Reich Doesn’t Go Far Enough In Criticizing Democratic Medicare D Proposals

Robert Reich writes that the bill promoted by House Democrats to revise the Medicare prescription drug plan does not go far enough since it does not provide for keeping medications off the formulary which do not provide a meaningful discount. There are two other areas where the Democrats should also go further in revising Bush’s Medicare changes–funding to Medicare HMO’s (Medicare Advantage) and the increases in the annual deductible.

While liberals have commonly criticized the Medicare D plan for the manner in which it provides financial windfalls to the pharmaceutical companies, many are unaware of how it also benefits the insurance industry by providing higher payments for treating patients in Medicare Advantage plans than in the government-run program. As I recently discussed, Medicare Advantage plans are a wasteful transfer of taxpayer’s money to the insurance companies.

The Commonwealth Fund recently published a study showing that the provisions in Bush’s Medicare plan to provide extra payment to Medicare HMO’s is costing 5.2 billion per year. Even though Medicare Advantage plans typically cherry pick the healthiest patients, it costs $922 more per year to treat those in Medicare Advantage plans than those in the traditional government-run program. The Commonwealth Fund commented that this money could be better spent on improving the drug benefit to eliminate the donut hole, eliminating the annual problem of the current formula calling for reductions in physician reimbursement, or to reduce the Medicare premium for beneficiaries by ten dollars per month.

While some claim that Medicare Advantage plans provides greater choice, insurance companies with Medicare Advantage programs engage in high pressure sales tactics on elderly Medicare patients who do not understand what is being pushed on them. I have had many patients wind up signing up for Medicare Advantage programs without really understanding what they were signing.

Another change Bush made was to increase the annual Medicare deductible, which had been set at $100 per year for several years. The deductible was initially increased to $110 after the bill was passed and was to be indexed to inflation. As of this January the deductible is up to $131 per year. At this rate it will quickly become a major burden for seniors on fixed incomes. While some duel eligible seniors have the deductible paid by Medicaid, and others have secondary insurances which cover it, many seniors either have no secondary covarage or have secondary insurances which do not cover the deductible.

Getting back to Reich’s arguments regarding the government negotiating lower drug prices, many conservatives fail to understand the economies of health care and argue that the market will set the best price. Prices in health care are not set by the normal rules of supply and demand. As many of the costs are paid by insurances which have a variety of maxium payments there is incentive to set prices above the highest price of who ever pays the most to guarantee that you never charge less than an insurance company will actually pay. This means that the uninsured wind up paying more than those with insurance as they are unable to have prices written down. The current law places Medicare beneficiaries in a comparable situation.

If conservatives don’t understand this, here’s an analogy which they perhaps will understand. Consider hotel rates. Hotels will have a listed price for its rooms, however they will offer lower rates to business travelers, people coming on a number of packages, or even those buying on line. Only suckers pay the full listed price of a room without seeking a discount. Under the present situation, Medicare is the sucker paying full price.

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