Democratic Leaders Should Embrace the Drug Discount Cards

This morning, Senators Daschle and Kennedy and other Democratic leaders in Congress held a press conference to denounce the Medicare drug discount cards that went into effect on June 1.

Their opposition seems insane. Well, maybe not completely insane. But let’s just say if a Martian journalist had listened in, he or she (or whatever Martians are) would be confused about what it means to be a Democrat.

Democrats are universally for lower drug prices and extra help for the poor, right?

Here are three crucial facts about the Medicare discount cards:

1.) The discount cards are essentially free (card sponsors can charge an enrollment fee of up to $30 a year).

2). The cards offer up to $600 a year in benefits to seniors with low incomes.

3.) Unlike Medicaid and other health programs for low-income people, there are no asset tests to qualify for the $600 benefit.

What’s not to like? True, the cards might not have the greatest discounts. It will take a while for the various prices to stabilize. Then we can see if the discounts are big or small.

But the cards are free! For $30 dollars or less, seniors can enroll in a card and see what it offers. Any discounts are better than nothing for seniors with high drug costs and no insurance protection.

And low-income seniors can get $600 in FREE MONEY for drugs, without having their possessions strip-searched (for drivable cars or more than a pittance of life insurance or other unworthy assets, like savings accounts). By contrast, Medicaid generally requires asset testing.

Of course, the $600 subsidies for low-income seniors aren’t really free. Taxpayers are funding that.

But the discounts on the various cards -- be they large or small -- cost the government nothing. All Medicare has done is create a competitive framework, where prices are visible and transparent, and competition is gradually doing the rest.

Are the choices too confusing? Who cares! Not to be repetitive, but the cards are VIRTUALLY FREE. For the price of two early-bird specials and a couple beers at the dog track, seniors can get a card that offers at least the potential for savings on drugs. They (and their families) can take the time to search Medicare’s website for a card that has the best discounts on the drugs they take and the pharmacies they use. Or not. Just picking a card at random would probably still be profitable for most seniors.

Of course, Democrats are right when they say seniors shouldn’t be “locked in” to a particular card all year. Instead, Medicare should allow seniors to switch cards if they’re dissatisfied (or for any reason). The enrollment fees should be sufficient to prevent people from switching cards frivolously. (Medicare should be able to make sure people didn’t fraudulently use their card switching privileges to acquire more than one card at a time, or, more importantly, to get an extra $600 in the process.)

And Democrats are right that Medicare should automatically enroll low-income seniors who have already gone to the trouble of applying for extra health assistance through Medicaid.

But in general, Democrats should rejoice at the relative ease with which low-income seniors can get a tangible benefit via the discount cards. They should consider the lack of asset testing a blessing, and a precedent. Far too many seniors currently miss out on health benefits under Medicaid, often because of the stigma of applying at the welfare office and being inventoried for all their modest assets.

So why is the Democrat leadership really so upset about the discount cards?

It’s mostly about control. Who will control drug prices, the government or market forces?

The Senators pointed out that a government-run Veterans Administration (VA) program gets better prices for brand name drugs than the discount cards. And the Canadian government sets even lower prices. (Generic drugs, on the other hand, are cheap in the U.S. and the discount cards are making them even cheaper.)

Cutting through the rhetoric, what the Democrats want is a Medicare price setting system for brand name drugs. They believe that Medicare would be able to set lower prices than market forces would otherwise establish.

They’re right. Medicare is so big that any “negotiation” it undertakes would be one sided, and prices set through Medicare would effectively become the national norm.

But the Democratic leaders didn’t bring up the potential side effects of government price controls: lowered research and development and distorted research priorities. Democrats like to pooh-pooh these concerns, but the economics behind them are incontrovertible. Lower expected returns on investment will lead to lower investment, and shifts in the relative prices of drugs will lead to shifts in the types of medicines developed.

(Actually, Rep. Sherrod Brown used this comparison. He said nobody worries about future research and development in the carpet industry when the Architect of the Capitol tries to get a good deal on carpeting for Representatives' offices. So why should we worry about research and development in medicines if the government sets prices for the U.S. market? Needless to say, Rep. Brown's comparison shows an astonishing lack of perspective, regardless of your position on price controls for drugs.)

It’s also about politics. The drug price debate is analogous to the Patients’ Bill of Rights controversy, which was supposed to be the Democrats’ ticket to power in the late 1990s.

For practical purposes, Democrats won the patients’ rights struggle. However, the results have been mixed: less restrictive health plans, but also higher payments to doctors and hospitals, higher health premiums, and more Americans uninsured.

And despite putting Republicans on the defensive on patients’ rights, Democrats did not retake Congress or hold the White House. It is possible that voters were plenty worried about health plans’ restrictions, but that they were also worried about higher premiums and losing their health coverage.

Now, the Democratic political wizards believe they can ride the hot-button public dissatisfaction with high drug prices back into the political majority.

What the Democratic leaders don’t understand is that populist health issues are great for getting on the TV news and generating applause at rallies, but they don’t seem to be a very powerful political force.

For every Republican or independent who votes Democratic on the promise of cheaper drugs (or kinder, gentler health plans), there’s a Democrat or independent who votes Republican, believing government price controls (or higher health premiums) are scary or even irresponsible.

Everybody wants cheaper stuff. We’d like cheaper gas, cheaper food, cheaper utility bills.

There’s nothing wrong with Democrats crying foul if they believe markets aren’t working properly and need more government supervision.

And it’s OK for Democrats to complain that Republican initiatives don’t go far enough, or aren’t sufficient.

But it’s quite another thing to just trash a market-based experiment like the Medicare discount cards, which offer the potential for lower prices, and considerable, easy-to-access benefits for the poor.

Democrats are the opposition party in Congress, and they’re supposed to raise questions.

But discouraging seniors from enrolling in the drug cards is too much. Not without being candid about the potential negative side effects of government price setting as an alternative.

The average Martian would be justifiably perplexed about why the Democratic leadership wants to repeal a program that does no one harm, might actually help quite a few people, and offers a significant benefit to low-income seniors.

In general, Democrats do themselves a disservice when they emphasize their old socialist instincts -- “the government should run health care, which we assume is good for the poor” -- instead of the modern progressive goal -- “we don’t care which means are used, government or market, as long as our core objectives of fair prices and help for the poor are served.”

Links:
Centrists.Org Issue Summary: Medicare Modernization Act of 2003 (updated May 30, 2004)

Centrists.Org Testimony: Prepared Statement for HHS Task Force on Drug Importation (April 27, 2004)

Posted by Jeff Lemieux at June 2, 2004 04:10 PM