A Detailed Description of CBO's Cost Estimate for the Medicare Prescription Drug Benefit
Report
This paper provides details of the reasoning behind CBO's cost estimate of the prescription drug provisions contained in the Medicare Modernization Act.
The recently enacted Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) contains many provisions that affect the Medicare program specifically and the U.S. health sector more generally. This paper focuses on the provisions that establish a new outpatient prescription drug benefit under Medicare and explains the basis for and rationale behind CBO's cost estimate of those provisions. CBO estimated that, on net, the Medicare drug benefit would increase mandatory outlays by $407 billion for fiscal years 2004 to 2013 and would raise federal revenues by $7 billion over that period. Those estimates consist of many components and reflect the complex interactions of the law's many provisions. In describing how CBO derived its estimates, this paper also presents the agency's analysis of how the drug benefit is anticipated to operate in practice. Taken as a whole, the MMA's other provisions would reduce outlays by $13 billion and revenues by $7 billion, in CBO's estimation, for a net savings of $6 billion. As a result, the MMA would increase deficits--or reduce surpluses--by $394 billion over the 2004-2013 period (reflecting an increase of $395 billion in federal outlays and an increase of $0.5 billion in federal revenues).
