What’s wrong with the Medicare drug plan?

A reader writes in to ask whether I can say in detail what’s wrong with the Medicare bill.

The truthful answer is that, mostly, I can’t. That’s what Bush & Co. are counting on: that most people won’t study the issue closely enough to figure out what’s going on. (As Machiavelli advises his Prince, “Many see, but only a few touch.”)

Here’s the laundry list of what I think is wrong with the bill, speaking under correction from those who know more than I do about the topic:

1. The bill forbids the Medicare program, which will instantly become the largest single buyer of pharmaceuticals in the U.S., from using its market power to negotiate lower prices from pharmaceutical companies, as every private insurere does.

2. The structure of the coveage — 75% up to $2200/yr., then nothing up to $5,000, then 95% of the rest — makes no sense whatever, except politically.

3. By working in higher premiums for higher-income seniors, the bill begins the process of picking apart the political coalition that holds Medicare in place, and does so for trivial fiscal benefit.

4. The bill actually reduces benefits for the poorest seniors, those eligible for both Medicare and Medicaid.

5. The bill allows private insurers (albeit on a limited basis) to compete with Medicare. Competition is good, right? But the privates would not be required to cover all comers. As a result, healthy seniors would be peeled away by the privates, who would coin money as a result. (Insuring a pool you get to select and being paid on the basis of a less selective pool is an underwriter’s vision of Paradise. Moreover, the privates won’t be barred from negotiating prescription drug rates.) That will leave a sicker and sicker, and thus more and more expensive, pool for the Medicare program itself. And if you’re wondering whether the right wing will really have the chutzpah to claim that the resulting gap between Medicare costs and the costs for the private insurers shows the superior efficiency of the private sector, stop wondering.

6. To prevent the private sector from dropping drug coverage from its retiree health plans and dumping all those expenses back on Medicare, the bill provides for an enormous bribe to companies for continuing to do what they are already doing.

Anyway, that’s what I think is going on. All I’m sure of is that the more you know about health care finance, the less you like the bill. I’m not aware of anyone who studies the topic for a living who thinks the bill (now — shudder — the law) is anything but a monstrosity. My conservative friend David Boyum, who has worked on this topic with the liberal Ted Marmor of Yale, writes:

I was talking to Ted Marmor today and we agreed that the Democratic leadership deserves a lot of blame for the Medicare fiasco. But not because Daschle, Pelosi, et al. were unable to enforce party discipline. Rather, the problem is that Democrats mindlessly took on their customary role of advocating greater benefits than the Republicans were offering when they should have been pushing in the other direction. This is case where less would have been more. The Democrats should have promoted a simple catastrophic plan—something like 100% coverage above a deductible of, say, 5% of AGI. Such a plan would be relatively cheap (especially when you consider that corporations wouldn’t need to be bribed to keep their existing drug coverage) and administratively simple (the whole thing could be handled on tax returns, as Martin Feldstein suggested long ago in his proposal for national catastrophic health coverage).

Politically, it’s hard to believe that such a minimalist plan wouldn’t have attracted enough conservative Republican support (only 3 votes in the House were required) to at least torpedo the plan we now have. At worst, it would have put the Democrats in a much stronger position to argue that the Republicans are fiscally irresponsible.

Ted, who knows as much about this problem as anyone, has two good articles covering both the substance and the politics: this one at Tom Paine.com and this one looking at Medicare reform more broadly.

Now that the bill is law, it’s essential to make it a political disaster both for Bush and for the AARP. Apparently the calculation Novelli and his advisers made was that the bill would appeal to the people old enough to join AARP but too young to be eligible for Medicare: the 50-65 age bracket. If you happen to be in that bracket, do, please, give them a phone call and explain that in your particular case they were wrong. That number, once again, is 1-800-424-3410.

(The voice referral system is either deliberately fouled up or overwhelmed by the call volume, but if you push zero you’ll eventually get the voice of a human being. Yes, you’re entitled to a rebate on your membership dues.)

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: Markarkleiman-at-gmail.com

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