Presription for Pain: The Medicare Drug Plan

By Mark Weisbrot

October 20, 2003, Knight-Ridder/Tribune Information Services

Another rotten deal for senior citizens is slogging its way through Congress right now, and the only question is just how rotten it is going to be. Ironically, this bill was supposed to help the nation's elderly by adding a prescription drug benefit for Medicare. But most seniors won't get much help in paying for their medicines, and the legislation could end up harming the Medicare program.

One reason is that prescription drugs just aren't affordable under the current system. Our government grants 20-year patent monopolies to the big pharmaceutical companies and, unlike most other countries, lets them exploit these monopolies for as much as they can get. The result is that the same prescription drugs often cost about twice as much in the U.S. as they do in Canada and Europe.

This price differential has prompted many seniors who live near the border, and others with access to the Internet, to import their prescription drugs. The governors of three states -- Illinois, Minnesota, and Iowa -- have now joined this movement, demanding that the U.S. Food and Drug Administration (FDA) allow them to import the drugs that their state governments must buy for retirees and the poor. And almost all of the Democratic presidential candidates have said they would reverse current policy and allow drug imports.

That would be great if it actually happened, but don't hold your breath. The big pharmaceutical companies were among the largest political campaign contributors in the last election cycle, and imports could wipe out as much as two-thirds of their profits. As a result, a government that worships regularly at the altar of "free trade" is fiercely protectionist in an area where consumers could benefit the most from international competition.

In the mean time, Congress is proposing to provide a Medicare prescription drug benefit for about $400 billion over ten years -- about one-fifth of what it would actually cost. The result is a big "hole" in coverage. For example, under the House version of the bill, there is no coverage for prescription drug spending between $2000 and $4900 a year.

Most senior citizens would actually end up better off in any given year if they did not buy the drug coverage.

And House Republicans seized the moment and added a provision that would require the traditional Medicare program to compete with private plans under rules that are rigged against Medicare. If enacted, this would eventually put an end to Medicare as we know it.

The prescription drug problem has a relatively simple, economically efficient solution. About half of America's bio-medical research is already funded through the government and non-profit sectors -- the NIH, foundations, and universities. This portion could be increased, and the resulting pharmaceuticals could enter the market without patents -- in other words, as generics. 

The potential savings are enormous: in fact the increased government spending on research would practically pay for itself just by lowering the cost of drugs to Medicare and Medicaid (our health care program for the poor). This would leave a windfall of tens of billions of dollars annually in savings for everyone else who buys prescription drugs.

The alternative is an unsustainable increase in spending on these medicines, and a serious erosion in living standards for the elderly. For the poorest 20 percent of senior citizens, prescription drug spending is projected to triple -- to more than $3500 a year -- over the next decade.

In the meantime, Congress is considering how to squeeze more out of the elderly poor by increasing the fees for home health care. And the Bush Administration just proposed one of the largest increases ever -- 13.5% -- in the annual premium paid Medicare beneficiaries. Even worse, there is bi-partisan support for collecting much higher payments from upper income seniors. This would undermine the universal nature of Medicare, potentially eroding its support and making it more vulnerable to future political attacks.

But it's not Medicare that needs reform, it's our broken down health care system that does. We spend nearly twice as much per person on health care as do other high-income countries. And while Europeans and Canadians provide all of their citizens with health care, we have 43.6 million people who are uninsured right now. 

Prescription drugs have become the frontline battle in the fight for health care reform, including universal coverage. It's one that we can't afford to lose.