"There are only two ways of telling the complete truth—anonymously and posthumously."Thomas Sowell

Wednesday, February 09, 2005

About Those 10-Year Medicare Drug Cost Projections

The headlines are screaming. The politicos are concerned, deeply concerned. Brows are being furrowed, furrows are being browed, green eyeshades are all the rage, and the political class finds itself shocked, shocked that projections---looking out ten years!---of program costs have increased.

And all of this is because of the evil drug companies: We are talking about the budget projections for the new Medicare drug benefit, after all, and the drug companies have raised some of their prices. This particular charge is deeply amusing, in that it is being made largely by politicians who would sooner lose an arm than cut taxes.

In any event, it turns out that the charge---most prominently in today's Washington Post---is not true. Yes, the ten-year projection made in 2003 was about $511 billion. Yes, the ten-year projection now is $723 billion. But those are two different ten-year periods---the former 2004-2013, the latter 2006-2015---a fact seemingly lost on the crack journalists from the Post, a group simultaneously ignorant, stupid, lazy, dishonest, biased, and arrogant. For the same ten-year period 2004-2013, the earlier projection was $511 billion, and the latter is $518 billion, a difference of about 1.4 percent. The difference in the two ten-year periods is crucial, because the earlier period includes two years before the program takes effect, and because the latter ten-year period includes more Medicare beneficiaries.

None of this says anything about whether the projections in the end will prove even remotely similar to the reality that emerges over time. But that is a different question. For now it is clear that the Post "reporters" are interested in engendering a political campaign in favor of involving the federal behemoth in the negotiation of drug prices. Since 1993, the feds have done that for childhood vaccines, and since 1993 there has been an endemic shortage of such vaccines and a monotonic decline in the number of producers. Any thoughts on why that might be?


Hunter Baker said...

Dr. Zycher, you remind me of why I enjoyed being an undergrad in an excellent free-market program at Florida State. James Gwartney was the man. Ditto Randall Holcombe.

S. T. Karnick said...

Ben, you are perfectly right about the political motives behind the scare campaign. I, too, was aware that the two ten-year periods were different—a fact which the New York Times article made quite clear, to their credit. To me, the only sense behind the original plan was strictly political, that of buying votes, and I think you make an interesting point about the likely ripple effect, of the federal government becoming more involved in prescription drug pricing.—STK