Buy Your Own Drugs, Grandma

Franklin Roosevelt and Lyndon Johnson would be proud of what the Republicans who run the federal government are doing now: They are planning to add a massive new element to the welfare state.

Cheered on by President Bush, the Republican Senate is poised to approve a bill adding a prescription drug benefit to the already bankrupt Medicare program. So far, there is no organized resistance to the plan in the Republican House.

This new entitlement is politically shortsighted, pandering to forces that could eventually smother the Republican Party. But worse, it is fiscally and morally indefensible.

In the short run, Republicans figure it will help them in the 2004 elections-particularly in the pivotal state of Florida, which George W. Bush barely won in 2000, and which has a large elderly population. In the middle run, however, the GOP may pay a great price for it at the polls. And, in the long run, it could help precipitate an economic and social crisis unequaled since the Great Depression.

A Fiscal Joke

As the Senate Finance Committee describes it, this benefit will give all 40 million Americans currently eligible for Medicare huge annual subsidies to buy drugs. For a nominal monthly premium of $35, a recipient gets a drug insurance plan with a $275 annual deductible. Between $275 and $4,500, taxpayers will cover 50% of the cost of all drugs that a Medicare recipient purchases.

Above $4,500, the benefit lapses until a recipient has paid a total of $3,700 for drugs out-of-pocket (equal to $5,873 in total drug purchases). From there on, taxpayers will pay 90% of a recipient’s drug costs.

Congressional Republicans estimate this will cost $400 billion over 10 years. The estimate is a joke.

“Since the program is an entitlement, there is no fixed budget,” writes analyst Stuart Butler of the Heritage Foundation. “Moreover, the evidence from both private and public sectors in recent years suggests that future costs are likely to exceed projections. But even if they are accurate, it is not the next 10 years that matter. It is the years after that, when the full force of the Baby Boom generation hits Medicare and Social Security. Within 15 years Medicare already faces a Niagara of red ink. Adding a drug benefit without serious reforms and constraints on future spending means massive tax burdens on generations to come.” Butler may be optimistic.

Medicare is already in the red-even if the government sometimes tries to hide this fact with smoke-and-mirrors accounting gimmicks worthy of Enron. In April 9 testimony before the House Subcommittee on Health, Richard S. Foster, chief actuary of the Centers for Medicare and Medicaid Services (which runs Medicare), stated the program’s bottom line for fiscal 2003. “Medicare, overall,” he said, “is . . . projected to draw a net amount of $87.7 billion from the budget.”

Fiscal Armageddon

Over the horizon looms fiscal Armageddon.

The two major elements of Medicare are Hospital Insurance (HI, or Part A) and Supplementary Medical Insurance (SMI, or Part B). HI is underwritten by a 1.45% payroll tax paid by all employees and employers (2.9% for the self-employed). By statute, SMI recipients are supposed to pay an annual premium set at 25% of its cost, with taxpayers picking up the other 75%. There are now fewer than four workers per Medicare recipient paying the taxes to cover these costs. By 2030 there will be only 2.3 workers per recipient. (For more info, click here.)

When Social Security and Medicaid (federally subsidized health care for the poor) are added into the fiscal equation for tomorrow’s welfare state it becomes obvious there is no realistic prospect for sustaining that welfare state-even without a prescription drug benefit-unless the government is willing to tax middle-aged working people into poverty.

On July 25, 2001, U.S. Comptroller General David Walker spelled out the problem for the House Budget Committee. “Taken together, the two major government health programs-Medicare and Medicaid-represent an unsustainable burden on future generations,” said Walker.

“Assuming, for example, that Congress and the President adhere to the often-stated goal of saving the Social Security surpluses, our long-term simulations show a world by 2030 in which Social Security, Medicare and Medicaid absorb most of the available revenues within the federal budget,” he said.

“Absent changes in the structure of Medicare and Social Security,” he predicted, “sometime during the 2040s government would do nothing but mail checks to the elderly and their health care providers.”

Between then and now, Republicans would find themselves perpetually out-bid by Democrats in their mutual efforts to pander to retired Baby Boomers who had been tutored by government to depend on government.

America would become a socialist country-with an increasingly aggrieved and impoverished bloc of people struggling to pay the taxes to cover the Social Security, drug bills and other medical costs of other people’s grandparents.

Conservatives believe freedom is a moral imperative-for old and young alike. Bloating the welfare state today with a new prescription drug benefit will diminish American freedom now, and could help extinguish it in the future. Republicans who call themselves conservatives should fight the plan, not help push it through.


Read: The Financial Outlook for Medicare: Testimony of Richard S. Foster, F.S.A., Chief Actuary, Centers for Medicare & Medicaid Services