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Letter to the Honorable Joe Barton 1 (February 2005)

handle is hein.congrec/cbo9279 and id is 1 raw text is: CONGRESSIONAL BUDGT OF FICE Douglas Holtz-Eakin,D U .S. Congress ashington, DC 20515 February 16, 2005 Honorable Joe Barton Chairman Committee on Energy and Commerce U.S. House of Representatives Washington, DC 20515 Dear Mr. Chairman: At your request, this letter discusses the Congressional Budget Office's (CBO's) current projection of spending for the Medicare Part D benefit. That estimate, which was published in the January 2005 Budget and Economic Outlook, is nearly identical to the cost estimate for Part D that we prepared in 2003 (see attached table). In November 2003, CBO estimated that the Medicare Modernization Act (Public Law 108-173) would result in additional direct spending totaling about $395 billion over the 2004-2013 period. That amount was the net of a number of different types of expenditures and receipts that would result from the legislation. It included an estimated $552 billion in mandatory spending for Medicare Part D-consisting of $771 billion in payments for benefits and mandatory administrative costs, offset by $219 billion in premiums paid by beneficiaries and payments by states. (Those payments by states represent part of their share of the savings from shifting some Medicaid spending for prescription drugs to Medicare.) Those costs were further offset by net savings of almost $13 billion from changes to Parts A and B of Medicare and estimated savings of $145 billion in Medicaid and other federal programs because the Part D benefit would reduce spending in those federal programs (largely by shifting some spending for prescription drugs from those programs to Medicare). CBO recently updated its baseline projections for all federal programs. As part of that exercise, we modified our estimate of the Part Dbenefits slightly, mostly to reflect the slightly higher inflation rate in CBO's most recent economic assumptions. That change added about $6 billion to the projected

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