Recent press releases have revealed a large difference between the original Congressional Budget Office (CBO) estimate of the costs of the Medicare Act of 2003 and the Bush Administration’s subsequent budget estimations. Following is a summation of those differences and the explanations issued by the CBO.

 
Total CBO estimate: $395 billion in outlays over 2004 to 2013
Total Administration estimate: $534 billion in outlays over 2004 to 2013
Difference: $139 billion
 

Administration Estimate v. CBO estimate

Reason for the Difference According to the CBO

Basic Benefits

The Administration figure is 7% or about 32 billion higher than the CBO estimate.

The Administration assumes a higher participation rate of people with Medicare and estimates per capita costs at 4% higher than the CBO estimates. CBO excludes people who decline Part B and those in the Federal Employee Health Benefits Program on the assumption that they generally will not participate.

Medicare Advantage (Medicare + Choice or Medicare Managed Care)

The Administration estimated $46 billion; a $32 billion increase from the CBO’s estimate.

The Administration projects more people to choose a managed care option than is projected by the CBO (32% to 9%). As managed care is more costly than fee-for-service plans, payments to managed care plans would be substantially higher than payments if those beneficiaries remain in fee-for-service Medicare.

Low Income Subsidy

The Administration figure is about $47 billion higher, a 24% difference.

The Administration assumes higher participation starting immediately. CBO ramps up participation over three years, with a lower per capita cost estimate based on participation rates in Medicare Savings Programs.

Savings to Medicaid

The Administration estimates a reduction in Medicaid spending of $123 billion as opposed to the CBO’s projected $141 billion.

Both organizations project a savings that will be offset by the additional costs of enrolling new people into Medicaid. CBO’s estimate is higher largely due to differences in baseline projections for Medicaid spending on waiver programs which provide limited drug coverage to low-income Medicare beneficiaries who do not otherwise qualify for Medicaid.

 
Source: CBO Holtz-Eakin letter of 2/2/04. (www.cbo.gov)