Medicare Madness

The Senate wants to pile a costly prescription drug subsidy on top of the tumbling Medicare edifice. This is called a benefit rather than a tax, but there is no such thing as a benefit without a cost.

The plan is to tax and spend some $400 billion over 10 years to subsidize even the wealthiest old folks at the expense of even the poorest young workers. The cost could easily end up two or three times that large, because health-care subsidies make it easier for providers to hike prices. That is why the health industry lobbies so generously to get everyone over-insured and therefore desensitized to prices.

President Bush recently expressed concern that nearly a third of seniors have no insurance for prescription drugs (closer to a fourth, actually). To the extent that this particular consumer choice is a problem, it was mainly caused by the government. To the extent that it was not caused by the government, it reflects free choice and is therefore none of the government’s business. Absence of one particular type of insurance certainly does not prove poverty, because the poor are covered by Medicaid.

My sister, a well-known writer in Marin County, decided to skip any sort of Medigap insurance when she went on Medicare. She is one of those healthy seniors without drug insurance who annoy those who insist everyone must be insured for every troublesome hangnail. Yet she is doing just fine without subsidies, thank you very much.

Why do so many seniors decide not to buy their own insurance for prescription drugs? They buy their own home insurance, car insurance and life insurance. Yet many pass when it comes to drug insurance. Why is that? Perhaps it is because it is illegal for seniors to buy any separate policy for drug insurance.

About 25 years ago, the federal government began imposing minimum standards on private Medigap insurance, requiring such policies to cover co-payments for hospitals and doctors (although without co-payments nobody cares how much they are overcharged).

Suppose the government mandated that you could buy a homeowner policy to cover losses from fire only if you also purchased a zero-deductible policy for theft. Such a package deal would be unnecessarily expensive and unsuitable for those who wanted only part of the package. Many would simply choose to do without.

Drug insurance for seniors is no different. Harvard economist Amy Finkelstein found that initial imposition of minimum standards during the ’80s resulted in a 25 percent drop in Medigap use. She also found that policies in 1977 did cover prescription drugs, ironically. Such policies were banned because they did not meet the feds’ new standards.

Mandate madness accelerated in 1992 with 10 standardized Medigap policies — A through J. Only hubris could explain why politicians ever imagined themselves capable of designing insurance policies and limiting the options. None of these alphabet plans is allowed to cover eye care or hearing aids, for example, making insuring seniors against going blind or deaf a federal crime.

Congress also decided that only the two most extravagant of these policies would be allowed to offer drug insurance. Even the priciest plan offers only inefficient drug insurance — with a tiny $250 deductible, a large 50 percent co-payment and zero coverage of drug bills above $3,000.

That is quite similar to what the Senate is now proposing. But seniors can currently purchase even this second-rate drug insurance only as part of an expensive package deal that covers assorted frivolities Congress deemed essential.

Rather than simply repealing the mandate that drug insurance must be bundled with other costly goodies — thus allowing consenting adults to work out their own deals for the insurance they want — the Senate now hopes to keep the worst features of the 1992 drug mandate but sweeten the deal with the taxpayers’ money.

At a recent meeting in the West Wing, I mentioned that I pay all doctor and hospital bills out of pocket but none of my drug bills. That is because I have a high deductible and a medical savings account (yes, I cut my pills in half). My wife, on the other hand, pays no doctor or hospital bills. But she has to pay half for drugs. That is because she is required to use Medicare and because only the most costly “Medigap” scheme offers some coverage for drugs. My choice, if I had a choice, would be to buy her a separate drug policy with a larger deductible, smaller co-payment and no ceiling on catastrophic bills. But that would be illegal. Why?

The fact is that seniors unwilling or unable to spend big bucks for one of the two priciest Medigap policies cannot legally purchase any sort of prescription drug insurance after age 65. Federal mandates require that seniors become overinsured for co-payments before they can become underinsured for prescription drugs. Many seniors wisely refuse this one-size-fits-all package deal.

What the Senate is now suggesting is essentially just an unbundled and heavily subsidized version of the drug insurance within the most expensive Medigap policy. Why? It would be much cheaper and easier to simply repeal the mandates that prohibit insurance companies from selling unbundled drug insurance to seniors.

Freedom to make our own decisions and pay our own bills cures all sorts of problems, particularly this one. If Congress would simply make it legal for seniors to purchase any sort of drug insurance, then a variety of programs would quickly emerge (as they did before federal mandates) to accommodate the marvelous diversity of human wants and needs. Many seniors might still prefer to take their chances and pay their own bills. So what? In a free country, people must be free to choose.


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