Why the Cost of the GOP’s Medicare Rx Program Will Rise

Republicans are boasting that their Medicare drug plan costs less than had been forecast. (As I’ve discussed elsewhere, that is hardly due to efficient program design.) Yet at the same time, Republicans are demonstrating why the cost of the program will keep growing until it exceeds all expectations.

In April, the Bush Administration changed the rules so that when plans drop drugs from their formularies, the change cannot take effect until the next open enrollment period. Before that, seniors could enroll only to see their plan quickly drop coverage for the drugs they use the most. Though nice for seniors, the new policy will increase the program’s cost.

This week brings news that Republicans are considering another costly change. Seniors who don’t enroll by today have to wait until the next open enrollment period, which begins November 15. If they eventually enroll, they will be assessed a penalty equal to 1 percent of their premiums for every month they waited. From May to November is six months; thus the minimum penalty will be 6 percent of one’s premium. This penalty is the only part of the program that works like real insurance: the longer you wait to enroll, the higher your expected medical expenses, and therefore the higher your premium.

Fearful of treating seniors like adults in an election year, Republicans reportedly want to soften that penalty. In monetary policy, backing down from such committments is called time-inconsistent behavior, and it wrecks the credibility of central banks. Reneging on the late-enrollment penalty would certainly wreck the credibility of future efforts to contain costs by preventing seniors from gaming the system. Seniors would reasonably conclude that since Congress wimped out on past threats, it will wimp out on future threats too.

Every perceived failing of this program will lead to “patches” that further gouge taxpayers. That process has only begun. Republicans are leading the charge.