December 3, 2005

December 3, 2005 | Commentary on

New Drug Benefit Has Socialist Downside

You think seniors are confused about picking a prescription-drug plan under the new Medicare benefit scheduled to take effect January 1? Try listening to the debate on Capitol Hill over it.

Liberal lawmakers are defining the single largest expansion of a federal entitlement program in 40 years as some sort of unrestrained free-market experiment. If only.

But by portraying it as such, liberals are unfairly tarnishing the notion that market principles such as competition, choice and ownership work in the health sector.

Rep. Rahm Emanuel (D.-Ill.) agreed: "It is all this choice that is causing the problem." Far better, he asserted, to model the drug benefit on Medicare's one-size-fits-all hospital and physician coverage. "Sometimes," he mused, "simplicity is better than choice."

Media outlets have reinforced this assault on competition by interviewing legions of confused seniors. "I shudder when I think of it," one senior confided, "How do you pick?" One recent poll confirmed that the overwhelming majority of seniors share that feeling. Nearly three-quarters said that the prospect of having "at least 40 different drug plans to choose from" makes it "confusing and difficult to pick the best plan."

'Doughnut Hole'

Nationwide, private insurance companies are offering seniors a staggering level of choice-2,940 plans in all. Medicare's top official, Mark McClellan, argues that this cornucopia of consumer freedom stimulates competition that lowers costs and helps consumers: "The advantage of having this range of choices is that you can focus on the kind of coverage you want."

McClellan oversaw the drafting of the regulations that govern the new benefit and seemed determined to use every bit of his regulatory discretion to give seniors more options. He even went so far as to allow insurers to eliminate the much-derided "doughnut hole" (the curious feature that eliminates coverage for drug costs between $2,250 and $5,100) and let plans offer generics in lieu of nothing. There are at least five plans in every state that will offer this alternative.

Free-market health reformers, who spent the last two years denouncing the new benefit as an unaffordable $8.7 trillion universal entitlement, can be forgiven if, after reading this, they are as confused as those hapless seniors.

What, after all, is all this talk about a wide array of choices among dozens of competing private plans? Since when were these plans permitted to compete with one another and charge vastly different amounts for premiums, co-payments and deductibles, or cover different sets of drugs? Who figured out a way to avoid the political trap of the doughnut hole? And why are there no price controls or other limits on the drugs these plans can offer?

Siren Song

My colleague Robert Moffit, a leading critic of the plan, dismisses all this as "socialism with a free-market face." Yes, he says, McClellan has mitigated some of the new law's worst features, but:

  • Sixty percent of all drugs sold in America will now be subject to federal regulation.
  • The new drug benefit is universal, i.e., available even to the wealthiest seniors such as Ross Perot, and the taxpayers' financial exposure is unlimited.
  • Employers face a strong financial incentive to terminate drug benefits for their retirees and force them into the new system.
  • States must force millions of low-income seniors into this program and out of the Medicaid-funded coverage they choose to receive.
  • Costs will surge and pressure Capitol Hill to use price controls and formularies to determine what drugs are available and to whom.

Indeed, picking pharmaceutical favorites is already in vogue. After an intense lobbying campaign, the House watered down its effort to give governors increased flexibility to reduce runaway Medicaid drug costs.

While the House voted to bar governors from steering Medicaid patients to the least expensive option for antipsychotic and antidepressant drugs, it granted this flexibility for all other categories of pharmaceuticals.

If seniors ultimately turn against the new benefit, the fear is that they will attribute their frustration to the law's "free market face" and be more receptive to the siren song of socialized medicine.

Mike Franc, who has held a number of positions on Capitol Hill, is vice president of Government Relations at The Heritage Foundation.

About the Author

Michael Franc Distinguished Fellow
Government Studies

First appeared in Human Events