The Medicare Dilemma: Choice vs. Government Intervention

1. Medicare Part D: Free to Choose or No Choice At All ???

2. Most Governmental Spending is Accounted for by 2 Great Social Insurance Plans • Medicaid targets the poor and covered 37.5 million people in 2004 • Medicare covers citizens over the age of 65 and in 2004 covered 39.7 million people

3. In Both Systems Health Insurance is Socialized: • But the medical care is provided by the private sector • Medicaid is a state-federal matching program with states providing 40% of funds • Medicaid is financially unstable and subject to the whims of elected officials • Medicare is a purely federal program with a strong political constituency

4. Medicare is a Single-payer System • Medicare has lower administrative costs because it does not spend large sums fighting adverse selection • Medicare does not screen applicants or differentiate coverage among individuals • Medicare spends less than 2% of its resources on administration • Private insurers spend more than 13% on administration

5. Many Seniors Face Problems Paying for Prescription Drugs • Congress passed the Medicare Modernization Act in 2003 • The bill ensures that private insurance companies provide the benefit instead of the Medicare administration • This design increases the cost of drugs as well as the administrative costs

6. Major Problems with the Medicare Drug Benefit • It prohibits direct negotiation between Medicare and the pharmaceutical industry • The relative advantages and disadvantages of various plans are difficult to recognize • Insurers can change their benefits after a plan has been selected and a drug may be dropped from the “covered list” • The drug program is too complicated

7. The Pharmaceutical Industry • Prices for drugs are typically more than 2000 percent above their cost of production • Evidence shows that there has been a multi-billion dollar windfall to drug manufacturers as a result of the transfer of drug coverage from Medicaid to Part D plans

8. Pharmaceutical Industry Continued • Main goal of the pharmaceutical lobby is to ensure there is no governmental interference with their ability to charge high prices • The pharmaceutical industry is a tight, global oligopoly with significant pricing power in the United States

9. The Marketing of Drugs • More money is spent marketing products to doctors than in developing the drugs sold by the drug companies • From 1996 to 2001 the pharmaceutical sales force in America doubled =90,000 reps • Drug reps give gifts to doctors for writing scripts- doctors also market drugs to other doctors

10. More Medicines From Abroad Seized • Canadian pharmacies purchase brand-name drugs at low wholesale prices negotiated with the purchasing power of the Canadian government • Federal regulators have cracked down on drugs ordered from abroad, especially those from Canada • The seizures appear to have coincided with the launch of Medicare’s drug-discount program

11. What Do We Know So Far? • Kaiser Family Foundation reported in 2004 that 25% of eligible seniors could pay less buying drugs on their own than through the new Medicare program • Government is well-suited to pool risk and provide insurance (see Social Security and Medicare) • Writing private insurers into the drug program equation adds expense and complexity

12. The Unraveling of Employer-based Health Insurance • The rise in Medicaid coverage results from the growing number of people who have lost their employer-provided health insurance • Without Medicaid, the uninsured population would have increased even more than it has • State and federal governments are increasingly paying the tab for health care that used to be provided by employers

13. The Plan: After the $250 Deductible a Retiree Finds • The insurer covers 75% of the next $2000 in drug costs • Then assistance vanishes through the “doughnut hole” • Total expenditures must exceed $5,100 and then insurers cover 95% of additional drug costs

14. The Paradox of Choice • Given too many options the rational person is more likely to be paralyzed than to pick wisely • Beneficiaries tend to focus on premiums or out-of-pocket costs: not the array of factors that actually determine which plan is best • Beneficiaries who haven’t signed up by May face enrollment penalties

15. Is This a Ploy to Get Everyone into Medicare HMO’s? • Seniors may feel that compared to the labyrinth of premiums and cost-sharing, arrangements of stand alone PDP’s, Medicare HMOs are easier • Without the requisite sign ups, PDP’s will lose bargaining leverage with drug manufacturers and plans will collapse

16. Medicare not Social Security is on an Unsustainable Path • Health costs are growing so much faster than the rest of the economy • The Bush administration is pushing to make tax cuts permanent thus forcing cuts in Medicare based on the growing gap between revenues and outlays • We can ration care, reign in spending or raise revenues

18. The Bush Administration Encourages the Wrong Kind of Insurance Policies • Insurance companies pay only for things like $30,000 amputation fees for patients with diabetes- but not the $150 visit to the podiatrist • Payments are made to respond to symptoms, when they should be encouraged to promote health • It’s not a question of whether medicine has become a business, as what kind of business it has become??

19. Free Market Ideologies are Inappropriate for Health Care • Higher spending on those with good insurance occurs by consigning more people to poor insurance or none at all • Most health costs are incurred by a small proportion of the population whose expenses greatly exceed limits on out-of-pocket costs • US system relies on private rather than public health insurance which raises costs

20. What about a National Health Care System?? • Health care should be a fundamental right and a public rather than a private good • The US is unique in not sponsoring government-controlled Universal Health Insurance • There are appalling inefficiencies in our system with approximately 30% of American health care spending wasted

22. Selected Sources New York Times, Health Care Confidential by Paul Krugman. January 27, 2006 New York Times, Pharmacists Say Drug Plan Threatens Their Livelihood by Robert Pear, March 13, 2006 Washington Times. Junk Medicaid by Alex Gerber. January 29, 2006. New York Review of Books, The Health Care Crisis and What to Do About It by Paul Krugman, Robin Wells. Volume 53, Number 5 · March 23, 2006 . New York Times, For Some Who Solve Puzzle, New Medicare Drug Plan Pays Off by Robert Pear, March 26, 2006 Center for Medicare Advocacy, PrescriptionDrugs Cost More Under MedicarePart D Than Under Medicaid, February 16, 2006. The Century Foundation. Launching the Medicare Drug Benefit: The Good, the Bad, and the Ugly. October 28, 2005 The Century Foundation. Medicare Part D: Watch Those Numbers. January 26, 2006. New York Times, More Medicines from Abroad Seized by Lisa Girion. February 11, 2006. The Atlantic, The Drug Pushers by Carl Elliot. April 2006.