Drug Benefits and the Emperor's Clothes

On the surface, the biggest Medicare dispute isn't about drug benefits, it's about "premium support" -- direct competition between Medicare's government-run fee-for-service program and private health plans.

House Republicans won't vote for a big new drug benefit without a new competitive approach too. Senate Democrats don't trust the competitive approach. The dispute over competition is what supposedly threatens the chance of any progress toward drug benefits or reforms in Medicare this year.

But the underlying problem is not competition -- it is the drug benefit itself. Congress and the President insist on trying to squeeze a generous sounding drug benefit into a $400 billion (10-year) budget. It just doesn't fit.

Seniors will only be happy with a generous drug benefit, or at least that's what the political wizards believe. In effect, everybody wants the emperor to get a fancy full-length silk robe with lots of frills and baubles.

But most policymakers don't want to pay the full cost. Liberal Democrats have at least been honest -- they propose lavish robes for the emperor, but they acknowledge it will be very expensive. A generous prescription drug benefit would cost taxpayers as much as $1 trillion over the next ten years.

President Bush and the Congressional leadership haven't been so forthright. They have shied from clearly explaining that a limited budget means a limited benefit.

Instead, they have instructed their long-suffering staffs to stitch together a fancy robe without enough cloth.

The result covers some areas with a bit of finery, but it leaves a couple of the emperor's more sensitive spots out in the bare air.

Seniors with employer-based retiree coverage are worried that they are being left out. Low-income seniors with a little savings or some assets socked away will not get the coverage they need. There is an awkward "doughnut hole" in the benefit design. Because the benefit includes a $35 monthly premium, seniors with low drug expenses might choose not to enroll despite the penalties for late enrollment. If they stay away, the monthly premium could skyrocket in subsequent years.

The emperor's aides are scurrying to patch as many of these holes as possible before the robe is unveiled. They are scouring the palace for spare change, hoping to purchase a few more scraps of cloth.

Ironically, the main stumbling block in the Medicare negotiations -- whether or not to launch a competitive premium support system -- would not be a make or break issue for conservatives if the emperor hadn't been promised such a fancy robe in the first place.

Conservatives rightly believe that if the emperor expects a fine silk robe, he will eventually get one. If at first it is too-shabby or full of holes, it will be fixed over time, at whatever expense is necessary. Knowing that the long-term cost of the robe will be high, they are demanding competitive reforms to save money.

However, if the emperor was being fitted for a simple, frugal, functional set of cotton pajamas -- clothing that covered him safely from head to toe, but was nothing to brag about or show off in public -- conservatives could rest easier. We wouldn't need to enact a premium support system right now. And with a cheaper fabric, liberals could even insist on additional padding in the most sensitive areas (extra drug benefits for low-income seniors) without busting the budget.

In truth, competitive reforms like premium support will indeed be necessary to try to hold down Medicare's costs in the coming decades. Competition would certainly be better than deep benefit cuts, large reductions in payments to health providers, or new taxes on working people.

Democrats are wrong that premium support would necessarily be the end of the world for Medicare. In fact, it could be the beginning of something much better, for both taxpayers and senior citizens.

But they are right that such an important change should be studied very carefully, and that we should have a robust national debate -- led by the President -- on the pros and cons.

If this dispute persists, we may never see the emperor's new silk robe.

On the other hand, if Medicare negotiators can reach a tentative agreement on competition in the coming days, the public will get its first high-profile public viewing.

We expect the tortured staffers (as well as those needing the emperor's favors) to praise the robe's finery and ignore its faults.

Outside observers will mutter that for all the build-up, it's not as nice as they expected.

And some child will say: "Wait, I can see the emperor's [blank]!"

Links:
Centrist Policy Network 2003 Medicare and Prescription Drug Resource Page

Posted by Jeff Lemieux at October 25, 2003 01:42 PM