Bush drug plan beats cost mark

Four years into full operation, President George W. Bush’s Medicare prescription drug program is coming in well below its projected cost, giving hope to backers of the new health insurance law that it, too, could beat budget expectations.

The numbers are stark and conclusive: In 2009, the government spent $60.8 billion on the drug benefit, or far less than the annual $111.2 billion cost projected just five years ago, after the program was enacted.

The lower cost - a result of slowing demand for prescription drugs, higher use of generic drugs and fewer people signing up - has surprised even some of the law’s most pessimistic critics.

“I’m perfectly willing to say I was wrong,” said Robert Moffit, a senior fellow at the conservative Heritage Foundation who fought the 2003 bill as an inevitable boondoggle. “I projected these costs would go through the roof on prescription drugs. I also did not believe private plans would come and offer their wares. Frankly, I’m perfectly willing to say I was wrong.”

The prescription drug program, known as Medicare Part D, was enacted at the urging of Mr. Bush, and the full drug benefit took effect in 2006.

The legislation narrowly passed the House and Senate with opposition from Democrats, who said the program was too stingy and relied too heavily on private companies, and from a cadre of conservative Republicans who argued that it would cost too much and blow a giant hole in the deficit.

Opponents at the time said costs for new entitlement programs always balloon, and pointed to Medicare’s basic hospital insurance in 1965, and Medicaid’s special hospitals subsidy and Medicare’s home care program in the 1980s, all of which exceeded initial cost estimates.

But the new figures show overruns aren’t inevitable, particularly when market forces are unleashed.

Paul N. Van de Water, a senior fellow at the Center on Budget and Policy Priorities, a liberal think tank, said that could be good news for the health care law, which relies on state health care exchanges where private plans compete to provide coverage for those who don’t have insurance through their employers.

“In some ways, the Part D experience, through relying on private plans, gives us some reason to hope, or encouragement about the possible success of the health insurance exchanges,” Mr. Van de Water told reporters after the Medicare trustees’ report was released.

Mr. Moffit, though, said Mr. Bush’s drug plan is more permissive than Mr. Obama’s health care exchanges, and he said the strict rules in the new law will hamper the free-market forces that otherwise could have held down costs.

“If we were to take the principles that apply to Medicare Part D and we apply them across the entire Medicare system, we might actually get the kind of bend in the cost curve the Obama administration promised all along,” Mr. Moffit said.

Costs were such a touchy issue during the 2003 debate that the administration had to launch an investigation into whether officials withheld some estimates from Congress for fear that the higher numbers would sink the bill.

The price tag was also a major issue during this year’s health care debate. Democrats struggled to keep the cost at less than $1 trillion. They included other spending cuts or tax increases to pay for the new benefits, as well as some cost-containment measures such as an independent commission designed to force Medicare to meet savings goals.

In blunt language during the debate, the Congressional Budget Office questioned whether Congress will have the will to allow those cost-containment provisions to go into effect or whether lawmakers will try to reverse them in later years.

As if to underscore that point, the new health care bill ends two cost-savings measures included in the 2003 prescription drug law.

First, the bill fills in the “doughnut hole” in drug coverage from the 2003 law, which means more Medicare beneficiaries will have more drug costs covered.

Second, the health care law officially ends pilot programs that the 2003 law put into place to force Medicare to compete with private plans.

The pilot programs were all that were left of a once-ambitious goal of forcing all of Medicare to compete against private insurers. Republicans in 2003 had to give up the broader language in order to win passage of the bill.

But the pilot programs were critical to keeping enough Republicans on board to pass the bill.

Under the law, the pilot programs were slated to go into effect this year, but the Centers for Medicare and Medicaid Services discarded the effort three years ago, well before the law was overturned.

Donald McLeod, a CMS spokesman, said the children’s health insurance expansion that Congress approved in 2007 included language to repeal the Medicare pilot programs. That bill was vetoed by Mr. Bush, and the pilot programs remained on the books until Mr. Obama signed his health care law earlier this year. CMS said it saw the writing on the wall and had already stopped work.

“Its complicated, but thats the way it was,” Mr. McLeod said. “We didnt want to proceed with something that was never going to happen.”

The pilot programs were the brainchild of Bill Thomas. The California Republican was chairman of the House Ways and Means Committee and wrote much of the prescription drug law.

Mr. Thomas did not respond to repeated requests for comment.

One reason the 2003 bill has come in under budget is that fewer people are signing up for the voluntary program.

Initial projections anticipated more than 43 million beneficiaries by 2009, but actual figures from the Medicare trustees’ annual report, released earlier this month, showed just 33.4 million took part last year.

Still, that accounts for only part of the lower cost. Both sides in the debate say the rest of the credit goes to market forces, and to a slower demand for prescription drugs than was projected in 2003.