Despite the best efforts of the Bush Administration’s public relations machine, Americans made it clear last year that they were in no mood to privatize Social Security. But the Administration had already won a quieter victory with an equally successful social insurance program, Medicare. Part D, the new prescription drug benefit that took effect January 1, looks like the first step on the way to destroying Medicare as a benefit for all senior Americans.
It’s too early to tell whether Medicare Part D will be a flop like its predecessor, a drug discount card program that attracted only 15 percent of eligible seniors. But it may well be. So far only about 1 million have voluntarily signed up–fewer than 5 percent of the 21 million eligible seniors, most of whom have been without prescription coverage. At a carefully scripted press conference just before Christmas, Health and Human Services Secretary Michael Leavitt put a positive spin on the numbers, noting that another 21 million seniors were receiving coverage. But most of those enrollees were low-income people the government automatically enrolled, or those already receiving drug benefits elsewhere. The new plan is not yet reaching most of the people it’s designed to help.
Unlike other Medicare benefits, Part D is modeled on the country’s dysfunctional commercial health insurance system. With Medicare Parts A and B, which cover hospital services and doctor visits, the government pays providers directly. Under Part D, the government pays some 260 private insurers–including pharmacy benefit managers, HMOs and pharmacies–to provide the coverage. If seniors want the benefit, they must buy it from one of those private carriers. To force them to sign up, Congress imposed a financial penalty (growing more onerous over time) for those who don’t get on board by May 15.
Medicare Part D represents the free market run amok. “You don’t have to understand every detail and every option,” Medicare administrator Dr. Mark McClellan told the Los Angeles Times. “People just need to focus on what they want.” Easier said than done. In some counties, seniors have forty or fifty choices of plans–a jumble of insurance options with monthly premiums ranging from zero to more than $60. The government has allowed sellers to mold Part D coverage into hundreds of combinations of deductibles; co-insurance (a percentage of the drug cost consumers pay); drug utilization techniques (such as trying cheaper generic drugs first); and drug tiers, with their own dizzying array of co-payments (the flat amount consumers pay for each drug). Co-payments differ depending on whether people buy generics, preferred brand drugs, non-preferred brand drugs or specialty drugs–and depending on whether they buy from an in-network pharmacy where the insurer has negotiated good discounts or from an out-of-network pharmacy where it hasn’t. Adding to the confusion is the fact that there’s no standard nomenclature; sellers can use any fanciful name they think will lure buyers to their plan. They can also cover whatever drugs they want to; prescription formularies are not standardized either.
And what happens when seniors are understandably flummoxed by the overabundance of options? They’re sent to a complicated web tool for answers–even though, according to one survey, three-quarters of seniors say they have never gone online.
This teeming marketplace, with its myriad sellers all offering their own versions of Part D, was no accident. The push for private market benefits began in earnest nearly a decade ago, when the right-wing Heritage Foundation proposed a bipartisan commission to look at “reforming” Medicare. In 1997 Heritage got its commission, chaired by then-Louisiana Senator John Breaux. A moderate, business-friendly Democrat, Breaux pushed a plan that would have given beneficiaries a set amount of money to buy health coverage in the private market. In the end it didn’t fly. But in late 2003 moderate Democrats and Congressional Republicans, led by then-House majority leader Tom DeLay and Senator Breaux, saw their chance to move toward a privatized Medicare. Public outcry over escalating drug prices had caught the attention of Congress, and a drug benefit desperately needed by many seniors became the justification to pass legislation that took a big step toward privatization.
Think of Part D as Version 2.0 on the way to a Medicare system that relies completely on the private market. (The discount cards introduced in 2004, also provided by private insurers, were Version 1.0.) Congress appropriated $400 billion to finance Part D, a number that Richard Foster, chief actuary at the Centers for Medicare and Medicaid Services, later said was much too low. According to several news reports, Bush Administration officials prevented the agency from disclosing the real cost, then estimated at $550 billion, according to Foster.
While seniors are confronted with an overwhelming number of choices, insurers are benefiting from a massive Congressional giveaway. Insurers got generous payments to offer the coverage. And when the inevitable shakeout occurs among the 260 sellers, a cluster of mega-carriers like Aetna, WellPoint, UnitedHealthcare and CIGNA will reap the most from the Congressional largesse.
The size of these big insurers’ marketing and operations budgets for Part D shows how important the new Medicare is to them. UnitedHealth Group is spending $75 million, Aetna $50 million and CIGNA $40 million. Humana, a large regional carrier looking to switch seniors to the company’s other products, is spending $80 million. Steve Brueckner, Humana’s vice president of senior products, says that Part D offers “an unprecedented opportunity to establish relationships.”
Indeed it does. Drug companies are also eyeing new customers, especially among enrollees who could not in the past pay for drugs. They, too, are designing marketing strategies around Part D. Bob Dole, former senator turned Viagra pitchman, is selling the benefit on behalf of Pfizer. AstraZeneca is funneling $10 million to the National Council on the Aging (NCOA) to pay for vans and laptop computers that state insurance counselors can use to sign people up.
For politicians, of course, the goal was not just money but votes. Last summer at a meeting of some fifty healthcare lobbyists, a parade of Republicans, led by cheerleader DeLay, urged the lobbyists to help launch a national advocacy campaign to sell Part D, saying the effort would pay dividends in the 2006 midterm elections. That campaign is roaring across the country with the Medicare Rx Education Network, whose membership roster reads like a Who’s Who of the business and medical establishment, leading the promotional charge. The network’s star is none other than ex-Senator Breaux, who chairs the effort from his Washington law firm, Patton Boggs, one of the capital’s premier lobbying outfits. Breaux has been placing op-eds and letters to the editor in newspapers urging seniors to sign up. The network has sent out six mailings to everyone eligible for Medicare, using the government’s Medicare Rx Education logo. These mailings’ return address is the US Chamber of Commerce. Seniors who also see the Medicare Rx Education logo on government publications can be forgiven if they are confused about who is sending the message.
In its pro-Part D public relations efforts, Medicare Today–a creation of the Healthcare Leadership Council, an organization of hospitals, drug companies, device makers and academic medical centers–has enlisted more than 300 other organizations, ranging from the Blue Cross Blue Shield Association to Wal-Mart Pharmacies, which have contributed $6 million toward “outreach.” Since July Medicare Today has held 1,000 events around the country promoting Part D to seniors, and it has stationed representatives in pharmacies and grocery stores to answer questions and help them use the web tool. “We believe this is the right fix for Medicare and it’s the right evolution for the twenty-first century, and we’re trying to get people to take advantage of it,” explains Michael Freeman, executive vice president of the Healthcare Leadership Council.
the initial reluctance of seniors–despite the fevered push to sign up the 20 million older Americans still eligible but not yet enrolled–may reflect an intuitive wariness of a program that while helping them in the short run may doom Medicare in the long run. At the Christmas press conference, Secretary Leavitt said seniors would “never have to worry about high drug costs in the future.” But they do. In the end, a drug benefit based on the free market may kill Medicare. It’s bad enough that Congress underestimated the true cost of Part D by at least $150 billion. But in its most devastating concession to Big Pharma, Congress forbade the government to negotiate with pharmaceutical companies over drug prices–a deliberate and crucial omission. In essence, Congress bet on insurance carriers and competition to keep drug prices under control–something the market has done poorly.
With Part D causing a virtual epidemic of headaches and complaints, there will be plenty of pressure on Congress to fix the mess. Representative Jan Schakowsky, a progressive Illinois Democrat, has introduced a bill to standardize benefits and require the government to negotiate prices with pharmaceutical firms. Passing such needed reform will be difficult, if not impossible. But Part D will not work in the long run unless Congress mandates price negotiations and ends the formulary free-for-all. Without standardized formularies, sellers can change the drugs they cover at any time–forcing seniors to pay out of pocket, find another insurer, get their doctors to change their treatment plans or file for an exception.
Even with standardized formularies, runaway drug prices could cause Congress ultimately to conclude that Medicare is simply too expensive–and transform it into a means-tested welfare program that would make doctor, hospital and drug benefits available only to the very poorest seniors. That would end Medicare as we know it. Maybe that was the real goal of Part D all along.