Tax Fact #32: White House Drastically Understates Cost of Medicare Reform Proposal

Last month, President Clinton announced his plan for “reforming” Medicare, comprised mainly of transferring more tax dollars from the U.S. Treasury and expanding Medicare to include a prescription drug benefit. The administration, however, apparently understated its cost estimates to deflect criticism of the plan.

Medicare already costs $210 billion annually, and is projected to cost nearly $500 billion in ten years (without adding any new benefits).

The White House claimed the prescription drug plan would cost taxpayers an additional $118.8 billion over the next ten years. In reality, the Congressional Budget Office reports that this benefit would actually cost an extra $168.2 billion.

The administration understated the figure by 42 percent in an effort to make the plan seem affordable in the eyes of Congress and the American public.

Furthermore, Clinton hid the true costs of the plan by slowly phasing in the prescription benefit over a ten-year period and deferring the higher costs.

When this new entitlement (Medicare Part D) is fully operational in 2008, taxpayers will have to contribute over $32 billion per year to fund this part of the program.

But wait: there’s more…

The $168.2 billion only covers the federal government’s share. As part of the president’s plan, Medicare beneficiaries would have to pay hefty additional monthly premiums.

In a classic bait-and-switch, Clinton originally estimated these monthly premiums to be $24 in the first year, rising to $44 in 2008 – but the fine print really says that beneficiaries will have to fork over half of whatever the program ends up costing. The CBO calculates that premiums would be 10-20 percent higher than Clinton’s estimates.

What would seniors get in return for these hefty new premiums? Not a whole lot. The government would only pay for half of their medicine and only up to a pre-designated dollar limit ($1000 for the first two years).

In addition, state governments (read: state taxpayers) would have to pay the premiums for Medicare beneficiaries with income levels up to 150% of the poverty level. The CBO estimates this provision alone raises the plan’s price by another $12 billion over ten years.

Clinton’s proposal is little more than a political bait-and-switch designed to postpone higher taxes and premiums until after the next election. Adding billions of dollars in obligations to a program well on the way to bankruptcy isn’t a good deal for either taxpayers or retirees.

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