." Over the same period the current estimate, which is categorized differently, lists the total costs for the "Benefits and Mandatory Administrative Costs" as $779 billion, with Part D. Premiums and payments by States reducing the number by $221 billion to $558 billion.

The report presented two tables: one justifying the prior $395 billion figure, including itemizations for "Savings to Medicaid and Other Federal Programs" totaling $145 billion and "Other Spending Effects" totaling $13 billion, and another presenting the current estimate, which only listed "Savings to Medicaid and Other Federal Programs" and "Other Spending Effects"as being "Not Separately Identifiable."

"This just brings us back to the Bush administration's credibility gap," Rep. Charles Rangel of New York told the L.A. Times. Medicare is overseen by the House Ways and Means Committee, and Rep. Rangels is the senior Democrat on the committee. "How can we trust them on Social Security when they did not play straight with the facts on Medicare?" he said.

Dr. Mark B. McClellan, administrator of the Centers for Medicare and Medicaid Services, disagreed, saying "there has been no significant change in the cost of the drug benefit" for the years 2006 - 2015 despite the numbers he brought forward having a cost of $1.2 trillion dollars. He points to a difference in years covered by his estimates as the reason, and that the numbers represented "gross costs" and did not reflect premiums paid by Medicare beneficiaries, compulsory contributions by states or savings to the Medicaid program.

References

• February 9, 2005 CBO Estimate of Drug Provisions in Medicare Modernization Act
• November 20, 2003 CBO Estimate of Effect on Direct Spending and Revenues of Conference Agreement on H.R. 1: Detail
• "Surprise: Medicaid drug benefit cost soars" — United Press International, Feb. 9
• "Medicare Drug Benefit's Cost: $720 Billion" — Scoutnews, LLC, February 09, 2005
• Richard Simon and Ricardo Alonso-Zaldivar. "Medicare Cost Estimates Touch Off Legislative Unease" — L.A. Times, 8:05 PM PST, February 9, 2005
• Robert Pear. "New White House Estimate Lifts Drug Benefit Cost to $720 Billion" — New York Times, February 9, 2005