Medicare's Hollow Heart
July 13, 2006
Britt Cass is the National Academy of Social Insurance intern at the Campaign for America's Future. CAF has released a new report, Falling into the Doughnut Hole: How Congress and the Drug Industry Created a Trap for American Seniors and People with Disabilities.
Everybody has heard of the costly and inefficient failure of the Republican Medicare prescription drug plan, Part D. But few people understand how for many Americans, even as they continue to pay a monthly premium, Part D provides no coverage at all.
The roots of the problem go back to Part D’s creation. As a thank-you to the pharmaceutical industry for its large campaign contributions, the Republican majority in Congress allowed the industry to play an important role in writing the legislation. Not surprisingly, they wrote it in such a way that would maximize profits for the industry. This is why under the terms of Part D, the government is forbidden from using its bulk-buying power to negotiate for lower prices.
As a result, prescription drugs purchased through Part D are much more expensive than the same drugs would be if they were purchased through other government agencies, like the Veterans Administration. To offset government costs, at least somewhat, seniors and the disabled—i.e., the very people who were purported to benefit from the plan—pick up a large share of the bill for these expensive drugs.
The other trick the writers of the law included to keep government spending down is a coverage gap.
In the majority of Part D plans, enrollees have 75 percent of their drug costs covered (after a $250 deductible)—but only until they have incurred $2,250 in medication costs. After they hit this mark, seniors and the disabled must pay the full cost of their prescription drugs until they have reached $5,100. This means that Medicare enrollees, who are often on small fixed incomes (the median is $14,664 per year), must spend $2,850 before their coverage will kick in again (after that, Medicare covers 95 percent of drug costs).
This colossal gap in coverage (which, you may notice, is larger than the initial coverage itself) is popularly known as “the doughnut hole.” Even worse, those who have fallen into the doughnut hole must still pay their monthly premiums, even though they are paying every last cent of their drug costs during this period out of their own pockets. Talk about adding insult to injury.
It’s hard to say for sure how many people will fall out into the doughnut hole. The best guess available comes from the Kaiser Family Foundation, whose conservative estimate is that almost 7 million people will reach the gap in 2006. Out of these, many will never be able to spend the $2,850 required to get out of it. And the doughnut hole is getting bigger every year: The law is written in such a way that the actual amount of money that people will have to spend to get out of the hole is going to increase annually.
Older and disabled Americans who have been struck by illnesses require expensive medication to stay alive. These are people with ailments such as cancer, Alzheimer’s, heart disease. The program’s Republican supporters and the pharmaceutical industry claim that by monitoring their spending and substituting generics for brand-name drugs, everyone should be just fine. They also point out that not every plan has a coverage gap.
These suggestions must be taken with not just a grain, but a whole shaker of salt. True, generics are cheaper, but not all brand-name drugs have equivalent generics. And while it’s true that not all plans include a doughnut hole, the vast majority of them do, and the few that don’t have a coverage gap have prohibitively high premiums.
Some point out that consumers can take steps to cut down on their spending to afford what they need. And sure, they can cut out luxury items, like vacations or dinners out. Spending still too high? They may be forced into cutting out dinner altogether or cutting back on their prescription drug intake. The problem is, people are taking these drugs because they need them. For the beneficiaries these are not “luxury” items. They are not little expenses that can be easily managed with proper budgeting. Past studies have shown that placing caps on prescription drug benefits causes people to skip doses more often, visit the emergency room more often, and, most frightening of all, to die sooner. In fact, the annual mortality rate for those with capped benefits is 22 percent higher than it is for those without such a cap.
If the prospect of more sick and dying senior and disabled citizens isn’t enough to scare lawmakers into changing the existing program, perhaps this will put them over the edge: ER visits and long-term hospital care for those who don’t take their prescribed medications are already subsidized by Medicare and they’re a lot more expensive than prescription drugs are. In the long run, the government will actually end up spending more on this type of care than they would have spent if they had just paid for people’s drugs in the first place.
It is absolutely imperative that the doughnut hole be eliminated. This could be done without blowing spending levels through the roof if Medicare was allowed to negotiate for lower prices, a practice which has been proven to lead to considerably lower prices in the past. If the program remains in its current state, it will be nothing short of disastrous for senior and disabled Americans with high drug costs.
The only barrier to these important changes is the political power of the pharmaceutical industry. American lawmakers should choose to help our senior and disabled citizens over special interests. The question is, will they?