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Medicare Makes Room for Medicine Chest
The Wall Street Journal
November 26, 2005
Much is at stake in the plan's success, not only for the 42 million seniors on Medicare, but for pharmaceutical companies, insurers, taxpayers and national politics. Enrollment began Nov. 15 and continues through May 15. Coverage kicks in on Jan. 1.
Here's an early glimpse at the plan, and how it may affect the players:
What does the plan do? Until now, Medicare has mostly excluded coverage for the cost of prescription drugs. Under the new program, senior citizens will be able to purchase private policies -- subsidized and regulated by Medicare -- to help cover those costs.
The idea is to inject more private competition into Medicare, to promote choice and avoid government price controls. The result is a daunting variety of plans with varying premiums, deductibles and coverage levels.
The Commonwealth Fund counted 2,183 plans available across the country, with premiums ranging from $1.87 to more than $100 a month, and deductibles from zero to $250. Many plans exclude coverage once a person's drug costs exceed $2,250 in a year, and until the person has spent a total of $3,600 out of pocket, not including premiums. Some plans, however, cover the cost of generic drugs within that so-called doughnut hole.
Is this good for seniors?
The Congressional Budget Office expects that on average, participants will spend $792 out of pocket on prescription drugs, excluding premiums, under the new program. That's 37% less than the $1,257 they would have spent before the new plan. The Centers for Medicare and Medicaid Services projects a higher savings. The premiums, which average about $32 a month, could make their savings smaller.
Still, the number of choices may be bewildering. Nearly two-thirds of seniors responding to a recent Kaiser Family Foundation survey said they know little to nothing about the program.
BY THE NUMBERS
Is it good for drug companies? Hard to say. It amounts to a huge government subsidy of their products. But with that comes increasing pressure on prices. The companies' ultimate fear is that the privately administered program won't be well received, the government will take over, and price controls will follow.
Is it good for insurance companies? Ten nationwide insurance firms are part of the program, in addition to various regional and local plans. The high level of participation surprised many analysts, who thought insurers would shy away from the plan.
The government gives an incentive by providing reinsurance for those taking on the highest-risk seniors. Some analysts say the program will boost 2006 revenue for seven of the world's largest insurers by more than $4 billion and raise earnings by between 2% and 4%.
Will the plan lead employers to drop drug benefits for retirees? That's a big unknown. The law provides a 28% subsidy to employers that retain coverage that is actuarially at least as valuable as the Medicare package. Still, that hasn't stopped some companies from dropping their retiree drug benefits.
What's at stake for President Bush? The administration once hoped the drug benefit would realign the American electorate, bringing Republicans the kind of support from seniors won by President Franklin Roosevelt's Social Security and President Lyndon Johnson's Medicare. But confusion about the program as well as unhappiness about the extent of coverage has undercut that hope. Also, many conservatives worry about a price tag now estimated at more than $700 billion over 10 years.
--Compiled by Lauren Etter
POINTS OF VIEW
"One of the things that the current [Medicare] system, prior to our reform, didn't do: It didn't provide prescription drugs.... We would pay money for an ulcer but not money for the prescription drug that would prevent the ulcer from occurring in the first place."
--President Bush
"These plans are so complicated and the options so varied that Albert Einstein couldn't understand them."
--Sen. Charles Schumer (D., N.Y.)
"Health care is complicated.... Lots of things in life are complicated: filling out a tax return, registering your car, getting cable television. It is going to take time for seniors to become comfortable with the drug benefit."
--Health and Human Services Secretary Michael Leavitt
"In enacting a universal drug benefit, Congress enacted a massive entitlement expansion of unknown cost. The cost projections of the drug entitlement will continue to climb, and aggravate the deficits, threaten the Bush tax cuts, and undermine future tax and entitlement reform."
--Robert E. Moffit, director of the Center for Health Policy Studies, The Heritage Foundation
FACTS
In 2011, the first wave of baby boomers will turn 65 years old, and become eligible for Medicare. Last year, there were about 36 million people in the U.S. aged 65 and over. The number is expected to almost double to 71 million by 2030.
In the early 1960s, Ronald Reagan produced a record album called 'Ronald Reagan Speaks Out Against Socialized Medicine.' The album was played at 'Operation Coffeecup' meetings held by doctors' wives campaigning against the impending Medicare bill.
The province of Manitoba is home to 40% of Canada's Net pharmacies. Manitoba's pharmacies provide more medication to the U.S. than to the province's more than one million citizens.
The number of prescriptions purchased in the U.S. rose 68% from 2.1 billion in 1994 to 3.5 billion in 2004; the population grew 12%. Nearly 91% of all senior citizens rely on prescription drugs on a regular basis.
Drug prices have outpaced inflation. The cost of prescription drugs has increased on average by 8.3% annually since 1994. By comparison, the average rate of inflation was about 2.5%.
In 2004, drug making ranked as the third-most-profitable industry, with a 16% profit margin. Mining and crude-oil production ranked first, and commercial banks ranked second. The median profit margin for all Fortune 500 companies was about 5% of net revenue in 2004.
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