The latest projections from the Congressional Budget Office have the Medicare Drug Program’s costs over the next ten years at $849 billion. This is a rather substantial increase over the initial projections of some $400 billion, which were for the ten years ending 2014. Nonetheless, this does represent an increase of over $100 billion from the last CBO estimate, published less than a month ago.
According to California HealthLine,
“CBO’s projection does not include anticipated savings, which could make the actual cost lower than the Bush administration’s cost estimate of $724 billion over 10 years (Fram, AP/Detroit News, 3/5).
Analysts attributed the net spending increase to a higher estimated cost of basic benefits and a change in the cost of low-income subsidies under the original bill. About $36 billion of the $54 billion net spending increase would occur before 2013 — the period covered under the original cost projections (CQ HealthBeat, 3/4).”
There have been some rumors about possibility flexibility on the part of the Administration on the program, but any “flexibility’ in terms of cutting benefits and therefore costs may well be offset by the financial support CMS may have to provide to private insurers willing to participate in the Medicare Drug card program.
These private insurers are justifiably worried about the possibility of adverse selection. The program is voluntary, so logically, only those recipients that would actually gain financially from the program would sign up. This isn’t insurance, it is a guaranteed money loser.
That being the case, one wonders how and why private companies would sign up to lose money. My sense is they are being offered stop-loss assurances from CMS; or if not explicit protection, some other form of risk avoidance.

News in brief.
The Congressional Budget Office projects potential savings from Pres. Bush’s Medicaid cuts will be some $11 billion less (over the next five years) than the White House’s claims.
The National Governors’ meeting ended without an agreement from the governors on Medicaid program cuts, changes, or alterations. Here’s the news from California HealthLine on where the effort stands…
“We’ll now work to build on [common ground] and hopefully come up with a proposal that will be bipartisan and that we can take to Congress for the purpose of being able to substantially improve Medicaid and have it reach its promise,” Leavitt said (Smith, Salt Lake Tribune, 3/2).
Governors’ Concerns
Interviews with “numerous governors” indicate that the “consensus described by Leavitt does not exist,” according to the Times (New York Times, 3/2). “We are still far apart,” New Mexico Gov. Bill Richardson (D) said.
Ohio Gov. Bob Taft (R) said, “With the respect to the budget itself, we’ve made clear we oppose [the administration’s cuts], and we’ll see how that issue works out here in the next few weeks.”
Wisconsin Gov. Jim Doyle (D) said the administration’s proposed changes are “not acceptable,” adding, “What they are saying to states is, ‘We’re going to cut you and give you more flexibility,’ and the flexibility is you can cut people off.”
Indiana Gov. Mitch Daniels (R), Bush’s former budget director, said, “There’s a lot of substantive agreement but honest tactical disagreement” (Washington Post, 3/2).
Don’t expect this to happen any time soon…

According to Reuters, AIG Chairman and CEO Maurice “Hank” Greenberg is under investigation by NY Attorney General Eliot Spitzer. The story, to be published in the March 7 issue of Fortune, identifies the problem as Greenberg’s possible promotion of the “income smoothing” products that were the cause of a previously-assessed $126 million fine paid by AIG.
The Reuters article states:
“Insurers have offered products akin to business loans to a broad swath of corporations, catching the eye of regulators who worry that these products smooth earnings and mask the true value of the borrowers. Rather than turning to a bank for a traditional loan or selling securities to raise cash, a company borrows money from its insurer. The loan is repaid in the form of increased premiums for traditional insurance.”
There are a variety of other products that also provide the same type of benefit to public companies. If there is any investigation (neither AIG nor the AG’s office would comment) my sense is the investigation is looking into not just the “inflated premium” products but other financial chicanery as well.
Until now, no public company had survived an indictment. It appeared that AIG had weathered the storm, but once the investigators start digging, there is no telling what they can come up with.