Taxes & Spending

Memo to Congress: Repeal Medicare Drug Plan Now

The House recently adopted an amendment barring Medicare (and Medicaid) from paying for Viagra or other impotence drugs. That’s all well and good, and certainly will garner headlines for some representatives. But while taking this small step toward sanity, the House ignored the real Medicare problem: massive unfunded liabilities that will create havoc for the U.S. economy in coming decades.

The Medicare problem dwarfs the difficulties facing Social Security. Social Security spending amounted to 4.3% of gross domestic product in 2004 and, according to the program’s trustees, is projected to increase to 6.4% of GDP in 2079. Meanwhile, Medicare’s cost was smaller in 2004—2.6% of GDP—but is expected to grow to more than 13.6% of GDP in 75 years. By 2079, Medicare alone will consume one-eighth of the U.S. economy.

Unfunded Liability

Driven by this staggering growth in projected spending, Medicare’s unfunded liabilities total $68.1 trillion—six times the unfunded liabilities of Social Security. While individuals or businesses may follow the adage “when you’re in a hole, stop digging,” the federal government doesn’t. More than 10% ($7.1 trillion) of Medicare’s liabilities are due to the disastrous Medicare prescription drug law signed by President Bush in 2003. As Heritage Foundation Policy Analyst Bob Moffitt writes: “The drug benefit itself imposes staggering new unfunded liabilities on future generations. These cannot be honored without huge deficits, huge tax increases, or slashing other programs.”

The First Step

The Medicare liability is so mind-boggling that most members of Congress won’t even engage in serious discussion of reforms. Consider that even a bill that cut $15 trillion off the long-term unfunded liabilities (which would require very hard choices) would barely put a dent in the problem. Politicians feel caught in an un-escapable trap.

The only way out is to go a piece at a time: Elected leaders in Washington built this problem one step at a time and that is the only way they are going to solve it. The first step should be complete repeal of the 2003 Medicare prescription drug bill.

The clock is ticking for the start of the new drug program. Several weeks ago, the deadline passed for insurers to submit bids to the government to provide prescription drug coverage under Medicare. Decisions on winning bids will be made in the coming months. This fall, information and forms will start mailing to seniors and the full plan will take effect in January 2006.

Repealing the entire mess would immediately cut 10% from Medicare’s long-term liabilities—not a bad first step. Congress could then start from scratch and craft a targeted (and far less costly) program for the 24% of seniors who don’t already have good prescription drug coverage.

Short of immediate repeal, there are other ways for Congress to back away from their prescription drug disaster. For instance, Rep. Jeff Flake (R-Ariz.) has introduced the Prescription Drug COST (Control Overspending to Save Taxpayers) Containment Act of 2005. This legislation (HR 1382) would provide a one-year delay in the implementation on the drug benefit and instead simply continue the current prescription drug discount card for another year. 

Of course, some in Congress want to make the Medicare prescription drug debacle even worse. Big-spending Rep. Pete Stark (D.-Calif.) complains that the drug plan is “inadequate and overly complex.” Stark did not clarify how much bigger than $7.1 trillion in added unfunded liabilities he believes is appropriate.

So opening up the Medicare prescription drug bill for congressional re-examination is not a risk-less proposition. At some point, however, the politicians are going to have to face up to the sobering reality of the Medicare numbers. The longer they wait, the tougher the choices will be.


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