Can We Afford All This?

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PHOTO ILLUSTRATION BY CLARK MITCHELL

When Congress voted to cover prescription-drug costs for Medicare beneficiaries, President Bush got a chance to boast of his Trumanesque buck-stopping as the nation's top executive. "We have a responsibility in Washington to solve problems and not pass them on," he said. As the largest expansion of the program since its inception in 1965, the $400 billion plan was a big solution indeed. But for a band of deficit hawks and rainy-day worriers in Washington, it was a horror — the latest evidence that in the past five years they have become voices in the wilderness. How to keep the federal budget in check — an issue that was once central to both Democratic and Republican politics — has been shunted aside, leaving fiscal conservatives at think tanks across the country fretting over how to make their case as the deficit grows to $500 billion and those in charge seem inclined only to add to it. "There's going to have to be a crisis to get people to pay attention," says one of the leading members of the tribe. "And there's going to have to be another Ross Perot."

Where are you, Ross Perot? The Texas millionaire who won 19% of the vote in 1992 after teaching the country to get angry about the budget deficit should be banging his spoon on the table right now. Or a draft-Perot movement should be under way. (Perot declined to talk to TIME.) In addition to the new burden for Medicare, discretionary spending has increased 27% in the past two years. Much of that has gone to fighting the war on terrorism, but funds have also been spent on new benefits for veterans, subsidies for farmers and aid to low-performing schools and needy students. Pork-barrel spending is also on the rise. In the past two years, it has gone up 48%, according to one watchdog group, including millions of dollars in the farm bill that went to those infamous mohair subsidies, and politicians of both parties are quietly delighted that the public no longer seems to care. But economists are concerned that with each new trip to the trough, lawmakers are accelerating the arrival of a fiscal disaster. "The U.S. budget is out of control," the Wall Street investment firm Goldman Sachs & Co. warned in a newsletter to clients late last month.


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In the race to provide 40 million seniors with the popular drug benefit, the voices of fiscal restraint were quashed — a last-minute attempt to stall the bill on the ground that it busted the budget was voted down — and any serious attempts to contain costs were lost in the bargaining to win votes. That means the $400 billion program is likely to cost a good deal more than was advertised in the brochure. For one thing, estimates for entitlement programs are notoriously low. In 1966, according to Douglas Bandow, a senior fellow at the libertarian Cato Institute, Medicare was predicted to cost $12 billion by 1990--a guess that fell short by $95 billion. In the case of the new benefit, many believe the cost could balloon because there are few mechanisms to keep drug prices low. Republican leaders insisted that the Federal Government should not use its bulk-purchasing power to demand low prices. Instead, the program will rely on pharmacy benefit managers to negotiate good deals; the companies will have more bargaining clout than senior citizens but far less than the Federal Government would have had. At the same time, provisions to ease restrictions on cheaper drugs from Canada and elsewhere were removed from the legislation.

For this and other reasons, the announced price tag hides the magnitude of the promises being put into law. Douglas Holtz-Eakin, director of the Congressional Budget Office, says the costs of the bill will jump in the second decade to between $1.3 trillion and $2 trillion. A gap in coverage means those with prescription bills between $2,250 and $5,100 get no relief. It's a good bet that politically powerful seniors aren't likely to allow that hole to gape for long; expect to see politicians buckle as they have before when faced with the well-organized lobby. That would mean billions in new spending. "This is an unbelievable expansion in spending generally, and particularly in an entitlement program, which is notoriously hard to control," says Stuart Butler of the conservative Heritage Foundation.

Before the current Medicare changes, the system was scheduled to run dry in 2026, when the 77 million baby boomers enjoying long life spans will make more demands on the system than it can handle. Now the bills for their drugs — yet-to-be-discovered superdrugs in particular — may accelerate that crisis. Senior Administration officials admit this round of reform ducks the hard calls that need to be made today to address the system's demographic crisis. A fix is going to require some combination of reduced benefits, tax increases and change in the retirement age. Choosing among those options will spark much more passionate conflict than the most recent bill. But now that the country has endured a Medicare debate, it is unlikely that voters are game for a bigger, tougher one, especially since Congress has given away a drug benefit without asking for much sacrifice in return. "To get the country to do what needs to be done to fix the system you need to have some kind of sweetener," says Maya MacGuineas, executive director of the Committee for a Responsible Federal Budget. "They've just given away the only sweetener."

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