The American public demands cheap drugs with guaranteed
efficacy and perfect safety: Utopia.
But one expensive blockbuster wonder drug after another is
making headlines in newspapers and on personal-injury lawyers'
Rofecoxib (Vioxx) is said to increase the risk of heart
attacks and strokes. SSRIs (selective serotonin reuptake
inhibitors) are blamed for suicidal or violent behavior.
Natalizumab (Tysabri) is linked to two fatal events from
progressive multifocal leukoencephalopathy. Statin drugs have
been associated with 92 deaths in Britain, and 7,000 cases of
liver or kidney damage or muscle weakness.
The Food and Drug Administration (FDA) is under fire for
failing to protect the public. Critics say that "the FDA is too
cozy with the drug industry it regulates and unwilling to act
when red flags are raised" (Boston Globe 12/25/04).
"I think Congress will be forced to act in the same way that
Enron and MCI Worldcom forced an overhaul of the accounting
industry," said Rep. Edward Markey (D-MA).
As FDA action or inaction affects the very survival of drug
manufacturers, as well as impacting billions of dollars worth of
profits, it is not surprising that the industry spends tens of
millions of dollars trying to influence government.
Conflicts of interest are pervasive, as documented in
numerous articles in the medical literature and recent books such
as On the Take by Jerome P. Kassirer and Let Them
Eat Prozac by David Healy (reviewed in J Am Phys
Surg, spring 2005). Under public pressure, the CDC recently
split its vaccine promotion and safety monitoring functions (News
of the Day 2/27/05, www.aapsonline.org). Of 32 panelists
on an FDA advisory committee evaluating Cox-2 inhibitors, at
least 10 were found to have relevant financial ties (NY
Nonetheless, some call for still more money and power to the
FDA. "[O]ur FDA colleagues can be trusted to do the job, given
sufficient resources," writes Brian L. Strom, consultant to most
major drug manufactures, in a counterpoint to several articles on
conflicts of interest (JAMA 2004;292:2643-2646).
Some patients would willingly accept an elevated risk of
heart disease to obtain relief of painful, crippling arthritis
and lower risk of GI bleeding. SSRIs are miracle drugs for some
patients. Tysabri received expedited approval because of demand
from desperate patients with multiple sclerosis. But if the FDA
doesn't restrict their options, the plaintiff's bar will.
The level of acceptable risk depends on the seriousness of
the disease. But even terminally ill patients may be forced to
take toxic, minimally effective but approved drugs, while
waiting for more patients to die in the control group so that a
new drug can meet ramped-up FDA standards (Medical Progress
and the FDA, Manhattan Institute, 6/3/02).
The human cost of the 1962 amendments has been 4.7 million
premature deaths that occurred during mandated testing that may
have saved only 40,000, estimated Mary Ruwart. Abandonment of
drugs because regulatory expenses exceeded potential profits
costs still more lives (Health Care News 1/05).
Meanwhile, healthy patients may be coerced into taking
products, notably vaccines or psychotherapeutic drugs, without
benefit of long-term safety studies, or honest disclosure of
known or suspected adverse effects (
discussions on thimerosal).
Overuse of drugs may be spurred by practice "guidelines"
backed by implied malpractice threats. European guidelines would
label 76% of Norwegian adults as at risk for cardiovascular
disease (Scand J Prim Health Care 2002;22:202-208).
A University of Maryland study found that the more generous
the insurance coverage a patient had, the more likely he was to
be taking a Cox-2 inhibitor and the less likely he was to need
it (Wall St J 2/23/05).
Increasing government intervention has imposed a huge cost
in dollars and premature death. Central power has led to
pervasive corruption and suppression of the free-market
regulator competition. Spiraling costs have been tolerated
because of a mechanism ("insurance") to "launder medical
consumption through a third-party payment mill to qualify for a
tax benefit" (ibid.). Elite professional committees with
pharmaceutical connections and the trial bar prop up the system.
Can free enterprise cut through the Gordian knot?
AAPS respects the right of informed consent to (or refusal
of) recommended medical interventions, including vaccines
(Resolution, 2000), and believes that recommendations should be
based on the assessment of individual risks and benefits.
The AMA sides with the government and pharmaceutical
industry: "Since religious/philosophic exemptions from immu-
nizations endanger not only the health of the unvaccinated
individual, but also the health of those in his or her group and
the community at large, the AMA (1) encourages state medical
associations to seek removal of such exemptions in statutes
requiring mandatory immunizations...." (CSA Rep. B, A-87;
Reaffirmed: Sunset Report I-97).
Because of mandates enforcing the social engineers' view
that they will, as adolescents, inevitably engage in promiscuous
sex and IV drug abuse, most newborns are immunized against
hepatitis B. New evidence shows that this vaccine is associated
with a threefold increase in the incidence of multiple sclerosis
(Neurology 2004;63:838-842) a risk that was previously
denied vehemently by medical authorities, including the American
Academy of Neurology (AAN).
The program could cost Medicaid $3.7 billion per year to
treat just one psychiatric disorder, Jones said. TMAP-recommended
olanazpine (Zyprexa), Eli Lilley's top seller, is already 70%
paid for by government agencies. Lilley has multiple ties to the
Bush Administration (Eakman B, Chronicles, Oct 2004).
Rep. Ron Paul, M.D., (R-TX), an AAPS member, stated: "There
is no end to the bureaucratic appetite to run our lives, and the
pharmaceutical industry is eager to sell psychotropic drugs to
millions of new customers in American schools." He has introduced
H.R. 181, the Parental Consent Act of 2005, which would forbid
the use of federal funds for any mental-health screening of
students without the express, written, voluntary, informed
consent of their parents. Dr. Paul said the bill would protect
the right of parents to direct the upbringing of their children.
Meanwhile, sales of the amphetamine Adderall XR, some form
of which is taken by 700,000 Americans for hyperactivity, have
been suspended indefinitely by Canadian regulators while
investigating 20 deaths in users (Ariz Daily Star
Intense lobbying occurred as a private nonprofit advisory
group hired by government developed guidelines for the categories
of drugs to be included in the Medicare prescription drug
benefit. Pfizer and other manufacturers wanted more than 200
classes to improve their products' chances of inclusion, and
pharmacy benefit managers wanted fewer than 100. Plans that
follow the blueprint are more likely to win approval. Patient
advocacy groups fear inadequate coverage for conditions like
Alzheimer's and osteoporosis (Ariz Daily Star 1/04/05).
The FDA continually tries to extend its authority to
regulate dietary supplements, although the reported number of
adverse events linked to their use (2,500) is nearly a thousand
times less than the 2.2 million attributed to prescription drugs
(Deoul KB, Insight, 8/12/02).
Because of the prohibitive cost, few supplements have
undergone the type of testing required for drugs. Yet benefits
may be substantial. At a 2004 American Heart Association
conference, CDC epidemiologist Lorenzo D. Botto reported that
folic acid fortification of grain products required by the FDA
since 1996 to prevent neural tube defects in newborns may
prevent 31,000 stroke and 17,000 ischemic heart disease deaths
each year. Previously, the FDA had forbidden use of folic acid
supplements, and pregnant women could only obtain this vitamin on
the gray market.
Interventions permitted by the FDA as "off label" may be
obstructed in other ways. For example, the Undersea and
Hyperbaric Medical Society (UHMS) threatens to expel members who
use hyperbaric oxygenation therapy (HBOT) for multiple sclerosis,
stroke, or other neurologic conditions (J Am Phys Surg
2005;10:15-17). The cost of maintenance HBOT for MS is as little
as one-tenth that of Tysabri, and British experience over more
than 20 years has shown HBOT to be benign. Insurance generally
does not cover it.
Because expulsion from a medical society in the days of the
National Practitioner Data Bank can end a career, AAPS
suggests that physicians consider resigning from any society such
as UHMS that punishes deviations from "guidelines."
Michael Horwin lost his two-year-old son to medulloblastoma
after the FDA denied him antineoplaston therapy and required
toxic treatment that was not approved for pediatric use and had
failed in previous studies. The Horwins started
www.cancermonthly.com, with up-to-date literature reviews
accessible to patients. Also see www.ouralexander.org.
Sept. 13-16, 2006. 63rd annual meeting, Phoenix, AZ.
"Climbing...helical tower staircases [in Scottish
castles], I learned the hard way about `trip steps' randomly
placed treads purposely made much deeper or shorter than all the
others. The idea was that marauding invaders...running up the
stairs would be thrown off their stride by the occasional
unpredictable step, knocking them off balance. The drug approval
process shouldn't contain trip steps; the FDA should not resemble
a castle booby-trapped against invaders."
Jerry Avorn, Powerful Medicines
Drug Companies Favor Prosecutors
It seems puzzling that drug companies seem to favor
prosecution of physicians who prescribe their products, and lobby
for electronic tracking and databases of prescriptions.
A drug company vice president testified against Dr. William
Hurwitz. In the South Carolina trial of a 15-year-old, who was on
Zoloft when he murdered his grandparents at the age of 12, Pfizer
favored conviction. And drug companies may give former federal
prosecutors a lucrative job.
Economically, drug companies fear losing the many low-volume
prescribers more than the few high-volume ones. And they'd like
to have a database they could use to target physicians who are
underprescribing relative to the average.
Additionally, drug companies don't want to be scapegoats.
They'd rather have a physician or a young boy take the blame for
deaths, instead of their own product. Pfizer has even produced a
"Zoloft Prosecutor's Manual" to help prosecutors convict people
who commit crimes while on Zoloft!
Doctor in "Pill Ring" Case Gets Two Years
A 73-year-old family physician, William S. Delp, D.O., of
Bethlehem, PA, was sentenced to one to two years in prison after
pleading guilty to illegally prescribing medications containing
oxycodone and hydrocodone and criminal conspiracy to acquire
As the doctor had a $40,000 mortage on an $80,000 home and
no evidence of other assets or lavish expenditures, his motive
was difficult to fathom. "The real greed here was the need to be
needed," said forensic psychologist Frank Dattilio.
Word got around that Dr. Delp, unlike others, wasn't afraid
to prescribe drugs, stated defense attorney Phillip Lauer. Some
patients then sold the drugs (Morning Call 1/21/05).
Prosecutor Wants Life Sentence for Dr. Hurwitz
The U.S. attorney who threatened to "root out doctors like
the Taliban" has recommended life in prison for Dr. William
Hurwitz, convicted for prescribing legal painkillers, asserting
that he lied on the witness stand.
The Hurwitz defense demonstrated that at least two star
witnesses for the prosecution were experienced con artists who
also managed to con the DEA at the same time they were collecting
evidence against Dr. Hurwitz. Most "patient" witnesses have been
released from jail, except the one who portrayed Dr. Hurwitz as a
One of "Hurwitz's victims" died of a drug overdose after two
visits with him; her mother asked the judge for the maximum
sentence. Many pain patients regard Dr. Hurwitz as a hero who
helped them when no one else would see them.
"That's unbelievable," said Dr. Russell Portenoy, chairman
of pain medicine at Beth Israel Medical Center in New York. "Such
an extreme sentence sends the message to the medical community
that the government will continue to go after doctors"
(Washington Post, 3/9/05).
In a letter to Judge Leonard Wexler, AAPS wrote: "We watched
in horror and disbelief as the unfounded expert testimony by Dr.
Michael Ashburn procured this conviction. We share the shock
expressed by several past presidents of the American Pain
Society" (see News of the Day, 3/9/05, at www.aapsonline.org).
Sentencing is scheduled for April 14.
The Code of Hammurabi
Under the Code of Hammurabi, doctors were sentenced to have
their hands cut off if a patient died at surgery or lost an eye.
Visiting Babylonia centuries later, Herodotus reported:
"The following custom seems to me the wisest of their
institutions next to the one lately praised. They have no
physicians, but when a man is ill, they lay him in the public
square, and the passers-by,...if they have ever had his disease
themselves or have known any one who has suffered from it, they
give him advice, recommending him to do whatever they found good
in their own case, or in the case known to them."
Pharmacists Threaten to Stop Sales in India
In response to a campaign of harassment and arrests by
India's newly zealous Narcotics Control Board (NCB), drug
wholesalers and retailers threatened a total halt to sales of
"psychoactive" drugs from Valium to morphine. As shortages began
to be reported, the NCB promised to forward concerns to the
Finance Ministry and said that changes would be made in the law
(Drug War Chronicle, 2/11/05).
Slap on Wrist for Perjury
A Texas undercover agent whose false testimony sent dozens
of black people to prison on bogus drug charges was ordered to
serve 10 years probation on a single perjury charge.
Agent Tom Coleman could not be prosecuted for the testimony
he gave in the Tulia drug busts because the statute of
limitations had expired, but in January 2005 he was found guilty
of saying that he did not learn about a theft charge against him
until 1998. The Lubbock jury found that he had earned a 7-year
prison term but recommended probation as he had no prior felony
convictions. The Judge also ordered him to pay the county $7,500
in restitution. Gov. Rick Perry had pardoned 35 of the defendants
in 2003, after an investigation was launched into racial
motivation for the 1999 prosecutions (AP, 1/18/05). Cities and
counties that participated in the Panhandle Drug Task Force have
been ordered to pay $6 million to wrongfully imprisoned
The Coleman case is no aberration. "Testilying" has become
routine. (See 67 U Colo L Rev 1037 and the Mollen Commission
Report, July 7, 1994, accessible through
A review of 4,578 U.S. capital cases finalized from 1973 to
1995 found that 68% were reversed because of prejudicial error;
7% of defendants were found innocent at re-trial and 82% guilty
of a lesser crime (Liebman JS et al., A Broken System,
6/12/00). According to a 2004 report by Univ. of Michigan staff
and law students on 328 exonerations, the leading cause of false
convictions for murder was perjury, including perjury by
informants, police, and forensic scientists. Not considered were
mass exonerations as at Tulia, or more than 70 convictions for
child sex abuse that did not occur. The exonerated defendants
spent an average of more than 10 years in prison. If the rate of
wrongful conviction for lesser crimes is the same as for murder
or rape, there are tens or even hundreds of thousands of falsely
convicted persons in the U.S., not counting guilty pleas by
innocents to avoid the risk and costs of trial.
Accountability. The reason drug companies may seem to
favor prosecution of their best customers has to do with the
"upstream theory" of accountability. It is akin to suing the
manufacturers of guns instead of criminals who use guns whose
pockets are not as deep. By "cooperating" with pros-ecutors who
target doctors, drug companies hope that the government will not
pursue the matter further upstream.
Lawrence R. Huntoon, M.D., Ph.D., Lake View, NY
The Prostitution of Psychiatry. Since 1947, when I went
into psychiatry, a specialty initially devoted to helping its
patients has gradually become their enemy. Drug companies,
bureaucrats (both public and private), media, and academics all
played a role. Now, having utterly failed in its primary task of
helping the seriously mentally ill to recover, psychiatry now
seeks to "find" and "treat" alleged mental illness within the
population as a whole. The entire case-finding enterprise, really
a process of case-making, represents scam upon scam.
Too little recognized are the dangers of merging substance
abuse and mental health treatment programs, demonstrated in the
name of the responsible federal agency: the Substance Abuse and
Mental Health Services Administration (SAMHSA). Almost all the
coercive elements in proposed mental health treatment programs
stem from this merger, which could well destroy voluntary
treatment, at least within the public sector.
Nathaniel S. Lehrman, M.D., Nob Hill, NY
Who Needs/Gets Expensive Medicines? I was with some
doctors last night at a dinner meeting. I had almost forgotten
their bravado in gaming insurers. One knew exactly which health
plans did and didn't pay for the new drug Ketek (telithromycin).
The whole attitude was, who cares about what medications cost
when someone else has to pay? I suggested that they might get
concerned if the HSA idea catches on. They rolled their eyes.
They may not realize that I'm receiving about five new patients
from their practices weekly, with few if any going the other way.
Those who don't learn to practice cost-effective medicine will be
in the "patient-flight zone."
Robert S. Berry, M.D., Greeneville, TN
Price Discrimination Is Good. It allows consumers the
option of purchasing goods and services at price points they find
to be of value, and allows price differentials to reflect
different customers' values and ability to pay. It would not
bother me if Chicago Unitarian Hospital charged me $250 a night
for a bed in a public ward, while offering the same bed to a poor
single mother for $25. I also favor allowing drug companies to
charge market prices in the U.S. while selling the same AIDS
drugs in Africa for pennies (their marginal cost, I assume).
On the other hand, the system of "rack rates" for the
uninsured is irrational price discrimination caused by
government monopsony of care for the elderly and poor and near
oliogopsony (if that's a word) of care through large insurers
whose business is propped up by government tax preferences.
Sean Parnell, Heartland Institute
Drug Companies' Purpose. The Kaiser Family Foundation
Health Survey Poll Report for Jan/Feb 2005 states that 70% of
people believe drug companies put profits ahead of people,
whereas 24% say drug companies exist primarily to develop new
drugs to save lives and improve the quality of life. The latter
are potential trouble because they just don't understand how
things work. When they abruptly come to realize that their
assumptions were incorrect, they may become left-wing radicals
because of their betrayed trust.
Frank Timmins, HealthBenefitsReform Group
The Effects of Monopsony. From a 2005 HHS budget
summary: "The VFC [Vaccines for Children] statute, as enacted in
1993, caps prices for the three vaccines that were in use prior
to enactment of the legislation. The price caps are so low,
however, that the tetanus booster vaccine was removed from the
VFC program in 1998 when no vendor would bid on the contract."
Did the government change the price caps, for the good of the
children? No. It stuck to its stupid price caps for seven
years. Who cares if some kids don't get immunized: we have
more important goals, such as nationalizing all producers of
Linda Gorman, Independence Institute
Slavery. Over the centuries, mankind accepted chattel
slavery because that's how it was. Today, mankind is enslaving
future generations because that's the way it is. Perhaps within a
generation or two mankind will come to the realization that the
difference between chattel slavery and passing on debts and
unfunded liabilities to our children is illusory. My generation
must not only recognize the errors of its ancestors but also
admit to its own wrongful behavior before justice can be
restored. But at present, we continue to proclaim, smugly and
erroneously, that we are morally superior to our forebears.
Robert P. Gervais, M.D., Mesa, AZ
The Coming Trainwreck. Writing IOUs with public money
is like writing a check under today's new banking regulation:
there is no float time to fund the check before it bounces. The
day of reckoning is coming, and it won't be pretty. Some of us
will be witnesses and victims.
Joseph Lee Pugh, Diamondhead, MS
Legislative AlertMedicare's Sticker Shock
Take a deep breath. The Bush Administration's projected
cost of the Medicare drug bill is a stunning $724 billion over
the period 2006 to 2015.
OK. The estimate is higher than last year's Administration
projection of $534 billion over the period of 2004 to 2013. But
it reflects two full years of drug entitlement spending, as the
initial ten-year estimate did not. No matter. By 2014, when the
huge baby boomer generation is retiring, the annual cost of the
Medicare drug benefit alone will be more than $107 billion.
Needless to say, there are well-practiced displays of shock
and outrage from certain Members of Congress. These are the
cynics and sharpies who make a living working the rubes along the
proverbial Midway of American electoral life, promising what
neither they nor their friends in other high places, in or out of
office, can ever deliver: cheap drugs.
They can, of course, deliver price controls on drugs dres-
sing them up as "government negotiated prices." But the
drugs which you just can't get 'cuz they just ain't there at the
"controlled" price are still expensive. Shortages are another,
painful form of costs to consumers; something to be explained,
patiently, to the large number of economic illiterates in and out
of public office, who think that price controls "work."
The array of Congressmen who did not have to practice their
shock, awe, and outrage in front of the mirror this past few
weeks, and who really, really are shocked and awed by the big
Medicare numbers, are, well, maybe just a bit slow about these
things. This is, at least, is a colorable excuse for voting for
the greatest entitlement expansion since the Great Society.
Congressional or Administration budget analysts, of course,
had not previously broadcast cost projections of this magnitude.
During the Medicare debate, many independent analysts repeatedly
hammered home that this thing would cost far more than the
originally projected $400 billion over 10 years. Congress, also
repeatedly, with or without malice aforethought, routinely
dismissed those warnings. Indeed, if you look at the press
clippings of a couple of years ago, you will read some fantastic
things, such as some members of Congress predicting that the
Medicare bill will start to "bend the curve" in future
entitlement spending, and other such patent nonsense.
The real meaning of the $724 billion Medicare drug figure is
not that it's just bigger than all previous figures. It is that
this is just the first, tart taste of the bitter financial fruit
that the Congress is serving up to current and future generations
of taxpayers. The unfunded promises of Medicare, as we
have noted previously, now amount to $28 trillion, and $8
trillion of that is attributable to the drug benefit.
The Medicare drug bill's problems are not confined to
breathtaking cost estimates. The fundamental structure of the
legislation rests on central planning. It is a government-
designed benefit; a government-standardized product, accompanied
by more than a thousand pages of complicated new government
rules, covering everything from drug plans' actuarial standards
to drug formulary rules.
With the adoption of the universal entitlement, one
necessarily prescribes a universal crowd-out of existing
coverage, either immediately or over time. This means that the
Medicare bill is going to disrupt the lives of millions of
seniors, a point repeatedly stressed to members of Congress, to
no avail, throughout the 2003 Medicare debate. While the media
has often focused on the loss of employer-based drug coverage for
retirees, or the scaling back of that employer drug coverage to
the level prescribed in the Medicare law, there is another entire
class of seniors who may pose even more of a problem: the
The dual-eligibles are the roughly 6.4 million seniors
who today get their drug coverage under Medicaid. About 25%
of these persons are in nursing homes; there is a high
concentration of mentally and physically disabled people in this
population. Under the new Medicare drug bill, for these seniors,
there is not even the patina of personal choice in this matter;
they are to be moved, en masse, into the new Medicare
drug program on Jan 1, 2006, regardless of their wishes in
the matter. Medicaid funding for their drug coverage ends on that
day. They are the only class of seniors who are guaranteed to
lose their current coverage.
In testimony before the Senate Aging Committee, Tina
Kitchin, Director of the Oregon Department of Human Services,
said that these seniors could face real harm because CMS, despite
its best efforts, has still not done enough to make sure that the
transition from Medicaid to Medicare goes smoothly. With a large
number of these beneficiaries suffering from psychiatric problems
or dementia, a Medicare drug information campaign based on the
Internet and telephone call-in technology, said Kitchin, is
"irrelevant." Kitchin also stated that the state of Oregon has
only two full-time paid staffers, plus about 200 volunteers, to
help the estimated 50,000 Medicaid dual-eligibles in the state.
A related problem is the continuity of pharmaceutical care
for this population, said witnesses before the Senate panel.
There is no guarantee that the formularies in the new drug
plans will match the drugs that these beneficiaries are currently
using, and thus there could be a break for many of them in
Then there's the impact of the notorious "doughnut
hole," a gap in coverage that could affect some 3.8
million seniors in 2006, according to an analysis by the
Kaiser Family Foundation. Heritage Foundation Visiting Research
Fellow Edmund F. Haislmaier estimated the number at 5.8
million. Many of them will not reach the prescribed
catastrophic limit of $3,600, after which the government picks up
95% of the drug costs. The cohort will build steadily and tend to
pile up toward the end of the year: not a politically smart
design. As columnist Deroy Murdoch wrote: "Based on
[Haislmaier's] calculations, at least 4,113,414 seniors will
tumble down the doughnut hole and remain there on Election Day
2006." (Analysis is available at:
Congressional Inaction = A Lower Standard of Living
Alan Greenspan, Federal Reserve Board Chairman, told the
House Budget Committee that Congress will sooner or later have to
cut future Social Security and Medicare benefits simply
because the current projected costs are unsustainable. Greenspan
said that if Congress refuses to act, the result will be massive
tax increases or heavier debt that will drive up interest rates
and lead to economic "stagnation" and a lower standard of living,
particularly for younger Americans. Greenspan told the House
panel that, unless Congress acts soon, the real trouble could
begin as early as 2015.
Total entitlement spending based on annual estimates for
Medicare, Medicaid, and Social Security reached $965 billion in
2004. By 2030, according to CBO, that spending will rise to $1.6
trillion. Robert Samuelson, the economist who writes for The
Washington Post, says that at that level, Americans, unless
Congress does something in the meantime, would be saddled with
nearly $700 billion in annual tax increases, or deficits, or
"comparable cuts" in all other government spending, including
defense, homeland security, and other domestic programs.
There is no shortage of economic analyses on the growing
threat of runaway entitlement spending. Two recent analyses are
In a February 2005 analysis, published by the National
Center for Policy Analysis (NCPA), Boston University economist
Laurence Kotlikoff and his colleagues estimated that to finance
senior benefits, the payroll tax will have to climb from the
current 14% to 23% over the next 30 years, while the average
income tax on wages will rise from 10% to 14%. Thus, the total
tax on wages will rise from 24% to 38% percent in 2030, and to
40% by around 2050. The analysts also say that one of the major
damaging consequences of the rapid rise in general taxation will
be the negative effect on the ability of younger Americans to
save. A reduction in savings will mean a reduction in funding
available for capital formation, new plant equipment, and
technology. Capital reduction ensures lower productivity in the
general economy. Lower productivity will mean lower real wages,
and thus a lower standard of living, the very result that
Greenspan predicted in his House Budget Committee testimony.
Kotlikoff et al. estimate the impact of the entitlement
expansion impact on workers: Real wages will be 20% lower by
2030, and 15% lower by 2050. The combined effect of lower
real wages and tax increases will reduce the average worker's
take-home pay by about 25%. By 2050, the American worker's
after-tax income will be about one-third lower than it would be
In a separate analysis, the Center for Strategic and
International Studies (CSIS), another adult think tank that deals
primarily with foreign relations problems, looked at the impact
of entitlement spending on the economies of 12 major
industrialized nations. The CSIS report reveals that the United
States is far better off than France, Germany, Italy, or Spain,
but that the pressures of a rapidly aging population under
existing entitlements threatens the standard of living of all
countries with large and growing obligations to seniors' pension
and health programs.
Some basic statistics reveal the dimensions of the coming
challenge. For the United States, according to the CSIS report,
public benefits for senior citizens amounted to 9% of GDP in 2000
and will reach 20% by 2040. Government benefits to American
seniors equaled roughly 13% of younger Americans' "after-tax"
income in 2000 but will jump to 27% by 2040. How will the MTV
generation like that bite out of their fun budget? Total
taxes (federal, state and local) took 33% of the U.S. GDP in
2000 but will seize 44% by 2040. While government benefits
to seniors amounted to 31% of total government outlays in 2000,
the proportion will jump to 53% by 2040.
A key problem of the entitlement state is the growth of
public debt. The CSIS report says that in 2001, the government
debt reached 42% of the US GDP. Based on current projections,
that debt would reach 150% of the American GDP by 2026.
A Glimmer of Hope
Incredibly, as the mountainous Medicare costs continue
to rise, the President said he would veto any change to the
Medicare law that would "take away" the drug benefit, or "limit
choices" of seniors. The threat was odd, since Bush has thus far
vetoed nothing, including a disastrous farm bill laden with pork.
The President's remarks seemed targeted to conservative Members
of Congress, his strongest base of support on Capitol Hill; it is
they who have voiced deepening displeasure with the rising cost
of the new drug entitlement, and the desperate need to do
something to contain those costs.
House Majority Whip Roy Blunt (R-MO) subsequently said that
Bush's comments do not mean that changes to the drug benefit are
off the table. So there has been some confusion on the issue,
with many congressional conservatives thinking that the
President's veto threat was directed at them, not just Democrats
who have another agenda: the expansion of the benefit and the
imposition of some new form of drug price regulation.
Meanwhile, a group of conservative House members are taking
the Medicare problem seriously and are proposing changes to the
drug entitlement, either by delaying its implementation, changing
its structure, or imposing some sort of a means test for
eligibility. The leaders in this effort are Reps. Jeff Flake (R-
AZ), Mike Pence (R-IN), and Zach Wamp (R-TN).
Meanwhile, Senator Judd Gregg (R-NH), Chairman of the Senate
Budget Committee, has been warning his colleagues of the need to
address the Medicare problem sooner rather than later. Perhaps
his fellow Senators will listen to reason.
The President has made Social Security reform a priority.
Good for him. But Medicare can no longer be neglected. The
massive drug entitlement will take effect on Jan 1, 2006, unless
Congress shows some common sense and some courage. Congress is
running out of time. It ran out of excuses long ago.
Robert Moffit is Director, the Center for Health Policy
Studies at the Heritage Foundation, Washington,