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November 17, 2003 PRESCRIPTION DRUGS....In a move that probably guarantees passage, AARP has decided to back the prescription drug plan being pushed by congressional Republicans. Apparently their theory is that it can always be fixed later:
I've been known to get suckered by the "half a loaf" theory myself, so I sympathize. On the other hand, this bill is such a byzantine nightmare of benefits that kick in, kick out, and kick in with dizzying speed and no apparent logic that it's hard to view it as even half a loaf. But here's the part I don't get. The section of the bill that's near and dear to the hearts of Republicans is the part that introduces competition into Medicare. Now, the phenomenon that we rather optimistically refer to as "competition" in the rest of the healthcare industry — Adam Smith is probably rolling in his grave to hear the word abused this way — has rather famously not done an outstanding job of holding down healthcare costs in America. Still, Republicans are in a lather about it. Gotta have competition. It's the only way to reduce costs. But here's the problem: in theory, private companies can deliver services more efficiently than the bad old federal government bureaucracy and can therefore deliver those services at a lower cost. But if that's the case, why does the bill have to pay them a bribe of $12 billion to get them to participate? The answer, of course, is that the idea of competition in the Medicare market is a mirage. Private healthcare companies plainly don't believe that they can, in fact, provide services any more efficiently than the feds, and since the goal of a private company is to make money, that means that the only way for them to maximize profits is to reduce benefits and do their best to insure only the healthiest people. And that's exactly what the Republicans want to happen: they want to reduce benefits without telling anyone that they're reducing benefits. And while they're at it, they want to provide large And it sucks. I sure hope AARP is right that this boondoggle can be fixed later. It's a big gamble. UPDATE: Plenty of AARP members seem to be upset with their endorsement.... Posted by Kevin Drum at November 17, 2003 04:38 PM | TrackBackComments
give 'em hell, Kevin! Actually, I wonder what the backstory is here w/ the AARP... Posted by: praktike at November 17, 2003 04:42 PM | PERMALINKPraktike: My guess is that this is the real story. It's better than nothing and they figure it can be fixed eventually. After all, prescription drugs have been on the table for about 30 years now and this is the first time it's gotten close to reality. AARP probably figures it's finally time to get something while the getting is good. Posted by: Kevin Drum at November 17, 2003 04:46 PM | PERMALINKKrugman had a take on this a couple of columns back, and, according to him, the ultimate result of this will be crumbs, not even half-a-loaf. Quite frankly, I am not much of a fan when it comes to legislation that can be 'fixed later.' Someone once said something about nothing being as permanent as a temporary government program. I won't mention his name because this post will get threadjacked. Posted by: John Cole at November 17, 2003 05:01 PM | PERMALINKWhat I don't understand is why there's a gap in the drug coverage: The bill would create a prescription drug benefit for 40 million elderly and disabled Medicare beneficiaries beginning in 2006. Participants would be offered a chance to purchase coverage at a monthly premium of $35. After a $275 deductible, coverage would pick up 75 percent of drug costs up to $2,200. There would be no coverage for out-of-pocket expenses between $2,200 and $3,600. After that, coverage would resume, with beneficiaries required to make a limited co-payment. Does this make any sense? Must be the result of some arcane logrolling efforts. Note the lack of free trade for drugs. Another question is, if we were able to pull off universal health care, would Medicare be subsumed? Only if we had a single-payer system, I imagine... Posted by: praktike at November 17, 2003 05:03 PM | PERMALINKwell, the 1957 Civil Rights bill got fixed later, I suppose. Posted by: praktike at November 17, 2003 05:03 PM | PERMALINKSuckers! It'll get fixed later...yeah, right! Doesn't the AARP realize they are in the driver's seat? Congress, including the GOP, has to address this issue. The public is demanding it. There are two possibilities. Either this will pass or it won't. If it doesn't, the next incarnation will likely be more favorable to seniors (and taxpayers) than the current bill. Unless the AARP thinks that this issue is dead if the bill fails - a bad bet in my opinion - then they should shoot for something better. Posted by: space at November 17, 2003 05:04 PM | PERMALINKYes, we're still trying to "fix" Article 1, Section 2 of the Constitution ("three fifths of all "other" persons). And Clear Skies. And Healthy Forests. Etc. Posted by: skbubba at November 17, 2003 05:10 PM | PERMALINKSo the whole thing is a conspiracy to fill the RNC's coffers? My, what penetrating analysis. Snort. Posted by: me at November 17, 2003 05:11 PM | PERMALINKpraktike: Eliminating coverage in the "gap" was the only way that Dems and Repubs could agree to keep the cost below the agreed on amount. Kevin: The killing irony about this charade over prescription drug benefits is that many of the drugs with skyrocketing prices treat diseases that have lifestyle causes such as inadequate diet, overeating, lack of exercise and smoking. There are those who can't easily reverse existing problems (if you have Parkinson's or you're elderly with osteoporosis) or who have problems that are not environmentally-related (applied in the broadest possible sense). However, if you aren't in the prescription drug trap yet, an important goal in life should be to live pill-free as long as possible. If Big Pharma really pisses you off, it's the one sure way you can fight back. flory has ventured into the point i wanted to make: a gore administration, by not cutting taxes irresponsibly while simultaneously increasing spending (even non-national security spending) in ways to make you think we're back in the Great Society, would have had the fiscal room for a drug benefit. The backbone administration did cut irresponsibly while spending wildly, and we can't afford this program anymore. Putting aside the "fix it later" problem, the breathtaking irresponsibility of all the players (starting, of course, with george bush but including everyone who pushes this through) is mind-boggling. On a day when Arnold is inaugurated, it's worth noting, as many others have, that George Bush's fiscal sins are much larger than Gray Davis's.... Posted by: howard at November 17, 2003 05:37 PM | PERMALINKjlowe, i think clark is actually talking about preventive care. not sure if the other guys are, though. i've never understood why it isn't in hmo's interests to, say, have free gyms for members. or at least have very active preventive medicine programs. the more i learn about healthcare, the more frustrated i get. Posted by: praktike at November 17, 2003 05:44 PM | PERMALINKI used to have polite arguments with a dyed-in-the-wool libertarian on an old bulletin board. He was a true believer in laissez-faire in all things but one. He worked as a hospital administrator and realized that there was nothing about medical care that conformed to free-market principles. Nothing. Therefore, he was in favor of universal national health insurance. It isutterly insane that we are now the ONLY industrial nation without it. To insert "competition" into the Medicare equation does exactly what Kevin says it does: it creates a middleman whose only function is to siphon off profits where formerly there were none. Either services get reduced or costs go up as a result. The idea that the requisite profit demands can be met by free-market efficencies is a myth. Maybe when you're running a pizza place, but not a health care system. Posted by: R. Porrofatto at November 17, 2003 05:45 PM | PERMALINKJohn: actually, I pretty much agree. I very much doubt that the $12 billion corporate welfare subsidy the Republicans want will ever go away. It will just get bigger. Flory: yes, agreed, and it hasn't worked for very fundamental reasons, namely that welfare programs are just not well served by the free market. (This is not a hit on free markets. It's just that welfare programs are not well suited for it.) I can't see anything in this bill that makes it more likely to work than our current "competitive" Medicare program. Posted by: Kevin Drum at November 17, 2003 05:46 PM | PERMALINKYou can debate the fine points of all these legislative feints 'till the cows come home. At the end of the day, they are all designed to privatize government social programs for the benefit of corporate America, and (or after) failing that, to starve them to death so we can afford more tax cuts. Everything else is distracting rhetoric. Posted by: skbubba at November 17, 2003 05:50 PM | PERMALINKbtw, read the comment boards on the AARP website. They're pissed. Posted by: praktike at November 17, 2003 05:56 PM | PERMALINKWhen full competition kicks in, private health All Things Considered had an interview with a former AARP policy type who's now working for someone else; her theory was that AARP likes to be a player in these deals, and that was part of the impetus towards the endorsement. Posted by: Linkmeister at November 17, 2003 06:15 PM | PERMALINKNPR made the point that AARP sees the $400 billion sitting there to be taken and does not want to leave it on the table when the bill fails. They also made the point that AARP considers themselves "players" and want to be able to go back to their members and say "We got you this benefit. Next we will correct its many flaws." I must say, though, that the Republicans really aren't using the market when they include a requirement that the government ~not~ be allowed to use the purchasing power of Medicare to negotiate for lower prices. Posted by: Rick B at November 17, 2003 06:16 PM | PERMALINKrickb, with all due respect, government negotiating prices basically amounts to price controls, not "market." what would really be market reform would be opening borders up to trade, cracking down on patent shenanigans like "paxil pr," etc. Posted by: praktike at November 17, 2003 06:27 PM | PERMALINKEveryone here should be familiar with the fact that administrative costs in the Medicare system are below those in the private health care sector (HMO's, PPO's, POS's, etc.) Repeat, admin. costs are lower in the Medicare system. That's per person served, or % of total outlays, either way you like. Anyone with experience in the medical insurance field will tell you that Medicare pays the least on a per/procedure basis than any private carrier. Providers (doctors, facilities, etc.) accept Medicare "allowable amounts" for every procedure they perform, or they do not get the right to say that they "Accept Medicare Assignment" nor the right, effectively, to receive any Medicare patients. And that's a lot of business they don't want to lose, though a minority of doctors do choose not to see Medicare patients. These "allowable amounts" are typically 15% to 30% of the billed amount, the largest "cutback" in the health care biz. You see this on every claim. For 5 years, I worked for one of the largest private insurers in the country in "Utilization Management" (which tries to control "utilization" of procedures by doctors and patients - not as evil as it sounds, but sometimes, yes, as evil as it sounds). I don't know specifically that Medicare handles this in exactly the same way, but I'm almost sure they do: I also worked in Medicaid (poor folks, not old folks) at the state level in TX. Medicaid outsourced the administration of the program (claims processing, util. manage., provider relations, etc.) to a private company; Ross Perot's EDS, actually, which employed me. Posted by: andrew at November 17, 2003 06:37 PM | PERMALINKAs near as I can tell, the "donut" in coverage sits squarely atop the hump of the curve where most senior's annual drug bills hit. Thus, the new "benefit" is carefully crafted to exclude as many people as possible. As near as I can tell, this bill does nothing more or less than allow the drug companies and HMOs to tap almost directly into the U.S. Treasury. Because the bill does nothing whatever to deal with the root causes of the problems (hyper-inflated drug prices, cherry-picking by insurers, hundred-million dollar HMO CEO salaries, etc.), it will simply increase the inflation in health-care costs. Interesting personal note (or maybe not): Years ago I had a condition that required taking two drugs. One drug was a well-known blood-pressure medicine that had been on the market for more than a decade and was selling millions of doses each year. It cost almost $5 per pill. The other drug was used only for the specific condition, which was rare enough that the drug had to be ordered from the manufacturer and required a two-week lead time. It cost about 10 cents per pill. So much for the "Prices are high because we need to recoup the R&D on these drugs" theory. Posted by: Derelict at November 17, 2003 07:00 PM | PERMALINKMolly Ivins points out that the bill will actually increase drug company profits and prohibit medicare recipients from negotiating to lower the cost of drugs purchased in bulk by a group (to outlaw any type of single-payer system advantage). (Her column here. This is an unacceptable provision. Tons of money will be spent by drug companies to ensure that this legislation is never "fixed." It's exactly what they prescribed. Posted by: Tom Burka at November 17, 2003 07:49 PM | PERMALINKFix later? Where have I heard that before? Oh, I know, the war vote, they wanted to give bush the lever to pressure Hussein, but they thought that the U.N. could fix it later, i.e. not go to war, but little georgie must have been sleeping the day they had that discussion. Or was it the No Child Left Behind, Ted Kennedy Gets his Nose Under the Tent Bill? Yeah, I'm sure they'll fix that later too, just like Paige did in Houston. Maybe it was those tax cuts, we'll go back and fix them later too, by making them permanent in 10 years. Christ, how stupid, how dense, are people who support these policies. I'm sorry, but what are you thinking, those of you who think this will be fixed later? They aren't going to fix it, cause they haven't fixed a damn thing yet, now have they? Have they fixed Afghanistan? Iraq? The deficit? Unemployment? Homeland Security? What have they fixed? Posted by: Duckman GR at November 17, 2003 11:08 PM | PERMALINKpraktike rickb, with all due respect, government negotiating prices basically amounts to price controls, not "market." I don't see it that way. Not in any possible way. The gov't is going to provide health insurance, and thus be buying a whole bunch of drugs. Therefore the gov't should have every ability to negotiate with drug suppliers to get the lowest possible price on the boatload of drugs they are going to be buying. As a matter of fact, to disallow the gov't negotiating ability is precisely the opposite of a free market. It ss requiring the gov't give up their free market rights for ... for what, exactly? Posted by: Timothy Klein at November 17, 2003 11:36 PM | PERMALINKA great quote from one AARP member, she advocates (quite schockingly) chopping off W's head with hedge trimmers: Telling AARP what to do/not to do is futile, I'm afraid. They've "paid" for this administration and are stuck with it. And so are we. But we - my spouse and I - continue to barrage the White House with letters. Banging our fists on the desk and demanding responsible, pro-American-Citizen action is the only course we have unless we want to harken to Jefferson's admonition*, take up our hedge-trimmers and lawn mowers, and march against the "new King George" at 1700 Pennsylvania Avenue. *"The Tree of Liberty must be refreshed from time to time with the blood of Patriots and Tyrants." Jefferson even believed that "... This Republic can last but fifty years (without further martial actions.)" He was right: We had to beat off the Brits again in 1812. (Under the new "Patriot Act" I may now be liable to arrest for quoting the above, or expressing displeasure with the current administration.) - Oma (this means "grandmother") Greta Quite remarkable. "There's a lot of life in a lot of old [folks]"--Woody Allen Posted by: respectable_type at November 18, 2003 06:48 AM | PERMALINKThe most famous "fix it later" was Bill Clinton signing the welfare reform in August of 1996 after vetoing the same bill twice before. He wanted welfare reform off the table for the 1996 election. Liberals gave him a pass, cynically saying that the bill wasn't perfect, but Clinton would fix it later. Many times in politics there is compromise where people will settle for something in the middle. Civil rights was like this, little steps and then bigger steps. For many years this is the way congress worked, and it worked fine. Unfortuantely, our politics has become poisoned to the point where compromising is "for losers" and when Congress passes a piece of legislation, the media harps on who won, who lost, who caved in and who cleaned who's clock and how it will play in the next election. The AARP realizes that seniors have nothing right now. Republicans control all the branches of government, so if they wanted something they had to deal with the republicans. Winning the next elections was not the priority. Perhaps they remembered the eight years of the Clinton administration when the AARP got nothing in exchange for the democrats getting a weapon to use in the elections, a weapon that did not work. Posted by: roberto at November 18, 2003 07:10 AM | PERMALINKGood bill or bad bill. Who cares? The current cost of health care is the real issue. Until I see that go down, any changes will simply be a failure. Posted by: james at November 18, 2003 08:43 AM | PERMALINKAbsolutely incredible. Instead of Guttenecht's bill (allowing the re-importation of drugs from 26 countries) which would have stimulated competition and reduced profits on medicine, we get corporate welfare to the richest companies in the world, many of which are not even US firms! So the US taxpayer is subsidizing these multinationals with high drug prices in the US, and now they are doing it again in higher taxes for a medicare drug benefit? And what exactly are we getting in return? Posted by: Tripp at November 18, 2003 08:59 AM | PERMALINKThis is bad news, folks. The GOP has finally captured all four branches of government: Congress ... the White House ... the Courts ... and now the AARP. AARP is the biggest senior advocacy membership organization, but not the only one. What are the "off brand" outfits going to do to exploit this betrayal? Posted by: RonK, Seattle at November 18, 2003 10:18 AM | PERMALINKI'm late to this party, but this is my bailiwick so I am too interested to keep out. 1. J. Lowe is right on. The best thing you can do for yourself is to keep out of the snares of big Pharma. Their interest is to keep you hooked on drugs for chronic conditions for your whole life. Fight back. 2. Someone said that the Medicare program is more efficient than the average commercial insurer. This is debatable, because, among other things Medicare is administered almost totally by private companies who aren't allowed to make a profit and who do it mostly to allocate overhead that is shared with their profit making operations. An efficient not-for-profit company can usually do the job of running a complex benefit plan for about 7-8% of total costs, with medical loss ratio in the 88-90% range. The rest goes to premium taxes. This is probably about as well as anyone can do. 3. People are very schizophrenic about drugs. When you say big Pharma, they get pissed off at price gouging. But when you say formulary, or HMOs restricting drugs to those that are cost effective in order to negotiate big discounts, they get pissed off at their lack of choice. In some instances it's deserved, but the overall theme is clear: health care prices are much higher because health care services lack prudent purchaser mechanisms that are trusted by the rank and file consumer. 4. Kevin, you are wrong that AARP has never been this close. In 1988, a prescription drug benefit was passed and then it was repealed because of the way it was funded (with premiums). Pharmaceutical companies egged on seniors who already had drug coverage, who didn't see the advantage to them, to get the bill repealed. Dan Rostenkowski's mother publicly rebuked him. I wonder how many of those seniors were able to afford their coverage 10 years later, after the incredible rise in drug costs during the 90s. Having seen what happened in the 90s, AARP wants its foot in the door to stay. Posted by: Barbara at November 18, 2003 10:27 AM | PERMALINKBarbara: You have experience with some very unusual health plans. The average medical loss ratio is between 70%-80% (and that's in California which has some of the best in the nation). Medicare's is about 85%. The difference is mostly marketing expense with some left over for the shareholders. Posted by: flory at November 18, 2003 10:58 AM | PERMALINKI should say (I think I implied) this is the best I've seen, and I've seen it more than once so I don't think it's unattainable. I would say that 82-85% medical loss ratio is "normal" and anything below 80% is -- well -- depending on which side of the fence you're standing on, outstanding or outrageous. To give you an idea, some states won't let a medical loss ratio go below 75% without repricing. But the ratio varies alot by the size of the group and the amount of competition in the market place, which can have a positive effect (true competition) or a negative effect (too much marketing expense associated with turnover). That would be an average over an entire portfolio of business, as well. Small plans tend to do worse. Posted by: Barbara at November 18, 2003 11:02 AM | PERMALINKBarbara: In some instances it's deserved, but the overall theme is clear: health care prices are much higher because health care services lack prudent purchaser mechanisms that are trusted by the rank and file consumer. I think this point is the most important about healthcare. I don't think any 'free market' can fix health care problems in the US. Why? Because healthcare is decidely different from the average free market. For many things in healthcare, demand is essentially infinite. There is zero flexibility. If you come down with cancer, there is no concept of demand. You will get chemo/radiation therapy at any price you can afford. The terminal patient is completely at the whim of the supplier -- he or she has no power as a consumer. For the less serious things, it is still extremely hard to have a free market. Imagine: drug X provides 80% relief, mild side effects, cost of 20z. Drug Y provides 60% relief, mild side effects, cost of z. To the one with the ailment, there is no choice here at all -- give me the one with the 80% relief. It is difficult to impossible to say 'but I should be an intelligent consumer here, and take the 20% reduction in symptom relief, but take a 19-fold decrease in price.' The same trouble applies to prevantive measures. One has a horrible pain somewhere -- he or she wants every conceivable test done. Why? Because missing something could kill you. It is very hard to sit back and say, ahh, but it is unlikely I have disease Z, so an expensive MRI is not really worth it. There is no easy way to make detached decisions here. Any free market solution has to find ways to deal with this. The current bill just completely ignores these problems, and pretends that because there is 'competition' that everything will work itself out. Wrong. It is very questionable to think there is such a thing as any free market when it comes to healthcare, anywhere in the US. Posted by: Timothy Klein at November 18, 2003 12:17 PM | PERMALINKTimothy: Barbara: IT'S A TOTAL SELLOUT ENGINEERED BY A NEWT GINGRICH PAL -- SEE BUZZFLASH -- I was an AARP member up to a few hours ago. I've joined a mass exodus from this scam organization. Posted by: Kit Ebersbach at November 18, 2003 08:29 PM | PERMALINKI stopped following the AARP progression several years ago. But it is noteworthy that AARP ended up paying the IRS approximatley $100 million in back taxes and penalties for failing to declare the profits on its insurance business as something call unrelated taxable business income, which charitable organizations may not exclude from taxation. Congress specifically changed the law to include the profits attributable to selling insurance to be included in this category, and AARP initially argued that it should be "different." You try arguing that line to the IRS and let me know how it works out. That should give you some insight into how AARP thinks about itself -- not really beholden to much in the way of principle. And yes, it has a huge mail order pharmacy. The fact that the "money" comes from United Health Group is just a distraction, since United is the vendor selected by AARP to run AARP's insurance business. AARP has a really pretty building not more than five blocks from the Capitol. It just can't stand not being a mover and shaker, and right now, Republicans own the dance floor. Posted by: Barbara at November 19, 2003 05:53 AM | PERMALINKSometimes when you want to cut to the chase the best thing to do is to read investment web sites. From MSN Money: "Now comes word out of Washington that maybe the legislation known officially as H.R. 2473, the Medicare Prescription Drug and Modernization Act of 2003, might not end up so badly for drug makers after all. It is one huge honkin’ pile of paper, complex as all get-out and far from finalized. But it appears that some of the most anti-business elements of the bill -- you could also say pro-consumer -- have magically disappeared in the latest iteration to emerge from a House-Senate conference committee "Drug benefit. Starting in 2006, the government and senior citizens would split costs 75/25 for up to $2,200 a year after a $275 deductible and a $35/month premium. The beneficiary would pay the full amount from that level up to $3,600 or $5,200 (the amount is in dispute). After that, the government would pay 95% of the cost. Subsidies would be available to low-income seniors. "Delivery. The drug benefit would be offered through private insurance plans, but, if there aren’t two to choose from in your area, the government will step in and provide it. "Employer incentives. The bill would offer $16 billion to $18 billion over 10 years to employers that offer drugs benefits to retirees with unusually high-cost needs. "Drug importation. This has been one of the most controversial aspects of the bill. As originally proposed, seniors would have been able to purchase lower-cost drugs from Canada. The current bill would allow re-importation of drugs from Canada only if the Health and Human Services Department certifies their safety -- but a final version may nix even this watered-down version. "Premium support, or privatization. This is where Republicans and Democrats clash most. The GOP wants Medicare to start competing with private health-care plans in 2010, but a compromise would instead create a three-year demonstration project in a small number of areas around the country. Democrats, led by Massachusetts Sen. Edward Kennedy, oppose this plan and have threatened to filibuster the bill if it is included in the final legislation. "HMOs and PPOs. The government would create a $12 billion fund to help draw more preferred-provider and health-maintenance organizations into the Medicare system. This is a heartthrob of GOP conservatives who wish to generate strong private competition to the government program. Smith Barney analyst Charles Boorady estimates this could mean an additional 8 cents in earnings per share to Pacificare Health Systems (PHS, news, msgs) in 2004, and 1 cent to Humana (HUM, news, msgs). "Hospitals. Rural hospitals are expected to be big winners, as they would start getting urban rates for health-care costs starting in April and would benefit from side deals on changes in regulated wage rates. Urban hospitals, meanwhile, could benefit from a clause in the plan that would place a moratorium on the construction or expansion of specialty surgical centers." Okay, so now you have a full summary. 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