November 4, 2003

November 4, 2003 | Commentary on Health Care

Congressional Compromise No Cure for Medicare

Those of us who have been following the Medicare drug benefit debate know that deal-making is part of the legislative process.

And the "compromise" being fashioned by congressional negotiators-- for Medicare to provide a drug benefit to seniors in any given region where fewer than two private insurers offer drug policies for seniors--may sound like a sensible protection.

But it's actually an exit ramp that would put Americans on the road to something they have rightly rejected time and again -- socialized medicine

If government provides a drug benefit for everyone without regard to need, common sense tells us private companies soon will abandon that market. After all, why would a company pay for something if the government is willing to pick up the tab?

This compromise defeats the entire purpose of Medicare reform (search), which is to shift from a publicly financed but poorly managed system to one modeled on the highly successful Federal Employees Health Benefits Program (search), which emphasizes customer needs, choice and competition.

Today, three out of four retirees have some form of prescription-drug coverage as part of an overall health-insurance plan. Some of the coverage seniors now enjoy is required under union contracts; some is provided as a promise by former employers. If taxpayer money is available to pay for drug coverage, how long until union negotiators are pressured to allow that coverage to be bargained away, forcing workers into far less generous plans?

How long until companies not bound by union contracts stop providing these benefits, comfortable the government will bankroll ex-workers' needs?

The Congressional Budget Office estimates that between 32 percent and 37 percent of seniors who have employer-based drug coverage now would lose it if a government-paid system is established. Professor Kenneth Thorpe of Emory University in Atlanta, a former Clinton administration health policy adviser, conducted his own study and put the number at 33 percent.

That's four million people who will lose their private drug insurance and be "dumped" into this already overburdened Medicare bureaucracy.

What if lawmakers realize, as they did in 1988 with Medicare "catastrophic coverage," that this won't work, and private employers have dumped the seniors they were covering? Once they're gone, they're gone.

Not to mention the fact that the government program they'd be forced into almost certainly wouldn't measure up to the private drug coverage they'd lose. Seniors with low drug costs actually would be forced to spend more if they were enrolled in the government program. Under the Senate plan, for example, a senior with $800 in drug costs per year would actually end up spending $957.50 -- $157.50 more than he or she would have spent without it.

Both the House and Senate passed drug programs that contain what has come to be called a "doughnut hole," a gap in coverage where the beneficiary must pay 100 percent of the costs for drugs out of his or her own pocket. The coverage would resume in the House version after the beneficiary has spent $3,500 of his or her own money -- under the Senate plan, $3,700.

This structure is bizarre, to say the least, and not found in private plans. It would hurt seniors who have low drug costs by costing them more and, with the "doughnut hole,", seniors with high drug costs would see their coverage stop until they reached their out-of-pocket limits. Then, and only then, would coverage start up again.

Why the "doughnut" in the government plans? Because President Bush told Congress he wanted the program to cost about $400 billion or so over the first 10 years. No one knows if the benefit can be provided for that price. Within a month of saying it could, the CBO jacked its estimates to $425 billion for the House bill and $432 billion for the Senate version. By 2030, experts at The Heritage Foundation estimate that we'll have spent $2 trillion on this one benefit and that its annual budget will consume one-third of income tax revenues -- absent economy-crippling tax hikes.

Congress could avoid this problem by targeting help with prescription-drug costs to the low-income seniors who most need it. That $400 billion would go a long way to help those in need instead of only part of the way for all, most of whom don't need the "help."

As it stands, by spreading the $400 billion to cover everyone, even those who don't need it, the drug plan before Congress now is like trying to make a king-sized bed with full-sized sheets. The sheet might cover every corner, but it will be stretched so thin it might've been better not to try to make the bed at all.

Derek Hunter is a researcher in the Center for Health Policy Studies at The Heritage Foundation, a Washington-based public policy institute.

About the Author

Derek Hunter Research Assistant
Center for Health Policy Studies

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