Medicare drug program is ridiculous

By DAVID J. ROBERTS
PROVIDENCE JOURNAL
CHICAGO -- In response to criticism of the whopping new $724 billion 10-year cost estimate for his Medicare prescription-drug program, President Bush has threatened to veto proposed changes. He would do better for most Americans, including seniors and disabled people, if he proposed redesigning or ending this inefficient entitlement.
The prescription-drug insurance will disappoint most Medicare participants. With a separate premium expected to average about $440 for the first year, the insurance contains a large deductible, big co-payments, and a giant gap in coverage, known as the "doughnut hole."
Many low-income individuals will benefit from special subsidies. And some people with catastrophic drug costs and no other coverage should benefit significantly. But the majority of seniors and disabled people can expect little or no benefit, while the cost to the taxpayers will be astronomical.
The program will use taxpayer dollars to provide generous subsidies for employers that maintain retiree prescription-drug coverage. But with badly designed incentives, this plan will actually induce many employers to cut back their coverage -- helping corporations while hurting retirees.
The program will be operated through a large number of government-subsidized private drug plans, each of which will be allowed to negotiate price. But -- almost unbelievably -- the law specifically prohibits government itself from negotiating price with pharmaceutical companies.
So it may actually serve to increase outrageous drug prices. Meanwhile, the Bush administration has consistently opposed importation of lower-priced prescription drugs, and seems to be moving to further restrict imports.
One would expect that the U.S. government, as a gigantic customer, would wield serious purchasing clout. The pharmaceutical industry argues that letting government negotiate would restrict which drugs could be prescribed, and would result in price controls.
Restricting drug choices
In fact, as currently designed, the drug plans will probably restrict drug choices based on a formulary. Perhaps government negotiations would result in greater restrictions. But the taxpayers might prefer greater restrictions and lower cost. Moreover, the program seems overly generous. Medicare recently announced that even such drugs as Viagra would be covered.
The price-control argument is supported by many conservatives who espouse free markets. They say that the government's negotiating price would discourage development of new drugs. By that reasoning, the government should be prohibited from negotiating the price of anything having to do with defense, health, or safety, particularly when it is the largest customer. We wouldn't want to discourage innovation.
Throwing what will ultimately amount to trillions of taxpayer dollars at an industry without fully exercising the accompanying negotiating power is hardly a textbook example of free markets.
The great irony here is that this poorly designed, inefficient, costly big-government program came from a Republican president and his supporters in Congress, most of whom claim to be conservative and regularly rail against such programs.
The Department of Veterans Affairs has successfully negotiated major drug discounts, and at a minimum, this prescription program should be changed to require such negotiation.
This program will effectively result in a massive transfer of money from the American taxpayers to the pharmaceutical, insurance, and HMO industries. Even worse, this drug program's infinite-horizon unfunded liability of more than $16 trillion far exceeds the $10 trillion to $11 trillion unfunded liability that Bush has cited when proclaiming "crisis" under Social Security. And it threatens the very existence of Medicare itself. Conservatives who abhor social programs like Medicare may find that to be the silver lining.
Price tag
The Bush administration sold this program to Congress with a 10-year $395 billion price tag. Shortly after it was enacted, the administration disclosed a $534 billion estimate. All of this was budget hocus-pocus, because the drug-insurance coverage -- the expensive part of the plan -- does not even begin until the third year of that 10-year period. This new $724 billion estimate actually reflects 10 years of insurance.
Those in Congress who claim they were fooled by the inclusion of only eight years of insurance in the 10-year estimate should be embarrassed. And we should all watch out for the real 10-year transition costs for Social Security privatization, since the administration proposes a gradual phase-in. More important, for any 10-year estimate, ask about the second 10 years.
We should actually take comfort in believing that President Bush and congressional supporters designed this drug program to benefit major contributors from the pharmaceutical, insurance, and HMO industries, and large corporations with big retiree drug costs. Imagine instead that they seriously intended to benefit only seniors and disabled persons, and this preposterous program was the best they could come up with.
X David J. Roberts is an associate professor of accountancy at DePaul University in Chicago. Distributed by Scripps Howard News Service.