Medi­care ben­e­fit boon

The Washington Times Weekly - - Commentary - Don­ald Lam­bro

When Congress passed the Medi­care drug ben­e­fit pro­gram in 2003, it was fiercely at­tacked by con­ser­va­tive crit­ics for its colos­sal cost es­ti­mates and by Democrats for not ex­ert­ing price con­trols.

The news me­dia widely re­ported that the pro­gram, which took ef­fect in Jan­uary, was so in­com­pre­hen­sively com­plex that se­nior cit­i­zens could not un­der­stand it. Democrats, most of whom voted against it, ran against the pro­gram this year, promis­ing to end its ban on ne­go­ti­at­ing pre­scrip­tion prices.

But it turned out the pro­gram’s costs, thanks to its mar­ket-ori­ented com­pet­i­tive struc­ture, are much less ex­pen­sive than fore­cast­ers es­ti­mated, and that it has proven more ac­ces­si­ble and un­der­stand­able than all those pes­simistic, doom-and-gloom sto­ries said it would be.

It also turns out the Democrats who dem­a­gogued the is­sue to get votes in the 2006 elec­tions may not be able to make good on their pledge to close the so-called “dough­nut hole” gap that re­quires many se­niors to pay the full cost of the drugs for sev­eral weeks or months be­fore kick­ing back into the ben­e­fit cov­er­age.

For one thing, it ap­pears the sav­ings Democrats said they will get from ne­go­ti­at­ing lower drug prices won’t pro­duce any­where near the amounts needed to close the ben­e­fit gap. For an­other, Democrats are di­vided over whether elim­i­nat­ing the gap via price ne­go­ti­a­tions (which would ef­fec­tively turn into price con­trols) is good pol­icy, or whether, as crit­ics say, will un­der­mine the drug in­dus­try’s med­i­cal in­no­va­tions, limit choices and drive drug prices higher.

The post­elec­tion con­fu­sion in Demo­cratic ranks on this cen­tral is­sue was ex­posed last week in a re­veal­ing Page One story in The Wash­ing­ton Post by Lori Mont­gomery and Christo­pher Lee. Their story showed how the Democrats in­vented a spe­cious ap­plause-get­ting cam­paign line that had lit­tle if any sub­stance be­hind it.

Their lead tells the story: “It sounded sim­ple enough on the cam­paign trail: Free the gov­ern­ment to ne­go­ti­ate lower drug prices and use the sav­ings to plug a big gap in Medi­care’s new pre­scrip­tion drug ben­e­fit. But as Democrats pre­pare to take con­trol of Congress, they are strug­gling to keep that prom­ise with­out wreck­ing a pro­gram that has proven cheaper and more pop­u­lar than any­one imag­ined.”

In fact, some of the Demo­cratic al­ter­na­tives of­fered in 2003 had a ban on price ne­go­ti­at­ing, too. And Demo­cratic Rep. Fort­ney “Pete” Stark of Cal­i­for­nia, who will be­come the House’s health sub­com­mit­tee chair­man in Jan­uary, is against an out­right ban, seek­ing a “mid­dle path” in­stead that would set price ceil­ings.

On the Se­nate side, though, Demo­crat Max Bau­cus of Mon­tana who will head the Fi­nance Com­mit­tee, which over­sees gov- ern­ment med­i­cal care pro­grams, doesn’t think much of Mr. Stark’s idea, fear­ing it smacks too much of price-set­ting. He will hold hear­ings only to “de­ter­mine what the re­sult would be of elim­i­nat­ing” the no-price-ne­go­ti­at­ing pro­vi­sion.

But the big­gest sur­prise in the Repub­li­cans’ new drug ben­e­fit pro­gram has to do with its costs to tax­pay­ers and how wrong its ear­li­est crit­ics on both the right and the left were.

The costs are sig­nif­i­cantly lower than the ex­ag­ger­ated fore­casts, thanks to the sys­tem’s struc­ture which al­lows a wide variety of drug providers to of­fer com­pet­ing plans and pre­mium prices. This year’s costs will be about $26 bil­lion, says the Con­gres­sional Bud­get Of­fice. Next year’s price tag is an es­ti­mated $45 bil­lion, but there are new num­bers that sug­gest the ben­e­fit sub­sidy could fall as much as 15 per­cent by then.

As for all those sto­ries that Amer­i­cans were turned off by its com­plex­ity, the com­pet­ing plans flooded the mar­ket­place with clear ex­pla­na­tions of its costs and se­niors flocked to buy into it, nearly 23 mil­lion as of to­day.

Robert Reis­chauer, the savvy for­mer Con­gres­sional Bud­get Of­fice di­rec­tor who heads the Ur­ban In­sti­tute and was du­bi­ous of the pro­gram at first, pro­vided this frank syn­op­sis to The Post’s re­porters:

First, he said, many crit­ics pre­dicted few if any private plans would be will­ing to par­tici- pate in the gov­ern­ment pro­gram. “Then too many plans came for­ward. Then peo­ple said it was go­ing to cost a for­tune. And the price came in lower than any­body thought. Then peo­ple like me said they’re low-balling the prices the first year and they’ll jack up the rates down the line. And, lo and be­hold, the prices fell again. And the re­ac­tion was, ‘We’ve got to have the gov­ern­ment ne­go­ti­ate lower prices.’ At some point, you have to ask: What are we look­ing for here?”

When the ad­min­is­tra­tion was sell­ing its pre­scrip­tion ben­e­fit pro­posal, I at­tended a White House brief­ing with a small num­ber of colum­nists. One asked about costs. The briefer said they would be held down by com­pe­ti­tion be­tween plans, and we’re see­ing that now.

“Ev­ery es­ti­mate had it cost­ing more, much more. Com­pe­ti­tion among the drug com­pa­nies is keep­ing the costs low,” Hoover econ­o­mist John Co­gan told me last week.

The ques­tion Democrats now have to ask them­selves: Will they drive the pro­gram’s costs through the roof by elim­i­nat­ing com­pe­ti­tion with rigid gov­ern­ment price con­trols?

Don­ald Lam­bro, chief po­lit­i­cal correspondent of The Wash­ing­ton Times, is a na­tion­ally syn­di­cated colum­nist.

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