Rosemary's Medicare Baby

The camel's nose is under the tent. It's hard to believe, but the Medicare program as we have known it is hanging in the balance; unless things change, its days are numbered. While Americans were absorbed in the botched adventure in Iraq, the best government program in existence was seriously, perhaps fatally, undermined in Congress by the ideologues of the Republican right and a handful of shortsighted Democratic compromisers who abetted them.

Starting in 2010, traditional fee-for-service Medicare will be dragged into the marketplace and forced to compete for patient "customers" with managed-care plans offered by private insurers, a process conservatives hope and expect will eventually lead to full privatization. Initial demonstration projects in six metropolitan areas have been mandated by the GOP's Medicare reform package signed in December by a buoyant President Bush. The ground rules provide that Medicare will have to bid competitively against subsidized HMOs and other private health-care providers on a cost and benefit basis.

Predictions are that the private plans will successfully "cherry pick" the youngest, wealthiest and healthiest seniors, thereby gaining a permanent competitive advantage over traditional Medicare, which will be left with the oldest, poorest and sickest segment of the elderly population. This process will not only create a two-tiered system of medical care (different premiums and benefits for different beneficiaries), but will politically split the elder constituency along class lines, giving affluent seniors who purchase more expensive private policies less stake in the public system. As the existing government program's comparative costs inevitably rise, free-market types think, it will gradually wither away in the face of taxpayer reluctance to support it. That, at least, is the vision of the Bush White House, the Republican majority in Congress, and the conservative think tanks and health-industry lobbies behind the privatization scheme.

The camel's nose of privatization is under the tent in anothsser respect: the much-heralded prescription-drug benefit that provided the initial rationale for the Medicare restructuring. Seniors are, indeed, getting a long-awaited drug benefit, but one administered by private, profitmaking companies subsidized by the taxpayer and one whose miserly provisions are hardly worth the accompanying threat to the overall integrity of the system. The plan's 10-year, $400 billion price tag includes an astonishing $100 billion in corporate welfare: $12 billion to offset the administrative costs of insurance-company providers and $88 billion to bribe large employers already offering retiree drug benefits to continue doing so. (A 2002 Kaiser Family Foundation poll says 22% of them plan to drop their retiree coverage anyway, forcing three to four million seniors into the "voluntary" government-funded program.)

The Medicare drug plan also guarantees the continued flow of unlimited profits to the pharmaceutical industry by avoiding price controls and expressly forbidding the government to engage in cost-lowering group-purchase negotiations, as well as by virtually banning cheaper imports from other countries. Prominently lacking in the plan is anything comparable to Canada's Patented Medicines Prices Review Board (PMPRB), which sets maximum prices for drugs, both at the wholesale and retail levels. The absence of any form of cost restriction means the drug portion of Medicare may well become the program's financial Achilles heel, especially since the reform legislation has placed a little-noticed cap on future Medicare spending.

What the drug-benefit package provides for seniors is more confusion and complexity at a time of life when most people want simplicity. The elderly will have to choose between a variety of competing companies offering different coverages and fee schedules, both for the actual benefit when it is fully implemented in 2006 and for the chintzy Medicare drug-discount cards that will be available in the interim. Those making the wrong decisions will potentially realize little savings or find the drugs they need are uncovered by their chosen carrier.

The worst feature of the new, quasi-private drug benefit, however, lies with the celebrated "hole in the doughnut." Ah, the doughnut hole, the inexplicable gap in coverage mandated by the hole-in-the-head Republican Congress that enacted it. As most people have heard by now, Medicare drug coverage will be radically uneven, paying (after $420 in annual membership premiums and an annual deductible of $250) 75% of yearly prescription costs up to $2,250 and 95% of yearly costs over $5,100, but nothing at all (the hole) for costs between $2,250 and $5,100.

Unfortunately, the doughnut hole impacts the prescription expenses of nearly half the Medicare population. Families USA, the health lobby that (unlike the co-opted and disgraced AARP) opposed the drug legislation, estimates that the coverage gap will directly affect two-fifths of the elderly -- some 16 million individuals -- including the heaviest users of pharmaceuticals. Hard statistics bear this out. According to the Congressional Budget Office, drug-related spending by Medicare beneficiaries in 2003 averaged $2,439. This means the average senior enrolled in the pending Medicare drug program would have fallen into the reimbursement hole and have had to pay 56% ($1,359) of his or her prescription costs, a far cry from the 10 or 20 percent typical of most health-insurance plans.

Furthermore, constantly escalating retail drug prices, uncontrolled under the American system, are projected to increase by 10% per year, meaning that same average senior will be purchasing close to $3,000 worth of prescriptions by 2006, when the drug benefit finally goes into effect. At that level, smack in the middle of the doughnut hole, yearly premiums, deductibles, and co-payments will total nearly two-thirds (64%) of annual prescription costs -- a terrible deal for the elderly.

In reality, what President Bush and Congress, the midwives for this Rosemary's baby of a Medicare reform, have delivered is little more than mere catastrophic drug coverage. Barring the use of vast amounts of drugs, say for long-term treatment of a serious chronic illness, participants get little from the program. If they spend less than $800 a year, they actually lose money. Under the plan as enacted, seniors themselves bear a steadily increasing portion of their annual prescription costs until the doughnut hole closes at $5,100, topping out at 79%. They then gradually contribute less out of pocket; yet, it is only when yearly drug expenses total $8,500 that their share drops below one-half, and only when total costs reach $20,000 that it falls below one-quarter.

The best advice for seniors is this: Keep your existing retirement drug plan, if you have one (and if you can), and cancel your AARP membership. The erstwhile seniors' lobby was shown throughout the legislative process to be no more than an organizational shill for the health-insurance industry, of which it is itself a part. CEO William Novelli, it turns out, is a former corporate PR consultant and a good friend of Newt Gingrich, who has always disliked government-run Medicare and whose ideas informed the market-oriented bill finally passed. One more thing: Don't forget to vote and register your dissatisfaction. Remember, the new Medicare reform was designed less to offer a prescription-drug benefit than a political benefit, one calculated to protect the slim Republican congressional majority and provide re-election insurance for the president.

Wayne O'Leary is a writer in Orono, Maine.

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