How Medicare Wastes $80 Billion a Year

Dean Baker of the Center for Economic Policy and Research has just put out a new, and easily readable, report arguing that the Bush administration’s 2003 Medicare bill will essentially “waste” $800 billion over the next decade because it was so poorly designed. Among other things, Republicans in Congress refused to allow Medicare to use its buying power to bargain down the price of drugs—something that is down in virtually every other industrialized country around the world—which would have saved $600 billion over ten years.

Not only that, but this route would have been much simpler too—all Congress would have had to do was to establish an add-on drug benefit to the existing Medicare program. As Baker notes, the bill was deliberately structured to “ensure that multiple private insurance companies would provide the benefit rather than Medicare.” It was great for those insurance companies; bad for everyone else.

It’s a good paper, although I suspect Congress could wring even more savings from Medicare if it really wanted to. Baker is only comparing the current program with a more ideal program that would have Medicare run things (saving billions in administrative costs) and bargain down the price of drugs. But you could also eliminate the $86 billion in subsidies that the government is paying to prevent companies from shifting costs onto the government—a mostly ludicrous provision and “pure windfall” for many companies—as well as the $6.4 billion over the next decade to subsidize health savings accounts. A lot of that money could be used to expand the current drug benefit and still have savings left over. In fact, that’s exactly what the House Democrats have been proposing all along, and it’s a pretty good start.