Medicare

How we can really reform the nation�s health care system for seniors.

Before Congress brags of how it fixed Medicare, it should consider: almost no one thinks it did a very good job. In particular, poll after poll suggests that American seniors are bitterly disappointed with the Medicare bill passed by Congress and signed last year by President George W. Bush. The 40 million seniors enrolled in Medicare weren�t born yesterday. Despite what the president, the American Association of Retired Persons, and congressional Republicans have told them, they know what is missing from the Medicare law: an affordable, sustainable drug benefit. For most beneficiaries, the new legislation will reimburse only about one-third of their out-of-pocket drug costs. It will do so at an appalling price (see “Drug Money,” on page 10 of Acumen, Volume II — Issue 1).

To all those who have complained about how badly Congress bungled Medicare reform, we say: Despair not! The new Medicare program will not—it cannot—last. Its purpose was short-term political advantage. The Bush administration, facing reëlection, wished to seize an issue that Democrats traditionally owned, and House Republicans were happy to oblige. But the program itself is economically unsustainable, politically divisive, and certain to be unpopular with the seniors whom it purports to serve.

The drug benefit, due to start in 2006, represents the largest tax hike in recent memory: $400 billion in its first ten years, and $2 trillion over the course of its second decade, according to the Congressional Budget Office. The free market provisions in the Medicare bill, while appealing to various lobbies, will not actually introduce competitive pricing into the tortuously opaque drug supply chain: the bill has no demonstrable cost-containment mechanism. And while Medicare will not give seniors what they said they wanted—cheaper pharmaceutical drugs—it just might force 1 to 2 million seniors out of their existing private health care plans and into Medicare, which in most cases will be more restrictive and expensive. Like the steel tariffs that everybody knew would be withdrawn, Medicare reform will inevitably be repealed.

But the wait for repeal could take years and squander billions of tax dollars. There is an alternative—albeit one that is unlikely to succeed. A breakaway faction of House Democrats has already mounted an effort to repeal key provisions of the new Medicare plan. If congressional Republicans were really wise, they would abandon the White House�s ruse that Medicare reform was done and support the repeal. If the rest of the Democrats were equally wise, they would support the repeal, too, instead of waiting until 2006 (when the costs and disadvantages of the legislation become clear) to go on the attack.

But repeal will not be enough. What is required is bipartisan Medicare reform.

1: Congress must get rid of the balloon payment. Medicare needs a simple, straightforward drug benefit that seniors and the U.S. taxpayer can afford.

2: Keep it simple. Get rid of the fine print. A drug benefit should not require the recipient to hire an accountant and a lawyer.

3: Just accept that Medicare is a government entitlement program. Create a provision that provides a safety net for those retirees who have become too expensive for their former employer to care for.

4: Scrap the complicated new incentives that were meant to entice industry to compete for seniors� drug benefits, and permit the government to negotiate fair drug prices. As Europe and Canada learned long ago, subsidized health care has many problems. But the United States has yet to prove that a rigidly market-based health care system can contain costs or provide universal coverage for American seniors. Health maintenance organizations have tried and failed. Vast as the market for health services is, insurers and drug companies regard entitlements as combining lots of risk for little reward. The drug industry discounts its medicines to Medicaid by 50% off the average wholesale price (AWP), and to the Veterans Administration by 70%. Much money is made on volume sales, but it is far from a prized market. Under the new Medicare bill, the drug industry has no similar incentive to offer discounts to Medicare. Yet since drug prices are growing at roughly 10% per year, these are precisely the discount levels that will be needed to sustain a Medicare drug benefit for the long term. Medicare needs the freedom and authority to negotiate drug prices just as its sister agencies Medicaid and the Veteran�s Administration already do.

5: Identify those links in the drug supply chain that encourage billions of dollars in waste, fraud, and abuse—and repair them.

6: Finally, true Medicare reform will need to resolve the problem of re-importation. At the moment, a pharmaceutical drug is the only legal product that cannot be reimported into the United States. The Medicare bill preserved this odd state of affairs in order to protect U.S. drug prices. Negotiate an international drug treaty so that developed nations may share the price of drugs.

With elections looming, it won�t be easy to convince American lawmakers to go back to the drawing board and fix Medicare right and proper this time. But fix it they must, because as it stands now, Medicare is new but sadly not improved.

Leaders

» Medicare: How we can really reform the nation�s health care system for seniors.

Medicine: The relationship between emotions and illness requires more research.

Business: Create a more efficient supply chain for drugs.

Policy: We must strive to make science more open—and honest.