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Association of American Physicians and Surgeons, Inc.
A Voice for Private Physicians Since 1943
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Volume 61, No. 4 April 2005


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' billboards.

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 Times 2/25/05).

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).

A Factual Perspective

  • In 1962, the Kefauver-Harris Amendments required affirmative approval from the FDA to market a drug. Efficacy as well as safety was placed under FDA purview.

  • Since 1980, the number of clinical trials to support a New Drug Application has increased from 30 to nearly 70, while the mean number of patients increased from 1,576 to 4,237. New drug development time has increased by more than half, cutting effective patent life to 11-12 years. Costs, in 2000 dollars, increased from about $300 million in 1991 to more than $800 million in 2000. Between 1980-1984, only 3 in 10 drugs brought in enough revenue to cover the development cost (then much lower). As a result, profitability may depend on manufacturers' heavy promotion of "blockbusters" just after release.

  • About 3% of new drugs are withdrawn in the U.S. because of safety considerations, compared with 4% in Britain, which approves more drugs, on an annual budget of $50 million compared with $693 million for the FDA (Miller HI. Nature Reviews 2002;1:642-648).

Trade-offs: Voluntary or Involuntary?

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 ( see 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).

Rethinking Economics and Regulation

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?

Coerced Vaccination

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).


Universal Mental Health Screening

With $20 million in federal funding, the New Freedom Initiative (AAPS News, October 2004) will begin implementing the ideas of the model Texas Medication Algorithm Project (TMAP). According to OIG employee Allan Jones, who was fired after speaking to the press, TMAP pushes newer, more expensive antidepressants and antipsychotic drugs "through media promotion and biased reporting of drug trial results."

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 2/12/05).


Medicare Proposes Coverage for 146 Drug Types

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).  

Non-Drug Intervention

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."


Patients Empowered by Facts

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.


AAPS Calendar

  • May 21, 2005. Board of Directors meeting, Atlanta, GA.
  • Sept. 21-24, 2005. 62nd annual meeting, Arlington, VA.
  • 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 controlled substances.

    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 caring physician.

    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 defendants.

    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 www.stopthedrugwar.org/chronicle/372/iceberg.shtml).


    Wrongful Convictions

    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 health-related products.
    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 Alert

    Medicare'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.

    Implementation Glitches

    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 Medicaid "dual-eligibles."

    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 their coverage.

    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: www.heritage.org/Research/HealthCare/wm674.cfm.)

    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 worth noting.

    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 otherwise.

    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, D.C.