The Art of Policy October 2004

"To Hell With Lipitor!"

Medicare reform—an explanation
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The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 will—let's say—improve and modernize Medicare, mostly by giving old people money for drugs, at an expenditure of whatever, to be funded somehow. In his State of the Union address the President said the ten-year cost would be $400 billion. Medicare's chief actuary, Richard Foster, had informed the Administration that the cost would be more than $500 billion. He was told he'd lose his job if he let Congress know. Senator Trent Lott now estimates "closer to $600 or $800 billion." Good health is priceless. So are old people's votes.

Three quarters of seniors already had some prescription-drug coverage that cost Medicare nothing. The act "improves and modernizes" this, giving subsidies of $70 billion to employers and retirement plans that provide drug benefits.

Starting in 2006, Medicare recipients can enroll in government-approved private prescription-insurance plans (also subsidized) for about $35 a month. After a $250 deductible, 75 percent of drug costs will be covered up to $2,250; then no costs will be covered up to $5,100; then all costs will be covered except for five percent that won't be. Until 2006 government-approved private prescription-discount cards will furnish 15 to 25 percent savings (just in time, with wholesale prices for brand-name prescription drugs having risen 27.6 percent since 1999). Low-income beneficiaries will get $600 a year credited to these cards, which are free unless they use them. (There's a co-pay of five to 10 percent.)

Insert the phrases "a bewildering array of" and "until costs skyrocket" into each of the preceding sentences for a better understanding of new Medicare drug benefits.

These benefits were exhaustively explained in May, at a senior center in Nashua, New Hampshire, by Congressman Charles Bass, by an AARP representative, by the House Energy and Commerce Committee's chief health counsel, and by the New England regional director of the Department of Health and Human Services. The audience's questions were acute: Preferred-drug lists and plan formularies? Benefit carry-overs? Calculation of income for assistance threshold? Multiple entitlement eligibilities?

Anyone who has experienced a Greatest Generation soliloquy on macaroni coupon rebates knows that this age cohort can shop. The HHS regional director, Brian Cresta, gave the audience his phone number: "Call me personally if you still don't understand the discount cards."

"I've given my number in dozens of meetings," Cresta said later. "I haven't gotten a call yet."

The old people weren't confused. And they weren't grateful. Tell kids they deserve a treat. Then give them 15 percent of a Snickers, or a little more if it's some generic candy bar. Tell them how, in two years, they can have candy free—if they pay for part of it and a bite has been taken out of the middle.

There must be a better way to give old people money for drugs—such as giving old people money for drugs. For Medicare recipients, average out-of-pocket spending on prescriptions in 2003 was $999. Pay them each $600 a year and the Prescription Drug Act's cost is slashed to $242.2 billion.

"How come," a man in the Nashua audience asked, "Canada can have the same drugs and pay less? [applause] Why don't they get some brain power down in Washington and lobby these drug companies down in price? [applause]"

The act in fact bans reimportation from Canada—devil take nafta principles—and forbids Medicare to bargain with pharmaceutical companies, although the Department of Veterans Affairs successfully does so.

But we might not want to cut drug prices too much. America is the last important free market for pharmaceuticals. Perhaps coincidentally, America produces two thirds of all "innovative drugs." Twenty years ago a more laissez-faire Europe produced two thirds of all innovative drugs, perhaps coincidentally. Anyway, drugs account for only 10.5 percent of health-care costs.

Which still leaves us wondering where to get that $242.2 billion or $400 or $500 or $600 or $800 billion, not to mention the $27.7 trillion in unfunded liability that Medicare's trustees say Medicare faces over the next seventy-five years. (Picture nonagenarian ravers demanding coverage for Ecstasy prescriptions.) Americans are now spending $1.55 trillion a year on health care. There's no way to cut these costs, because there's no way Dad's going to Dr. Bob's Cut-Rate Osteopath Shop.

We could raise taxes. (A lot. Medicare will consume half of all federal income-tax revenue by 2039 if current trends continue.) We could means-test fairly—by including the incomes of the people who owe everything to Medicare recipients: their kids. (That's me. Scratch that.) Or we could privatize Medicare. U.S. median household income is around $40,000. The federal Medicare tax is 2.9 percent. Invest that $1,160 a year, from age twenty-five to age sixty-five, at a six percent return, and you'd have $215,589. But that's in forty years.

Until then we have a choice: a realism about what Medicare can do, or a reality in which it can't do much. Perhaps the latter option isn't unthinkable.

At the Nashua senior center a Mr. Kim, who looked well into his seventies, addressed the audience. After apologizing for his English, he said, "To hell with Lipitor, a hundred and fifty dollars a month! I decided to hell with it. If I die, I die. I exercised. I lowered cholesterol level. Ran half marathon!"

P. J. O'Rourke is a correspondent for The Atlantic. His most recent book is Peace Kills (2004).
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