Medicare Drug Benefit May Expand ‘Catastrophic’ Protection
By Karen Pallarito
Forbes.com
Oct. 26, 2005
The number of seniors protected against formidably high drug costs will increase sharply under the new Medicare prescription drug program, a new analysis finds.
The study focused on the 1.5 million Medicare beneficiaries in the United States who spend more than $4,000 annually on prescription drugs and who lack coverage for so-called “catastrophic” drug costs. These people include individuals who do not have supplemental drug coverage or whose “medigap” insurance does not pay for prescription drugs
“There’s no question of the impact this benefit will have on the lives of those who are dealing with serious illness and their accompanying prescription drug costs,” said Mary R. Grealy, who chairs the Medicare Today partnership. “Our task is simply to get the word out.”
But Robert M. Hayes, president of the Medicare Rights Center, a New York City-based information and consumer advocacy group, said the numbers are somewhat misleading.
“The point of a real Medicare drug benefit would be to assist folks who go without that medication because they cannot afford the $4,000,” he said.
http://www.forbes.com/lifestyle/health/feeds/hscout/
2005/10/26/hscout528779.html
And…
Medicare Prescription Drug Benefit Calculator
The Lewin Group
(The following is an example entered by The Lewin Group to demonstrate the use of the calculator, but you must click “calculate” to get correct results for the example entered.)
Information entered:
$6,000 – Your individual annual drug costs $25,000 – Your annual household income Single – Marital status
Calculated results:
$1,200 – Estimated savings due to Rx plan’s buying discounts $1,500 – Medicare Rx plan’s share of drug costs $3,300 – Your out-of-pocket costs under the new benefit $3,720 – Your costs including estimated premium
The calculator assumes savings to beneficiaries of 20% resulting from bulk purchasing of prescription drugs, compared to the retail prices many seniors face today as individual cash purchasers.
http://webstudies.lewin.com/pdb/medicare2.htm
Comment: Wow! $2,280 savings for $6,000 worth of drugs. Who could ever complain about that?
Before looking closer at these numbers, it’s important to understand that the Medicare drug benefit was carefully designed to advance the conservative agenda of privatizing Medicare. They wanted to allow drug coverage only under the private Medicare Advantage plans to give them a competitive advantage over the traditional Medicare program. But political realities were such that they had to develop some sort of a Medicare D option to provide drug coverage for those remaining in the traditional Medicare program. Otherwise, the Medicare privatization legislation was doomed to certain defeat.
In order to embed the privatization agenda into the public Medicare D program, the conservatives required that the program be administered privately, through insurers and pharmacy benefit managers. They recognized that this private sector drug bureaucracy would consume much of the negotiated discounts because of their very high administrative costs. If Medicare were allowed to negotiate the same discounts, then the entire scheme would fall apart because Medicare would have been granted an “unfair” competitive advantage because of its greater efficiency. Consequently, the conservatives inserted into the legislation a prohibition against government-negotiated drug discounts. Now, let’s look at the numbers.
Suppose Medicare had been allowed to negotiate discounts. The amount of the discount should be greater since the much higher volume of drug utilization would increase drug costs by only the marginal costs of increasing manufacturing volume, a very small percentage of the overall costs for the pharmaceutical industry. But lets ignore this additional savings and assume that Medicare would receive the same discount as the private pharmacy benefit managers, estimated by The Lewin Group to be 20%.
In the example provided by The Lewin Group, the beneficiary pays the first $250, plus 25% of the next $2,000 ($500), plus the full amount between $2,250 and the discounted total of $4,800 ($2,550), and a premium of $35/month ($420), for a total of $3,720. Medicare pays 75% of the amount between $250 and $2,250, or $1500. Since the Medicare portion is paid from tax funds, it is really an allocated portion of pooled consumer funds and, thus, a portion of the costs paid indirectly on behalf of the Medicare beneficiary. So the full amount paid by the beneficiary, directly and indirectly, is $5,220 ($3,720 plus $1,500).
Wait a minute. If Medicare didn’t even set up a drug program but merely negotiated a 20% discount, the cost would have been $4,800. Thus an extra $420 ($5,220 minus $4,800) is the penalty assessed because we prohibited Medicare from negotiating the same discount that the pharmacy benefit managers receive.
This example assumes only a negotiated drug discount for Medicare and nothing else. But suppose that Congress were to authorize a bona fide Medicare drug benefit. We would receive not only the discounts, but also the tremendous power of spreading the risk through an equitable system of funding the program. By expanding the program into a Medicare for All, we would further dilute the costs per beneficiary by including younger, healthier individuals who have little need for drugs now, but who want to have affordable access when they are older and in poorer health.
Privatize Medicare? No way! We need a single payer, national health insurance program. How about Medicare for All?