Medicare Part D:

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 Medicares 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 havent signed up by May face
  enrollment penalties

15
Is This a Ploy to Get Everyone into Medicare
HMOs?

• Seniors may feel that compared to the labyrinth
  of premiums and cost-sharing, arrangements of
  stand alone PDPs, Medicare HMOs are easier
• Without the requisite sign ups, PDPs 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

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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
• Its 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

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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, Prescription Drugs
  Cost More Under Medicare Part 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.