If you hire a contractor to work on your home, and the final bill ends up seven times the original estimate, you would probably be pretty upset. You might even refuse to pay.
That is exactly the position American taxpayers may be in if Congress adds an expensive new Medicare entitlement to subsidize the cost of prescription drugs for seniors. The difference is that taxpayers do not have the option of refusing to pay.
The drug benefit proposal now heading to conference committee in Congress would be the largest expansion of Medicare since the program was created in 1965. The new benefit, especially the Senate version, would subsidize the cost of prescription drugs for the nation’s 40 million seniors, and all future retirees, regardless of income, forever. When Bill Gates retires, taxpayers will help pay for his prescription drugs.
The cost of the proposed drug entitlement is estimated at $400 billion over the next 10 years. Given the fiscal track record of past entitlements, the cost of the new program is likely to be much, much higher.
Taxpayers have been misled before. Stephen Dinan reports in the Washington Times that when Congress created the Medicare program the projected cost in 1990 was $9 billion. The true cost in 1990 was $67 billion, 7.4 times higher. In 1987 Congress added a generous special hospitals subsidy to Medicare. The estimated cost was $100 million a year by 1992. The actual cost in 1992 was $11 billion. In 1988 Congress expanded Medicare again to include a home-care program. Lawmakers expected the new program to cost $4 billion in 1993. The true cost that year was $10 billion.
Dinan cites further examples, but you get the idea. The upward pressure on costs is built into the very nature of entitlement programs. When something feels like it’s free, people tend to use it a lot. Once Uncle Sam is picking up the check, people on Medicare are likely to demand more drugs, want more expensive drugs and want to use them longer than they might have if they were more aware of the true cost.
In one sense entitlements are the most brilliant political device ever conceived. For proponents, what could be better than putting the funding for a favored program on automatic pilot, separated from normal budget oversight, with virtually no limit on how much the government must spend?
Elected officials today get to claim all the credit for enacting a generous spending program, while putting the unknown financial burden onto tomorrow’s taxpayers. Years from now, the feds might impose price controls on the drug entitlement in an effort to limit costs. And as always happens under price controls, the supply of the thing being controlled will begin to go dry.
Doctors across the country already are turning away new Medicare patients because the government’s preset fee is too low. Once the price of drugs is similarly controlled, our amazingly innovative pharmaceutical industry, a business that seems to produce miracles as a matter of routine, will begin to lag. If pharmaceutical companies cannot recoup the enormous cost of discovering new drugs, they can’t afford the risk of doing the research in the first place.
One sign of good leadership is knowing when to cut one’s losses and start over. Congress should take this project back to the drawing board. There are smarter ways to reduce drug costs for seniors, such as tapping the competitive forces of the free market, than reaching for the old model of entitlement spending.
To see this article, go to: http://www.galen.org/news/070703a.html
To read Grace-Marie Turner’s companion article, go to: “PRO: Is Medicare Drug Benefit Legislation Heading in Right Direction?”
”’Paul Guppy is research director at the Washington Policy Center. Write him at WPC, 155 108th Ave. N.E., Suite 820, Bellevue, WA. 98004. Distributed by Knight Ridder News Service.”’