ObamaCare v. Prescription Drugs, Part II

Andrew responds:

The Medicare prescription drug entitlement almost immediately was projected to cost $1.2 trillion over ten years - more than Obama's cost-projections. The CBO's estimate of long-term spending in the program is $8.2 trillion. Unlike Obama's healthcare plan, which focuses on the younger uninsured working and middle class, Bush's massive bribe was directed at seniors, a demographic set to grow very fast in the near future.

Now Megan is right that we do not know the final cost of the current proposal or what the future will bring. But when the CBO scores the final version, let's contrast and compare, shall we? And one more thing: the more immediately expensive one was rammed through by Republicans, the allegedly small government party. I still, for some reason, expect a little more fiscal responsibility from the right than the left. But we now know, of course, the both are dreadful but the GOP is worse.

These are not quite the right comparisons to make.

For starters, those figures aren't really the right ones.  As the web page from which Andrew picked that Washington Post figure notes, the CBO's estimate of the ten year cost was considerably lower at the time.  Also, the $8.1 trillion is a GAO report, not a CBO report, and it's from 2004. The Medicare prescription drug benefit has (so far, knock wood) turned out to be cheaper than we then thought because of heavier use of generics, and the Medicare Trustees now place the unfunded general revenue liability at 7.2 trillion over the 75 year horizon. 

But that is still a large number, and it is true that the projected costs increased rapidly.  When the prescription drug benefit was passed, it was scheduled to cost $534 billion over ten years.  That number immediately started going up.  Why?  Because the CBO scores from the ten year period starting when the law is passed.  But the program didn't actually go into effect until 2006.  That's why the price tag had gone up so much when the Washington Post wrote that article in 2005. Also, the Bush OMB was fond of issuing hysterical projections so that it could wow us with a "surprisingly" low deficit number every mid-term review.

All the Democratic bills on the table this year use the same delay dodge, with an extra year added in order to give them lots of time to get past the 2012 elections before their constituents find out that the government isn't giving them health care out of taxes on "the rich", but making them buy it out of their own money.  If we actually break down the cost by year of operation of this $900 billion program--taking the heroic assumption that Obama's number is actually correct, rather than the more traditional White House lowball--that makes it $150 billion a year, not less than $100 billion a year.  Of course, as health care costs are growing at quite an impressive clip, by the time we get close to actually starting this program, its 10 year cost will be much closer to $2 trillion than to $1 trillion.

Meanwhile, the cumulative undiscounted 10 year cost that the Medicare trustees are now projecting for the next ten years is $945 billion, thanks to that happy surprise on generics in the formularies.  I am not counting premiums, which pay for slightly more than 10% of the program.  Nor am I including estimates that Medicare Part D saves other parts of Medicare money by cutting down on surgeries, hospitalizations, and other costly care. I want to compare apples to apples, spending to spending.

We do not yet have any good way to look at the Obama numbers, because there is no plan specific enough to score.  But I have yet to hear anyone make a credible argument that what Obama is promising can be done at the quoted price tag.

As for whether the Republicans are "worse" on budget deficits than the Republicans . . . well, I think that was a much easier argument for both of us to make nine months ago.  Now Obama's projected deficit in 2019 is are higher than the worst of the Bush deficits--4% of GDP, almost a trillion dollars. The CBO is slightly kinder--they project 3.4% of GDP as a budget deficit, and $722 billion, but of course that's without any changes to the Bush tax cuts, any annual AMT "fix", any delay of the draconian cuts that are supposed to happen to Medicare doctor reimbursement rates, and no ObamaCare. 

Presented by

Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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