Art Small on Medicare

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 has three major portions:

  • As of June 1, 2004, Medicare beneficiaries are offered new Medicare-approved drug discount cards on prescription drugs (though minimum discounts are not guaranteed) by private companies in 2004 and 2005 only.  These discount cards have an annual enrollment fee of up to $30 for most people.  Medicare beneficiaries with low income (defined as less than $12,569 for singles and $16,862 for couples) can waive the annual fee and will be provided with a $600 credit in 2004 and again in 2005.
  • In 2005, new preventative benefits that will be covered by Medicare include 1) a one-time wellness physical exam within six months of enrollment in Medicare Part B; and 2) screenings for early detection of diabetes and heart disease.
  • In 2006, all people with Medicare will have the option of enrolling in plans that cover prescription drugs.  Although plans may vary, beneficiaries will:
    • Choose a drug plan and pay a premium of roughly $35 a month in addition to the Medicare Part B premium;
    • Pay a deductible of $250, then pay 25% of costs between $250 and $2250 in prescription drugs, while Medicare pays the remaining 75% of the costs; will receive no coverage for their total drug costs above $2250 until reaching $3600 in out-of-pocket spending; and Medicare pays 95% of the drug costs after they have spent $3600.

    Lower-income beneficiaries (less than $13,965 for singles and $18,735 for couples) will not pay the premium or the deductible and instead will have a small co-pay for each prescription they need.  Beginning in 2006, Medicaid will no longer offer drug coverage for Medicare beneficiaries.

Some major problems of The Medicare Prescription Drug, Improvement, and Modernization Act of 2003:

  • The law provides greater benefits to providers, private insurers and drug companies than to beneficiaries.Pharmaceutical companies stand to reap additional profits estimated at $139 billion over 10 years; in contrast, the typical Medicare beneficiary will receive only $800 in annual drug benefits.  Starting in 2004, two years before the prescription drug benefits begin, managed care plans will receive $20 billion in subsidies, and by 2006, these plans will be paid as much as 25% more than the traditional fee-for-service Medicare pays for each enrollee.1
  • The law does nothing to control prescription drug price inflation.  The legislation explicitly prohibits the federal government from using its purchasing power on behalf of 40 million beneficiaries to bargain with pharmaceutical companies or from reimporting HHS-approved drugs from Canada.  The Veterans Administration already has that authority, and its drug prices are on average a third cheaper than Medicare and Medicaid drugs.2
  • The interim drug discount card is not guaranteed to deliver the promised savings.  The law does not set any rules about the base prices from which these discounts will occur, and drug prices can change weekly, so discount card holders are not guaranteed any real savings as rising prescription drug prices negate any touted savings (last year, prescription drug prices rose at more than three times the rate of inflation3).  Medicare endorsed 73 cards, which cannot be compared on a level field as each card offers different discounts, different drugs and different pharmacies, all adding to the complexity in choosing a plan.  Twenty of the 73 companies selected to offer Medicare-endorsed drug cards have been charged with fraud at the federal and/or state level, according to a study released by the Center for American Progress.  (See Alliance for Retired Americans’ Friday Alert 060404.)
  • The program is poorly designed and will unnecessarily burden taxpayers.  Rather than providing catastrophic-only coverage only, the program begins at a low deductible then disappears and reappears as one’s expenses rise.  Broad subsidies for non-catastrophic expenses attract more votes, but they force taxpayers to pick up costs the private sector is now paying voluntarily (the Congressional Budget Office estimates every fourth participant would have had private drug coverage anyway), and employers and unions will receive $71 billion just to keep them from dropping their retirees into the program.4  Lastly, the latest estimate of the cost of implementing this program is $534 billion5, almost 50% more than the original estimate of $400 billion.6

Why Art Small’s proposal of a single payer plan, with choice, represents a better approach:

Art Small favors offering to all Americans the same health insurance plan that members of Congress offer to themselves: a single-payer plan, with choice.  Such a voucher program for health insurance:

  • Enables the government to maximize its purchasing power on behalf of all Americans;
  • Ensures that basic care is delivered cost-effectively by tapping the energy of free market competition;
  • Evens the playing field between American firms and their foreign competitors; and
  • Eliminates an enormous drag off the American economy while making the United States a more decent place to live.

  1. “15 Reasons Why the 2003 Medicare Law Fails Seniors,” Alliance for Retired Americans, (viewed on June 6, 2004)
  2. Reference to be found
  3. “Prescription Drug Prices Soaring,” Iowa City Press-Citizen, May 27, 2004
  4. “Repeal Medicare Drug Entitlement,” Michael F. Cannon, director of health policy studies at Cato Institute, (viewed on June 6, 2004)
  5. Richard Foster, Chief Medicare Actuary
  6. “An Unhealthy Tradition,” Michael F. Cannon, director of health policy studies at Cato Institute, (viewed on June 6, 2004)