October 30, 2003

October 30, 2003 | Commentary on Health Care

A Drug Solution That's Hard to Swallow

Let's give credit where credit is due. Congress saw a problem - some seniors on Medicare don't have prescription drug coverage - and is trying to do something about it. Bravo.


But when we see the unholy mess lawmakers are making of the job, we have to ask: Is this really the best way to go about it?

Hardly. Indeed, their plans to add a universal prescription-drug benefit to an already struggling entitlement program would take a bad situation and make it worse.


Even though Medicare doesn't cover prescription drugs, three out of four seniors already have some form of drug coverage, many through their former employers. The next step seems obvious, right? Help the others.


Congress doesn't work that way. It designed a solution for all seniors, regardless of need or coverage.


Worse still, the Congressional Budget Office found that Congress' proposed solution would cause at least one-third of seniors with drug coverage from their former employers to lose it and be dumped into Medicare -- which is already on shaky financial grounds these days.


Why would the former employers pay for something if the government were willing to pay for it instead?


Many large companies would be happy to unload the billions of dollars they spend annually on retiree drug costs. Gary Lapidus, an analyst at Goldman Sachs, told the Detroit Free Press thathe estimates General Motors could save as much as $150 million annually and Ford could save $50 million if they dropped retiree drug coverage. Those are just two of thousands of companies that could save money.


When seniors with good employer-provided coverage heard this, they weren't happy. Since seniors vote at a higher rate than any other age group, this caught the attention of the congressional negotiators trying to prepare the legislation for President Bush's signature.


You might think that at this point, lawmakers would stop, think about what they were about to do, and -- glad to have been stopped before they could do some real damage -- design a program aimed specifically at low-income seniors who need it.




Instead, Congress cooked up a scheme to pay companies not to drop retirees.


Sen. Charles Grassley, R-Iowa, said the conferees were likely to agree to spend $75 billion to $80 billion over the next 10 years in subsidies, most to large corporations, to encourage them to continue covering retiree drug costs.


In other words, they want to allocate billions of dollars to large companies to keep them paying for something they're already paying for.


Sadly, even this desperate scheme is unlikely to work. Think about it: A company that spends $100 million a year for retiree's drugs would have the choice, with a 75 percent government subsidy, of paying $25 million per year or paying nothing per year. For any publicly owned company, the answer is simple.


It doesn't have to be like this. All Congress has to do is target a benefit to those low-income seniors who actually need help paying for drugs. We know who they are. They are people whose incomes are too high to qualify for Medicaid (which does pay from drugs) but too low to make private coverage affordable.

Bill Gates, Ted Turner and other millionaires don't need young people to pay for their drugs when they retire.


Congress should go back to the drawing board to design a program that offers a helping hand to seniors in need, not an entitlement that absolves employers of their promises to cover prescription drugs after the age of 65.

Our seniors deserve better -- and so do the future generations who will get stuck with the bill.

Derek Hunter is a Research Assistant at the Center for Health Policy Studies.

About the Author

Derek Hunter Research Assistant
Center for Health Policy Studies

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