February 2, 2005

February 2, 2005 | WebMemo on Health Care

Bitter Pills #16: A Law of Unintended Consequences

As the new Medicare prescription-drug entitlement draws closer to reality, there's one group that will unintentionally benefit from it at taxpayer expense: private companies.

The Wall Street Journal found a loophole in the new law that allows companies to get more money from the government. The loophole is that government subsidy payments will be based on the health-care spending of both companies and their retirees. "That means employers can receive substantial government subsidies for their retiree health plans even if they raise the out-of-pocket costs to those retirees," the newspaper reported Jan. 28.

That's just one of the problems Congress didn't address in its rush to create the prescription-drug entitlement in late 2003. But this unintended consequence wasn't completely unforeseen: The Heritage Foundation predicted the law's effect on private coverage as early as June 2003. "…[C]orporations and other entities facing high retiree health benefits will soon find creative ways to shift retiree drug costs to the taxpayer," Heritage health-care expert Stuart Butler wrote.

But Heritage expert Robert Moffit offers solutions to the law, including delaying its enactment in 2006. Read more of Moffit's most recent research paper here:


For more information or to receive an e-mail version of "Bitter Pills," contact chris.kennedy@heritage.org or call Heritage Media Services at (202) 675-1761.

"Bitter Pills" is an occasional, but regular, feature from The Heritage Foundation on how the 2003 Medicare drug law is full of sickening "surprises" that have serious consequences for seniors and taxpayers. Of course, The Heritage Foundation isn't surprised at all. We diagnosed the problems long ago in ourMedicare Maladies series. Both Medicare Maladies and Bitter Pills are available on heritage.org (if you can stomach them).

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