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No Heroes in this Medicare Drama

By Howard Gleckman Washington is in the midst of one of its Casablanca moments. You know the bit from the 1942 movie classic: Capt. Louis Renault, the corrupt police chief, shuts down Rick's club after declaring himself shocked that gambling is going on -- just as he has been handed his winnings from the previous night.

That's the same kind of hypocrisy that's going on in Washington over the recent estimates that the 2003 Medicare drug benefit will cost more than predicted. Conservative Republicans -- who never liked the new drug benefit in the first place -- are crying for the law to be reopened so changes can be made to limit the 10-year cost to the original congressional estimate of $400 billion.

Liberal Democrats -- in equally full-throated cry -- insist that the law be revisited to end giveaways to drugmakers and insurance companies and thus bring the cost down to the aforementioned $400 billion. And President George W. Bush insists he'll veto any changes Congress makes that threaten the future of seniors -- about whom he says he cares deeply.

PHASE-IN PLOY. This bit of play has no heroes. Critics of the law and the White House estimates are deliberately ignoring the inconvenient fact that the actual cost of the drug bill has not changed a bit -- the new estimates are nothing more than a revision in the timing of the projections. But the White House is no victim here. It's being hoisted on its own accounting gimmicks.

The White House created the trouble -- playing the shameful game of lowballing Medicare's 10-year cost by manipulating the timing of the law. Congress typically looks at budget costs over a 10-year period, so Bush makes his initiatives looks less costly than they are by phasing them in. That way the full impact is not included in those congressional 10-year estimates.

To avoid a true picture of its policies, the Bush Administration has used this phase-in ploy again and again in recent years. The White House did it with the tax cuts of 2001 and 2002, where it not only phased in tax cuts, but phased them out -- creating a nest of complexity and terrible tax policy. Now, Bush proposes to play the phase-in game with his Social Security reform.

BELATED HOWLS. How does this accounting legerdemain create opportunities for demagoguery? Let's quickly review the facts. In 2003, while Congress was debating the Medicare drug bill, the Congressional Budget Office estimated the measure would cost $400 billion over the 10-year period 2004-2013. Remember those dates.

In its own internal estimates, which the White House refused to disclose formally to Congress, Medicare's chief actuary figured the cost would be closer to $534 billion over those same 10 years. That estimate had been floating around town since late summer, 2003, but when the numbers were released in early 2004, lawmakers claimed to be stunned. "If we had only known...," they howled. Resignations were called for. Apologies were demanded.

Now fast-forward a year. In January, 2005, the CBO released its latest estimates for the cost of the drug benefit. The new projection: about $800 billion. At the time, BusinessWeek wrote a small story, which got little reaction. In February, the White House put out its new budget and projected the 10-year cost at $750 billion. The cries of indignation could be heard far and wide.

STAGGERING COST HIDDEN. But wait. Even now, when both sides are professing to come clean, the 10-year period the CBO and the White House are using is a different time frame than what they used in 2003. Now they're estimating costs for 2006-2015. Is it higher than it was for 2004-2013? Sure it is. Why? Because there was no drug benefit in 2004 and 2005, so the cost for those two years was roughly zero. There will be a benefit starting in 2006, and by 2015 it will be mighty expensive. Subtract two costless years from the forecast and add two expensive years, and, lo and behold, the law appears to cost more.

In reality, nothing has changed. At the time the bill passed, CBO director Doug Holtz-Eakin warned that the long-term cost of this program was staggering -- and that it was being hidden by the phase-in. He was ignored.

Now, like Casablanca's Capt. Renault, policymakers around town are shocked, just shocked at the new, higher cost estimates. They all share Louis' cynicism. Pity they don't have his charm. And, no, this will not be the beginning of a beautiful friendship. Gleckman is a senior correspondent in BusinessWeek's Washington bureau

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