The plot

I think the Medicare prescription-drug plan was DESIGNED to fail; it would have been almost impossible to do such a poor job of policy design and implementation by accident.

I think I’ve got it figured out. The Bush Administration truly is compassionate, and the drug companies actually care about getting medicines to sick people. So they deliberately designed Medicare Part D (the prescription-drug benefit) to fail in order to generate public support for some sort of true national health coverage.

Yes, I know: any theory that attributes good motives to Bush or Big Pharma requires a lot of believing. But I can’t come up with an alternative explanation for how badly the damned thing was designed and implemented, and in particular for the “donut hole.”

What’s your theory?

Author: Mark Kleiman

Professor of Public Policy at the NYU Marron Institute for Urban Management and editor of the Journal of Drug Policy Analysis. Teaches about the methods of policy analysis about drug abuse control and crime control policy, working out the implications of two principles: that swift and certain sanctions don't have to be severe to be effective, and that well-designed threats usually don't have to be carried out. Books: Drugs and Drug Policy: What Everyone Needs to Know (with Jonathan Caulkins and Angela Hawken) When Brute Force Fails: How to Have Less Crime and Less Punishment (Princeton, 2009; named one of the "books of the year" by The Economist Against Excess: Drug Policy for Results (Basic, 1993) Marijuana: Costs of Abuse, Costs of Control (Greenwood, 1989) UCLA Homepage Curriculum Vitae Contact:

12 thoughts on “The plot”

  1. Well, if the only thing that was badly implemented was teh Medicare Drug plan that would be one thing. but sicne everything they have done has been the same complete disaster, I'm going with the fact that they hate governing.

  2. I have very little knowledge of the issue, but here was my thought on the donut holes.
    The donut hole represented a mixture of two separate policies. Policy A is to provide insurance to people with high drug spends. To reduce its cost, Policy A only kicks in after a high level of drug spend. Policy B is designed to win votes. For policy B, you want as many people as possible to feel the benefit, so you cover the first few dollars of spend. Mix A & B and you get the donut hole.

  3. "
    "Intellectually, the program is a good idea," said Dr. E. Linda Villarreal, a former president of the Hidalgo-Starr County Medical Society.
    And that's why it will still be a long struggle to improve the system. The doctors union, AKA the AMA, has little interest in a system that works better. I mean, give me a break, in what sense, even "intellectually", is the program a good idea?

  4. Tom G., you're theory of the "donut hole" sounds about right to me, and illustrates yet another aspect of how politics has eclipsed policy in the Bush administration. It doesn't matter if something works, as long as it sells. Of course the flaws in the program are painfully evident now, but hey, Bush was re-elected and that was job #1 from the git go.

  5. David W., that seems a bit quick. I mean, it is politics we're talking about here. A drug welfare plan may be the right answer from a policy perspective, but suppose that the political support for a narrow drug welfare benefit would be much lower? What is one to do? In particular, what is one to do when one's political opponents offer "free" drugs to everyone, by insisting on government price controls (essentially, a ticket good for only one ride, since the value of the benefit would naturally decline over time, as capital and innovation migrated to other, more profitable sectors of the economy)? Now, one could insist, that's a self-evidently stupid idea–and it is–but that doesn't mean that it doesn't have widespread political purchase.

  6. The funny thing is that the donut hole will kick in just in time to get a lot of press play during the midterm elections.
    And I though they were suppose to be good at creating election issues.

  7. Tom G. has it. The idea was to provide catastrophic coverage — but no one except those who have catastrophic expenses would give much credit for that, so the other idea was to make sure everyone got SOME benefit. No insurer would design a policy with a so-called donut hole. It doesn't pass any common sense test related to either adverse selection or risk reduction: if at some level, the use of the drug has already been medically validated there's no advantage to disincentivizing continued use. But that's what yanking coverage does. (Congress does not include many actuaries, of course.)
    There are policies that let beneficiaries avoid the donut hole — really, they just "smooth" out the donut hole so beneficiaries don't have to cope with the shock of complete noncoverage — most of these are issued by companies as part of a comprehensive medical plan (i.e., the integrated MA plans), where the plan does not benefit at all if you end up in the hospital because you didn't take your medicine. These plans have not been popular. After reading the NYT article, I now understand that many beneficiaries focused on the cost of premiums without understanding exactly how the benefits were structured, and wrongly assumed that they were all alike.

  8. Badly designed?
    Part D is a thing of beauty — if you have the right perspective. The fundamental design challenge the administration and Big Pharma faced as they sat down to hammer this thing out, was how to avoid having the gummint be the single payer negotiating with the pharmaceutical companies over the price of medications. The VA already does this within its own system, and the results are not pretty for Big Pharma. The obvious way to add a drug benefit to Medicare would have been to simply extend the VA's purchasing arrangements to all federal drug purchases, Part D, the military health cares system, etc. But this would obviously have hurt Big Pharma, because this single payer drug purchasing system could not fail to get much better prices from the pharmaceutical companies than the hundreds of medical plans that existed prior to Part D had been able to negotiate separately. They absolutely had to split the negotiating power of the medication providers over dozens of private enterprise insurance plans in order to insure that the system would not be able to negotiate down Big Pharma's prices, therefore its profits. This provided the added benefit of throwing more gratuitous bundles of cash the way of the health insurance industry. The private sector has administrative costs an order of magnitude greater than Medicare's, but hey, the private sector uses a chunk of that overhead for campaign contributions, which Medicare can't, so it's plenty worth the extra expense.
    Now, a Medicare drug benefit was going to cost a bundle, no matter how rationally designed, and no matter how little private sector campaign contributors were allowed to create gratuitous cash streams toward their open maws. But the above features, foregoing single payer bargaining power over the pharmaceutical companies, and going for private sector admin costs, really made the thing a budget pig. They had to throw a bone to the intrepid budget cutters in their party, so of course they threw the hardships created onto the patients, creating the infamous doughnut. Not only do they save money, but they can claim that these relativley modest savings are the tip of a veritable iceberg of conveniently unmeasurable savings, as patients are incentivized to minimize the number of meds they are on so that they don't get above the lower threshhold of the hole, and start having to pay 95% out of pocket. (There's an upper limit on the hole to avoid gross and obvious abandonment of the occasional really sick patient with really high med costs.) As an Internist of 20 years' practice, it was my impression that patients were already doing a pretty good job of limiting the amount of meds they take. I can plead, beg and threaten them with dialysis if they don't fly right and take all the meds I think they need, and I'm still lucky to get maybe 50% compliance. People, very sensibly, don't like taking medications. Even if they don't casue any side effects, it's a drag to remember to take all of them on schedule. I can only get patients to take the ones I can persuade them that they really need. But then again, I'm just a doctor. I don't live in the rarefied alternate reality inhabited by the geniuses who devised this system, where the main driver of high health costs are these "welfare queen" patients who constantly press their doctors to prescribe ever more medications. The doughnut hole would sure cook their gooses, if any such folks actually existed.
    It is true that this scheme is not a thing of beauty to pharmacies, doctors and patients. But, to please the important people, you have to displease the unimportant people. Such is life. But the enmity of the powerless is not simply a negative, if unimportant negative, it actually has its positive uses. You say the peasants are gathering outside the castle with torches alight and pitchforks aloft. Great! It's hard to imagine any prospect more likely to inspire limitless campaign contributions from Big Pharma and the health insurance industry. If the Repubs go down, their gravy train is likely to get derailed, replaced by a single payer drug benefit even worse for them, therefore better for the peasants, than what existed prior to Part D.

  9. Shorter version of Glen's comment: This could have been avoided, if only the Republicans would have conceded to giving the government monopsony power.
    Why that would make sense is left unexplained. Yes, it lowers prices, for now. But why would we care only about the short term?

  10. Did they also royally mess up in Iraq in order to generate public support for a competent invasion of Iran?

  11. Glen Tomkins has one detail wrong: The government isn't the purchaser under Part D, or under Medicare generally. Unlike the VA program, the government is the third party payer for transactions between private parties, in this case, a Medicare beneficiary and a pharmacy. Just noting that it makes the world more complicated: In order to get lower prices for drugs, the government would most likely be negotiating rebates, not purchase prices. Pharmacies would die if they received compensation for drugs at the VA level.

  12. The donut hole was designed to insure that anyone who couldn't lay out $3000 per year for drugs year after year, while paying premiums, would eventually be forced into a nursing home. Once there, they would be forced to sell their homes and spend down savings and assets to a government approved $1500 to qualify for Medicaid, which would pay all costs not covered by Medicare until they died. Thus Rove takes care of a second GOP constituency…The nursing home owners. And all it costs are the lives of bunch of parasite old people who were probably Dems anyway. Culture of Life, anyone? How about compassonate conservative?
    Pardon the sarcasm, but the prospect of growing old under the rule of these psychopaths is enough to anger a saint. And I'm not a saint!

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