The flaw in this impeccable logic is that a Medicare drug benefit isn’t only about drugs–or shouldn’t be. It also raises the broader issue of how much the federal government should support retirees and, especially, the future wave of retiring baby boomers. In 2000, federal spending on people over 65 (mainly Social Security and Medicare) already amounts to 35 percent of the budget. By 2010 the Congressional Budget Office (CBO) expects that to rise to 43 percent–even without Medicare drug coverage and before the oldest baby boomers hit 65.
As a society, we’re engaged in a massive transfer from workers to retirees. The workers mainly pay the taxes that become Social Security and Medicare benefits. Can the country afford the much heavier costs of baby-boom retirees? Many of them will be solidly affluent, having saved for years. Should benefits be reduced for richer retirees because it’s unjust to force younger–and often poorer–workers to subsidize the wealthier elderly? Should eligibility ages for benefits be gradually raised to reflect longer life expectancy and improved health status?
For nearly eight years President Clinton has deftly dodged these questions. The presidential campaign is, predictably, perpetuating his evasions. All the talk about Social Security and Medicare focuses on increasing benefits and ignores the harder issue of justifying the rising transfer between young and old. But there’s always a possibility (albeit slim) that, once in office, a new president would quietly recant and face the more difficult choices.
This is where a Medicare drug benefit could be politically useful. It is virtually the only “sweetener” that could be added to a broader reform package (higher eligibility ages, reduced benefits for the affluent) that would make the entire proposal politically palatable. To enact a drug benefit without insisting on other changes would do more harm than good.
Almost certainly, the long-term costs will be much higher than most people recognize. The CBO estimates Gore’s plan (identical to Clinton’s) at $338 billion between 2001 and 2010. George W. Bush puts his plan at $158 billion over the same period. These are huge sums, but they don’t seem large when the CBO is projecting surpluses of almost $4.6 trillion over the decade. Indeed, slight adjustments in economic assumptions could mean that the projected surpluses rise by a trillion dollars or more. Everything (or almost everything) seems affordable.
Not so. For starters, the huge surpluses might not occur. The projections assume (perhaps unrealistically) slow growth in some government programs, including defense, and are also highly sensitive to seemingly small shifts in economic growth and tax collection. But even if massive surpluses materialize, they disguise the true cost of a drug benefit because the estimates stop (in 2010) just before the oldest baby boomers qualify for Medicare.
Economists at the CBO have done some rough estimates beyond that. Here are the findings. Under present law, Medicare’s costs are projected to rise from 2.3 percent of national income (gross domestic product) now to 4.4 percent in 2030. A drug benefit (along the lines of the Clinton-Gore proposal) could increase Medicare’s costs to 6.5 percent of GDP by 2030. That’s almost a tripling of the program’s present costs. In today’s dollars, each extra point of GDP equals about $100 billion.
Of course, any projection is guesswork. No one knows what future drugs will do or cost. Advances in biotechnology and the human genome make predictions especially hazardous. The CBO’s estimates could be too high or too low. But the basic point is clear: a drug benefit is potentially very expensive. Now add in other retirement and disability programs: mainly Social Security and nursing-home care under Medicaid (federal-state health insurance for the poor). In 2000 these programs cost about 4.5 percent of GDP; by 2030 they could easily reach 7.5 percent of GDP.
What all this drab arithmetic indicates is that, conservatively, the cost of retirement programs will roughly double by 2030. They’ll go from about 7 to 13 or 14 percent of GDP. That’s almost a seventh of our national income. This isn’t surprising, given that the number of people over 65 is also expected to double (from 35 million to 70 million). Unless other government programs–from Head Start to defense–are reduced, retirement spending would erase budget surpluses and cause new deficits or tax increases.
Everyone agrees that needy retirees deserve support. But everyone over 65 isn’t needy. What we should be doing–and should have been doing for years–is slowly adjusting Social Security and Medicare so that the wealthier and healthier among the elderly pay more of their own retirement. The absence of drug coverage under Medicare indirectly forces retirees to pay more, but in a highly arbitrary way: those with high drug bills (whether rich or poor) get hit the hardest. At the moment, this is a small minority. In 1996 only 4 percent of Medicare recipients had drug spending over $2,500–and most of them had private insurance. However, the minority could grow in the future.
Including drug coverage under Medicare would prevent that. This makes sense–if combined with broader changes that re-apportion retirement burdens among the young and old. The chances of that (unfortunately) seem slight. In the present carefree climate, everyone is gleefully spending future paper surpluses, and hardly anyone is genuinely preparing for the future.
