Planned Obsolescence

I don’t take a lot of drugs. Pop an Advil here, a Tylenol there. Dose up on NyQuil when the going gets really rough. On the list of heaviest (legal) drug users in the United States, I rank pretty low, much farther toward the bottom than, say, my grandmother Janet. She has one of those monthly pill organizers—four rows of seven small interconnected plastic boxes, each marked with a day of the week and filled with whatever meds she has to take for a given day. So, it seems only sensible that someone like her should be thrilled by the prospect of President George W. Bush’s Medicare act, which adds a prescription drug benefit to the tune of $400 billion over ten years.

She’s not. In fact, my grandmother is pretty suspicious of Medicare’s revisions. She’s put off not only by the new law’s byzantine rules and qualifications, but also by a truism that’s never failed in her eighty-four years: If something looks too good to be true, it probably is.

In the debate leading up to the passage of Medicare 2.0, some appealing numbers were bandied about: for $35 a month, Patient X could get a 10–25 percent discount on the retail price of prescription drugs. Not bad. If only that provision had been written into the act. In fact, there are no set prices in the law. Instead, it merely says that premiums and copayments have to be “actuarially equivalent” to those numbers, which means such payments can vary from plan to plan, provided the average amount paid by beneficiaries matches the figures outlined in the law. Actual coverage and costs are left to be determined by the private insurance companies that will administer—and profit from—the drug benefit. This leaves plenty of room for insurers to put a squeeze on seniors with extremely high drug bills.

Not that the new law doesn’t have its upside. The very poor will benefit by being exempt from the estimated $420 annual premium and having nearly all of their copayments covered by the government. Still, the main beneficiaries won’t be the impoverished, or even my grandmother. The big winners are private insurers and drug companies. Sound conspiratorial? The act grants $12 billion to private insurers to help them compete against Medicare. Even better for them, the administration predicts the number of Medicare recipients who buy additional private coverage will jump from 12 percent to 35 percent of all beneficiaries by 2007. As for those struggling drug manufacturers, Medicare 2.0 bars the government from negotiating prices with them, even as it goes on haggling with other members of the health-delivery system: doctors, hospitals, and medical-equipment makers. This has health-care analysts worried. If a drug company hits on a “superdrug”—medication that proves a necessity to some sector of the prescription-drug market—that $400-billion cost estimate for the new Medicare will start looking mighty low. Douglas Holtz-Eakin, director of the Congressional Budget Office, estimates that Medicare 2.0’s costs in its second decade will be between $1.3 trillion and $2 trillion.

Many analysts see this cost inflation as a foregone conclusion: they know that entitlement programs are notoriously expansive. While the new Medicare Act covers 75 percent of drug costs up to $2,250, it covers nothing between $2,250 and $5,100. Medicare beneficiaries have traditionally purchased “Medigap” coverage to make up for Medicare’s limitations. Yet under the new law, seniors who participate in Medicare’s drug-benefit program are prohibited from buying Medigap policies to fill in the “doughnut hole.” Sooner or later, seniors who live in that hole will demand that it be filled. That’s going to be expensive.

So why the sudden, uncharacteristic Republican support for an exploded entitlement program? First, the obvious: porkbarreling. The new-and-improved Medicare is a windfall for private insurance companies and drug manufacturers (75 percent of whose 2002 campaign contributions went to the GOP). Second, not so obvious: many critics believe the new Medicare law is designed to eventually eviscerate the program.

This will be achieved, as Jonathan Cohn succinctly put it, by “using Medicare funds injudiciously” (the New Republic, “The Medicare Law’s True Cost,” December 15, 2003). Medicare comprises two programs: Part A, which covers inpatient hospital costs; and Part B, which pays for outpatient costs and doctor visits. Part A gets its money from a trust that’s funded by payroll taxes. Part B’s money comes largely from general tax revenue. According to the new law, if Medicare’s actuaries conclude that, for two consecutive years, general revenue composes greater than 45 percent of the total Medicare budget, the program will be declared “insolvent,” and Congress will have to either reduce benefits or raise payroll taxes. Should Medicare become “insolvent” and legislators be forced to choose between cutting benefits and raising taxes, which are they likely to pick? The former slides all too easily into health-care rationing, while the latter could constitute political suicide. This is a rigged game. It seems Bush either wants to implode Medicare or he wants to make it impossible to fix. If either occurs, it’s clear that Medicare as we know it—knew it—won’t be around when people my age need it. My grandma isn’t very happy about that.