Saturday, August 19, 2006

U. S. Representative Robert Wexler on the Medicare D “Doughnut Hole”. Spin or dumbth?

Wexler’s article, “’Doughnut hole’ a black hole for seniors; allow Medicare to negotiate drug prices” was published in the Palm Beach Post. Here are some excerpts with my comments.

After being rushed by the Bush administration to sign up for a drug plan under Medicare Part D and avoid paying stiff penalties, an estimated 7 million seniors are receiving a rude awakening as they find themselves plummeting into an abyss of prescription-drug non-coverage known as the "doughnut hole."

This carefully crafted clause in the Part D program is nothing more than a large gap in drug coverage that occurs between $2,250 and $5,100, where seniors and the disabled are required to pay 100 percent of their prescription-drug costs . . .

You receive a rude awakening if something is a surprise. The doughnut hole was not a surprise.

Presumably, those who signed up for Medicare D did so because it was an improvement over alternatives, even with the doughnut hole.

Many who signed up have a low probability of reaching the doughnut hole. For these people, Medicare D with the doughnut hole is a far better alternative than it would be if it did not have the doughnut hole. Why? Because they aren’t forced to buy doughnut hole coverage they don’t want or need.

Others who signed up have excessive drug costs and will go far beyond the doughnut hole. Their total drug cost will be lower with Medicare D than with alternatives.

The fact is that Medicare D is an improvement for every rational person that signed up, not a disaster.

President Bush and Republicans in Congress, in cooperation with the pharmaceutical and insurance industries, devised a flawed program that conveniently omits benefits for beneficiaries when they need it the most.

Mr. Wexler’s rhetoric is good, but his logic leaves much to be desired.

Some of those who need it most are those whose drug costs far exceed the doughnut hole range. These people are far better off with the superb coverage beyond the doughnut hole range and the doughnut hole than they would be without the doughnut hole and no extensive coverage beyond it.

Less obvious is the fact that those who need drugs the most often do not reach the doughnut hole range. Equating need with total cost is fallacious. You can save a life on $100 monthly.

This goes against the principle of what it means to be insured. Usually, the purpose of insurance is to protect individuals against large losses; contrarily, the Medicare Part D doughnut nut hole leaves seniors completely unprotected, facing skyrocketing prescription-drug costs that they cannot afford.

Great spin, but only spin.

The insurance principle is to spread the cost across a suitable cohort for those who find the tradeoff between average cost certain versus probability distribution of loss and risk aversion favorable. No rational person wants too pay for too much insurance.

The fact that Medicare D has a doughnut hole is not the same as leaving seniors completely unprotected. What would be leaving seniors completely unprotected would be no Medicare D and no alternatives. That is not the case.

With respect to affordability, there is a negligible chance that people who define affordable as below cost (as many of the complainers do) will ever find a sensible Medicare drug program affordable.

The argument made by proponents of the Republican prescription-drug program is that the doughnut hole was necessary to keep the cost of the program down and save taxpayers money. In fact, the only effects resulting from the doughnut hole are huge windfalls for pharmaceutical companies and inadequate drug coverage for millions of seniors. Ironically, according to a recent report issued by the Center for Economic and Policy Research, if Medicare had been allowed to bargain directly with pharmaceutical companies - as is currently done by the Veterans Administration and state Medicaid programs - the savings would be more than twice the size of the doughnut hole. Direct bargaining by Medicare with pharmaceutical companies would completely eliminate the doughnut hole, in addition to providing substantial savings for the federal and state governments.

Mr. Wexler is pulling a bait and switch.

The current style of program would cost more without the doughnut hole.

Direct bargaining would change the program by slowing the development of new drugs. Cheaper drugs lead to less effective drugs over time, because pharmaceutical companies will slow development of new drugs if their profitability is reduced. There is no free lunch, no matter what Mr. Wexler says.

Those who are griping about the high cost of newer drugs can put themselves into Mr. Wexler’s world by simply refusing to buy any drug developed more recently than, say, twenty years ago. These generically available drugs are cheap. You will never reach the doughnut hole by buying them.

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