January 21, 2006
Fiscal Exposure and Medicare Part D
Even if the new Medicare prescription drug plan's implementation improves, that's just the beginning of our problems.
Much has been made of the snafus accompanying the start-up of the Medicare Part D prescription drug plan (see here and here for instance). But in my mind an even more important problem is the fiscal burden associated with this program. As this graph, drawn from David Walker's (Comptroller General, GAO) presentation at the White House Conference on Aging (December 12, 2005) points out, the passage and signing of this bill increased the implicit exposure of the Federal government by $8.1 trillion, in present value terms (exceeding the liability associated with future Social Security benefits of $5.2 trillion).Source: General Accountability Office.
For perspective, 2005 U.S. GDP is around $12.5 trillion. These figures should be kept in mind when the discussion turns to claims of Administration and Congressional fiscal restraint.
Posted by Menzie Chinn at January 21, 2006 06:52 PMdigg this | reddit
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[T]he passage and signing of this bill [Part D of Medicare] increased the implicit exposure of the Federal government by $8.1 t...[Read More]
Tracked on January 22, 2006 11:36 PM
Why not also include the estimated present value of non-entitlement spending not covered by current non-payroll tax revenues? Isn't that about 3% of GDP, if one assumes revenues roughly at their current share of GDP and spending at its current share of GDP? That presumably has a large PV. It always struck me as a bit strange to calculate the PV of the social security funding gap (which materializes after 2040, maybe later), while ignoring the larger gap between current non-social security spending and current non social security expenditure just because the current spending/ current taxes are set in the annual budget cycle, and thus cannot be calculated quite as easily ...
the implicit liabilities/ PV framewwork seems tog highlight the problems created by formal commitments that start to bite way in the future (social security), while ignoring things that sort of stare us in the face a few years out because they require making a relatively simple assumption about likely future legislative behavior ...
that is not to say that we should ignore future promises that seem likely to exceed future tax revenues, only to say that we shouldn't focus on entitlements and ignore commitments elsewhere that exceed revenues elsewhere --
Posted by: brad at January 22, 2006 11:03 AM
ANY time the government passes a permanent increase in spending without a corresponding increase in tax revenues, the present value of the long-run deficit grows. In fact, the converse is true - a permanent tax cut with no cut in spending does the same thing. Of course, Bush has given us both of these scenarios.
Posted by: pgl at January 22, 2006 12:28 PM
There is no better example that highlights the absolute culture of corruption in the Republican party than this legislation. It was never intended to be a good for seniors or a fiscally responsible law. It was intended to get George Bush re-elected by neutralizing a Democrat issue. They decided that if they were going to loot the treasury for the election, they may as well make sure that as much of the money as possible went to their supporters in the health insurance and pharmacy industries. So the law was quite literally written by insurance and pharmacy lobbyists.
As Krugman puts it: "Thomas Scully was a hospital industry lobbyist before President Bush appointed him to run Medicare. In that job, Mr. Scully famously threatened to fire his chief actuary if he told Congress the truth about cost projections for the Medicare drug program.
"Mr. Scully had good reasons not to let anything stand in the way of the drug bill. He had received a special ethics waiver from his superiors allowing him to negotiate for future jobs with lobbying and investment firms - firms that had a strong financial stake in the form of the bill - while still in public office. He left public service, if that's what it was, almost as soon as the bill was passed, and is once again a lobbyist, now for drug companies.
"Meanwhile, Representative Billy Tauzin, the bill's point man on Capitol Hill, quickly left Congress once the bill was passed to become president of Pharmaceutical Research and Manufacturers of America, the powerful drug industry lobby."
Even with the lies about the cost, the Republicans in the House had a hard time passing the bill. Together with virtually all Democrats and a few Republicans of conscience, the bill was voted down. But the Republican leadership, against House rules simply refused to count the vote. They kept the vote open for three hours (the rules allow 15 minutes) while they tried to twist arms to change votes. Tom Delay actually offered a bribe of $100,000 on the floor of the congress to Nick Smith of Michigan to change his vote. Smith was retiring and his son was running for his seat. Delay threatened to torpedo his son's campaign if he voted against or else he would give him $100,000 if he changed his vote. To his credit Smith refused, but at one o'clock in the morning Delay finally was able to bribe someone into changing his vote, the votes were counted and the bill passed.
So how bad is this bill? Well unless you have tried to enroll or helped someone else enroll, you have no idea. I spent two full days helping my elderly mother-in-law. In Montana, where she lives, she has to pick from 48 different plans. Each plan has different premiums and coverage that vary by more than a factor of 10. You have to go to each company's web site to figure out how much it costs, what are the co-pays, what are the coverage percentages, caps etc. This alone is a huge matrix. But you aren't done yet. Each plan also has lists of the hundreds of drugs that they cover and don't cover on three tiers of payment levels. So you must go to each site and figure out if your prescriptions are covered -- generic vs. non-generic, certain dosages, tablets or capsules, etc. Lord help you if you are in your 80's and have never touched a computer.
So you finally got it figured out and sign up, except you suddenly get sick and need an expensive drug that is not covered by your plan. Sorry, but you are locked in for 12 months and cannot change to another plan. So are the insurance companies also locked down? Of course not -- the plan was written by the lobbyists. They can change your premium and the drugs covered at their whim and there is nothing you can do about it for a year.
So what if you throw up your hands and say you will wait a year for the dust to settle and figure out which plans are best. After all, half the plans are from companies that have sprung up over night to harvest the wealth. Who knows if they will fold up with a year. Well, it turns out that you have a deadline of May 2006 to pick a company and start paying premiums. If you don't, you have to pay a premium penalty of 1% for every month you delay. So if you wait 18 months your premiums go up 18% -- for the rest of your life -- to the day you die. This coercive aspect is just breathtaking particularly when the victims are the elderly who have little access to all of this complicated information.
You would think that will all the billions we are paying in taxes for these drugs that we would have some leverage on pricing. For example the Veterans Administration negotiates about a 40% discount based on their volume purchases. But the lobbyists prevailed again. The law specifically prohibits the government from negotiation or competitive bidding. They have to pay whatever the drug companies want.
Posted by: Joseph at January 22, 2006 01:04 PM
Thanks for that comment Joe. Now, when Hillary gets elected in 2008 and has her second chance at nationalized healthcare, I'm sure that you will be equally scathing of those godless communist democrats.
Posted by: Jack at January 22, 2006 04:44 PM
That's a good explanation.
The only thing that I see you omitted was the cursing that goes along with evaluating the plans and talking to various representatives. Or so I am told.
Posted by: Movie Guy at January 22, 2006 06:06 PM
Brad: I don't disagree that we should also be looking at all the present value figures for spending and receipts. However, there is a difference in that these expenditures are mandated, while "discretionary" ones are not, so there is a reason for focusing on these categories.
pgl and Joseph: You won't get a disagreement from me.
Posted by: menzie chinn at January 23, 2006 07:25 AM
At 82 y/o I thought all I could do was go with whatever program seemed best at the moment while all the time knowing over the long haul (if I should live so long) I would be jazzed no matter what I did. I am disappointed in a congress that has so little backbone and shows itself not to be what is best for all the people of this great country but only for a particular state's own constituents and the ocngressman's own electoral possibilities.
Posted by: M. Paulson at April 1, 2006 08:03 AM