The Wrong Prescription for Medicare
The cost of Congress' Medicare drug proposals is rising -- and so
is public frustration.
A little history: In June, both houses passed slightly different
Medicare reform bills. Each would create a massive Medicare drug
entitlement, instead of targeting help to poor seniors who need it.
Anybody turning age 65 -- including a retiring Bill Gates or Donald
Trump -- would be handed a taxpayer-financed drug benefit.
President Bush wants lawmakers to settle their numerous differences
quickly and send him a Medicare bill. But we're still figuring out
the ramifications of this complex entitlement expansion.
For instance, three out of four retirees now have some form of
prescription-drug coverage, many through former employers. Most
seniors like their existing coverage. The prospect of losing it
frightens them. And while retiree drug coverage is often required
under union contracts, if taxpayers are going to pick up drug
bills, many companies will have a powerful incentive to save money
by dumping retirees out of their private coverage, or at least
significantly scaling it back.
This frightening scenario is very real. The Congressional Budget
Office says that between 32 percent and 37 percent of seniors with
coverage from their employers are going to get dumped out of that
coverage. This estimate mirrors new independent research, conducted
by Professor Kenneth Thorpe of Emory University. Thorpe, a former
Clinton administration health policy adviser, estimates that 33
percent of seniors with employer provided drug coverage would lose
Of course, the size of the losses would vary state by state.
According to Thorpe, nearly a third of the more than 4 million
seniors at risk of losing their private coverage are concentrated
in five states: Michigan (where 218,000 could lose coverage), New
York (326,000), California (385,000), Ohio (243,000) and Florida
Another problem is that under the congressional drug bills,
seniors would pay a monthly premium of about $35 for the drug
benefit, plus a deductible of $250 or $275. After that, the
government will pay just half of all drug costs up to a certain
amount, where coverage stops completely.
These are the now infamous "doughnut holes," or gaps in coverage
where seniors would have to pay a large chunk of their drug costs
until they reach a maximum out-of-pocket amount. In the Senate
bill, seniors would pay $3,700; in the House version, it's $3,500.
Catastrophic coverage would finally kick in at that point. But as
many retirees with employer-based coverage are learning, the
congressional drug bills are vastly inferior to what they already
have. Millions would be paying more for less.
And that's just out-of-pocket expenses. Throughout their working
lives, many seniors deferred pay, expecting that their companies
would provide drug coverage after retirement. When those people are
dumped into an inferior government drug program, they will have
lost not only that deferred compensation, but also the full value
of the promised future drug coverage. That's a big price to
Over the August recess, many lawmakers heard from seniors who
don't like the Medicare drug proposals. But working taxpayers
should be even angrier.
After all, lawmakers once claimed the 10-year cost of their
Medicare drug bills would be $400 billion. Predictably, that turned
out to be low. Less than a month later, the Congressional Budget
Office revised the costs to $425 billion for the House's drug bill
and $432 billion for the Senate's.
It gets worse. Congress has suddenly realized that its Medicare
"reform" would encourage companies to drop retiree drug coverage,
so some lawmakers are now considering hitting the taxpayers a
A recent New York Times report said lawmakers may offer more
federal subsidies for firms in order to discourage them from
dropping the drug coverage they promised their retirees. In plain
English, this is corporate welfare.
The pattern is all too familiar. First, the government creates a
complicated and costly mess. Second, it bills taxpayers for another
costly solution to the mess it created in the first place.
But all is not lost. Congress has time to go back to the drawing
board and refashion the Medicare drug provisions. Three simple
rules should guide lawmakers:
· Don't disrupt the lives of millions of well-covered
seniors by adopting a plan that encourages employers to dump them
into an expensive, inferior government drug program.
· Help the poor seniors who really do need a hand with their
· Refrain from adding insult to taxpayer injury by saddling
them with the cost of a corporate-welfare package to cover the
price of congressional miscalculation.
Congress needs to control entitlement spending, not bankrupt the
Moffit is the director of the Center for Health Policy
Studies at The Heritage Foundation where Derek Hunter is a
Distributed nationally on the Knight-Ridder Tribune wire