> ##### August 19, 2003

> ## Prescription Drugs Now, Day of Reckoning Later

> WASHINGTON, Aug. 18 — President Bush and Congress have agreed to spend $400 billion on prescription drugs for the elderly over 10 years. But they rarely address a basic question: Where does the money come from?

> It will be borrowed from the public, officials say. In practice, economists say, workers of the future — children and grandchildren of today's Medicare beneficiaries — will have to pay much of the cost through higher taxes.

> The federal government has no budget surplus to pay for the new benefits, which are the biggest expansion of Medicare since its creation in 1965. A law that required Congress to offset the cost of new benefits — either by raising taxes or by cutting other programs — was allowed to expire in September.

> Robert D. Reischauer, former director of the Congressional Budget Office, said, "The resources needed to finance the new drug benefits will come from increased borrowing." Taxpayers of the future will have to pay back the debt, with interest.

> James A. Lebenthal, chairman emeritus of Lebenthal & Company, the Wall Street bond dealer, put it this way: "The money comes from the public. Not today's public, but the public you have just sired and that's lying in your bassinet."

> The official price of $400 billion reflects the cost to the government after taking account of premiums to be paid by beneficiaries. The Congressional Budget Office said the premiums would total roughly $135 billion over 10 years.

> House and Senate negotiators are trying to work out differences between Medicare bills passed by the chambers in June. The debate has focused on details of the drug benefit, the amount of co-payments and deductibles and the role of private health plans.

> But supporters of the legislation, including Mr. Bush, have said little about who would pay for the expansion of Medicare, which is already growing much faster than the economy or tax receipts.

> Only a few conservative Republicans have asked how the new benefits would be financed.

> Representative Mike Pence, Republican of Indiana, said, "My concern is for Charlotte, my 10-year-old daughter, and young families in the work force who will have to bear the cost if we create a huge new universal entitlement."

> Senator Don Nickles, Republican of Oklahoma, predicted that the new benefit would end up costing much more than $400 billion. With the government subsidizing 70 percent of the cost of the benefit, he said, use of prescription drugs will rise rapidly. Moreover, he said, Medicare recipients will lobby Congress for more generous drug coverage.

> Many Democrats, like Senator Edward M. Kennedy of Massachusetts, describe the Medicare bill as a down payment, a first step. If it becomes law, they say, they will immediately begin a campaign to expand the benefits, which they see as inadequate.

> Representative Nick Smith, Republican of Michigan, said: "We are placing a burden on our kids and grandkids and young workers to pay for seniors' drug prescriptions. We're sending the bill to people who are yet to be born or too young to defend themselves."

> Costs are expected to grow because scientists are continually discovering medicines to treat diseases of aging and people are living longer. The elderly population, now 36 million, is expected to reach 70 million by 2030.

> J. Dennis Hastert, the speaker of the House, promised conservatives that he would work with them to see that the final Medicare bill included some mechanism to rein in costs. But he gave no details.

> Once the new drug benefit is established, the Congressional Budget Office says, the cost would grow rapidly — more than 10 percent a year from 2008 to 2013. By contrast, the cost of the existing Medicare program, without new benefits, is expected to grow 7.4 percent a year in the same period.

> Mr. Reischauer, an economist who is president of the Urban Institute, said: "If you think the new drug benefit is essential and more important to the future of the nation than the deleterious effects of larger deficits, you support it. The political consequences of increased deficits will pale in comparison with the benefits that politicians get from enacting drug coverage."

> Both parties have reasons for avoiding questions about who will pay. Democrats have long wanted to expand Medicare, and most are willing to spend more than $400 billion. President Bush and Republican leaders of Congress, having heard countless complaints about the cost of prescription drugs, say that passage of a Medicare drug bill would help them in the 2004 elections.

> The House bill creates a trust fund to pay for drug benefits under Medicare. The Senate bill creates a separate account in an existing trust fund. Neither bill earmarks payroll taxes or any other specific type of revenue for drug benefits. Both bills make an open-ended commitment of general revenue, which includes income and excise taxes, as needed.

> Senator Tom Harkin, Democrat of Iowa, said Republicans had aggravated the need for borrowing by cutting taxes. "It is really only a matter of priorities," Mr. Harkin said. "This administration and Congress had no qualms about passing enormous tax cuts for millionaires, but now we have problems coming up with adequate funds for our nation's seniors."

> Robert L. Bixby, executive director of the Concord Coalition, a nonpartisan budget watchdog group, said, "There's a rational case to be made for adding a drug benefit to Medicare as a matter of health policy." But he added: "The political consensus in favor of fiscal discipline has totally broken down. Creating a major new entitlement at the same time you're cutting taxes would have been inconceivable just a few years ago."

> Copyright 2003 The New York Times Company