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Cost estimates rise to $540 billion for Medicare plan

WASHINGTON -- The new Medicare drug benefit will cost about 35 percent more than Congress anticipated, helping to kick the federal budget deficit up to a record $500 billion next year, according to officials familiar with the fiscal 2005 budget that President Bush is to release Monday.

The prescription drug plan, which will not be fully in effect until 2006, will cost about $540 billion over 10 years, instead of the $396 billion projected in the law that Congress approved late last year, said a government official and private-sector economists who have been briefed on the budget. This spring, the first phase of implementing the law will provide 40 million Medicare beneficiaries with discount cards for their prescriptions.

The revised estimate angered deficit hawks, who had argued that the $396 billion was too costly. Democrats, meanwhile, said they will redouble their efforts to change the Medicare bill to allow the government to negotiate directly with drug companies to lower pharmaceutical prices.

"This does not surprise us," said Bill Beech, a budget analyst with the Heritage Foundation. "I'm frankly a little bit surprised the number isn't larger." The foundation opposed the Medicare drug law because of the cost, which the conservative research organization estimates will reach $625 billion over 10 years.

"The ink isn't even dry [on the new law]. There's not a single discount card issued yet, and the price went up by over 30 percent," said Representative Rahm Emanuel, Democrat of Illinois and a House Budget Committee member. "It's a total, arrogant disregard to taxpayer dollars and to seniors."

Bush had pushed hard for the Medicare drug benefit, but said he would not sign anything that exceeded $400 billion. Lawmakers limited drug coverage -- angering senior advocates who wanted more generous coverage -- in an effort to stay within that limit. The law also allows private insurers to compete for the new coverage under Medicare, a provision Mark Merritt, president of the Pharmaceutical Care Management Association, which represents drug insurance companies, said kept the cost of the bill from being an additional 30 percent higher.

An administration official who spoke on the condition of anonymity said it is not unusual for the Congressional Budget Office, which estimated the cost of the bill Congress approved last November, to come up with different projections than the administration's analysts. The president's budget document will mention the budget office numbers, but the White House is required under law to use the projections developed by its Medicare actuaries, the official said.

Estimating long-term health-care costs is especially tricky, the official said, since it is virtually impossible to predict the health and behavior of tens of millions of senior citizens, as well as the cost of existing and undeveloped drugs they may use.

Chad Kolton, a spokesman for the Office of Management and Budget, would not confirm the new Medicare cost projections. But he said Bush would keep his promise to cut the budget deficit in half within five years. "The president made a commitment to helping seniors with prescription drug coverage, and that's exactly what he delivered," Kolton said.

The president's budget will keep what is known as "discretionary spending," for programs whose funding levels Congress controls, to a growth rate of less than 1 percent, except for defense and homeland security, Kolton said.

But some lawmakers believe the administration was disingenuous in its negotiations over the Medicare bill, which barely passed the House after an all-night session and extended roll-call vote.

"I think there was an effort made to camouflage the true costs because the Republican conservatives, who already were in protest, would have been in revolt," said Representative Richard Neal, Democrat of Springfield and a member of the House Budget Committee. "This will now be used as an excuse to pare back needed spending on domestic initiatives."

Democrats and some Republicans are seeking to change the Medicare law to allow the government to negotiate prices directly with drug firms. Administration officials and Republican leaders in Congress oppose the idea, saying it would amount to price fixing.

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