July
23, 2003, 7:00 a.m.
Canary
Says
If Ted’s for it, conservatives should be against it.
n the old days, miners brought canaries down into the tunnels to detect
methane. The birds were more sensitive to the deadly gas and worked as
an early warning system. When they died, it was time to get out. For conservatives,
Senator Edward Kennedy, Massachusetts Democrat, is like a canary. When
he starts supporting their initiatives, they should get out.
This
is not an issue of guilt by association. Conservatives don’t oppose measures
just because Sen. Kennedy is for them. It is more that his sense of what
is good for liberalism is so acute — honed over 40 years as the leader
of the liberal wing of the Democratic Party — that he never supports
anything that is fundamentally inimical to the liberal agenda.
Therefore, it is significant
when Kennedy supports a Republican initiative, as he has done in the case
of the prescription-drug bill working its way through Congress. Although
most Democrats oppose the measure as grossly inadequate, Kennedy counsels
otherwise. This is just a “down payment,” he tells them. “When we get this
as a down payment, we’re going to come back again and again and again to
fight to make sure that we have a good program,” Kennedy told CNN’s Judy
Woodruff on June 18.
From the liberal point
of view, this is wise advice. The history of entitlement programs is that,
once established, they remain forever and grow exponentially. Consider the
original Medicare program enacted in 1965. According to the 1966 Annual
Report of the Board of Trustees of the Federal Hospital Insurance Trust
Fund, Medicare Part A was expected to cost $8.8 billion in 1990. In fact,
outlays were $66.2 billion — more than 7 times greater than estimated.
In all likelihood,
estimates of the new prescription-drug plan being considered will be off
by at least the same order of magnitude. Two economists at the American
Enterprise Institute have estimated that the present value of this proposal
will be $12 trillion. This is a calculation in today’s dollars of all future
drug benefits discounted by the rate of interest. In effect, it is the burden
on future generations for giving today’s seniors — who will have paid
nothing for it during their working lives — an extra medical benefit
on top of those they already receive.
But even this calculation
is too low, in my opinion. When the government begins to subsidize something,
demand for it rises, pushing up the price. If the Medicare plan ends up
subsidizing, say, one-fourth of drug costs, as the Senate bill does, eventually
the price of drugs will probably rise by about 25 percent above what otherwise
would have been the case. In the end, drugs will be no more affordable than
they are today.
This will put inexorable
pressure on the federal budget. Outlays will rise and rise and rise —
even without the program expansions envisioned by Kennedy, which are probably
inevitable. If history is any guide, the federal government will respond
with price controls in order to save money. Canada already has de facto
price controls on drugs, which is why they are cheaper there — if you
can get them. That nation now limits the availability of many new drugs
in order to control costs.
The most serious problem
in the long run is that price controls reduce the profitability of producing
new drugs, which discourages research and development. Eventually, the supply
of new drugs will fall. This is especially dangerous, in my view, given
the recent outbreak of previously unknown diseases like SARS and monkey
pox.
Other countries with
state-controlled health systems have long been able to free ride on U.S.
drug R&D. But if our system dries up, as I believe it will, who will pick
up the slack? The federal government itself will probably have to become
the main engine of future drug research. If so, that will only add to the
ultimate cost of a Medicare prescription-drug program.
The Bush administration
and Congress should seriously reassess plans to enact a new prescription-drug
subsidy. Much, much more work needs to be done on designing such a program,
with due allowance for the impact on supply and demand and the underestimation
of future costs. The consequences of hasty action could be incalculable
in terms of money and human lives.
Unfortunately, the
odds of a serious reassessment are very long. Republicans in Congress seem
to have convinced themselves that they have to have a drug subsidy bill
to keep control. And the Bush administration has irresponsibly signaled
that it will sign any bill, no matter how bad. Consequently, it has ceded
any leverage it might have to shape the legislation in a positive direction
— effectively giving Ted Kennedy its proxy. At this point, the best
we can hope for is gridlock in conference.
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n the old days, miners brought canaries down into the tunnels to detect
methane. The birds were more sensitive to the deadly gas and worked as
an early warning system. When they died, it was time to get out. For conservatives,
Senator Edward Kennedy, Massachusetts Democrat, is like a canary. When
he starts supporting their initiatives, they should get out.
