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Why Bush's Medicare Drug Plan is Just Plain Wrong

By Anna Bates

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2007 – print

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2-27-07, 9:45 am

A crisis has arisen in health care for senior and disabled Americans. The Bush administration and Republican Congressional leaders pushed through a bill that they promised would bring relief from the rising costs of prescription drugs. The Medicare Prescription Drug, Improvement, and Modernization Act (Public Law 109-173), also known as "MMA legislation," is in fact a Trojan horse. In reality, Bush and his associates are trying to induce Medicare recipients to leave their traditional Medicare program and enroll in private managed care plans.

The method for doing this is to offer disproportionate federal subsidies to private managed care plans so they can offer more attractive benefits, such as prescription drugs, than traditional Medicare. This will, in the end, be ruinous for those the plan promised to help, and hugely profitable for the private health care sector. This blatant sellout of Medicare for profit is not only ruinously expensive, it threatens the very fabric of Medicare – one of the best, most socially responsible pieces of legislation ever passed in the United States.

The History of Medicare

Social Security began as a reform project during the Progressive Era. An organization called the American Association for Labor Legislation (AALL) began studying American labor conditions and legislation after the 1905 annual meeting of the American Economic Association. Although the association itself was not radical, its task was forced by years of grassroots labor agitation.

Under the leadership of John Andrews, the association promoted and achieved major advances in workmen's compensation, occupational health and safety, and child labor laws. Yes, theoretically, these measures served to fortify capitalism rather than demolish it – but they certainly eased the pain of industrial existence for American workers. After helping to create a workers compensation plan, the AALL focused its attention on a national health insurance plan. Social insurance, including health insurance, became an issue in the 1912 presidential race, and was a key plank in the platform of Theodore Roosevelt's Progressive Party. The AALL introduced a national health insurance bill, and launched a campaign aimed at state legislatures. Initially, the state bills had much support, but idea was too far ahead of its time. When the powerful American Medical Association withdrew its support, the bill lost steam. To make matters worse, the elitist American Federation of Labor, under the leadership of Samuel Gompers, did not support national health insurance because they thought it would distract workers from their goal of higher wages and shorter working hours.

After that, US foreign policy during World Wars I and II, and the rise of Communism worldwide squelched interest in what was perceived as socialist national health insurance.

Franklin D. Roosevelt launched some progressive measures to save the US economic system during the Great Depression, resulting in the passage of the Social Security Act in 1935. The conservative Wagner Bill outlined a broad federal health program, which failed to pass the House or the Senate.

After a couple of faltering efforts to introduce social insurance bills, President Harry Truman backed off from the plan for universal health care coverage and focused instead on a program to insure Social Security beneficiaries, reasoning that this would meet the needs of the most desperate members of society. Progress was slow, and proponents of what would become Medicare had to wait out the Republican presidency of Dwight Eisenhower to make headway. John F. Kennedy took the initiative to get Medicare enacted, making it a top priority. A Medicare bill was created, and finally passed under the presidency of Lyndon B. Johnson in 1965. The original Medicare program provided health care coverage for a monthly premium of $3 former President Harry Truman was the first person to enroll.

Since 1965, Medicare has seen many modifications, some good, some not so good. Disabled Americans under age 65 came under the umbrella in 1972, and the Supplemental Security Income (SSI) program was established that same year. However, payments to HMOs were authorized. This crack in the door marked the beginning of privatization of Medicare services. Coverage for catastrophic illness and prescription drugs came with an overhaul of Medicare in 1988, only to be repealed a year later. Medicare benefits were expanded but also increasingly privatized with the "Medicare+Choice" rule in 1999.

Until 2006, Medicare consisted of two parts: Part A for inpatient hospital, skilled nursing and hospice care, and Part B for physician, outpatient, home health and similar services. Part D was theoretically created to offset rising prescription costs and high out-of-pocket expenses by Medicare recipients. However, the need for prescription drug coverage remained a problem.

The Bush administration's solution? Privatize it. Turn control of the prescription drug portion of Medicare over to private insurance companies, HMOs and pharmaceutical companies who seek substantial profits for their goods and services. Recipients would sign up with private plans offered by insurance companies, and the insurance companies and HMOs would regulate drug and health care costs. Early on, there were many obvious problems with the plan. Chief among them was that before Plan D, federally run Medicare was able to negotiate prices with drug companies. Medicare Part D forbade negotiating group purchasing agreements and volume discounts with drug companies, a tactic that the Veterans Administration had used successfully for years.

Even the private sector saw problems with the proposed plan. In November 2003 the Association of American Physicians and Surgeons, cried: "Don't sell out Medicare Patients for a Few Dollars More!" We had high hopes for the opportunity to start to restructure the crumbling Medicare with free market protections, cost controls, and patient choices … but we cannot support a reckless, open-ended entitlement in exchange for a token demonstration project and hollow promise of regulator reform.

So much for the naļve assumption that capitalism can regulate itself for the greater good.

To gain support for MMA from Democrats and conservative Republicans in Congress, supporters of the bill promised that it was inexpensive, costing only $400 billion over 10 years. Knowing that the cost would be much more, as time for the passage of the bill neared, the GOP made desperate efforts to cover up the true cost of the plan. Medicare's Chief Actuary Richard Foster was threatened with his job in June 2003 if he told Congress the true cost of the plan. (New York Times, March 14, 2004).

Nonetheless, the Medicare Prescription Drug, Improvement, and Modernization Act (Public Law 109-173), also known as "MMA legislation," was signed by Bush on December 8, 2003, after narrowly passing in Congress. Not surprisingly, a month later, the 10-year cost estimate grew to $534 billion. Clearly, the bogus figure presented to Congress during the debate helped gain the support of fiscal conservatives who said they would vote against the bill if it cost more than the promised $400 billion.

Republican lobbyists and private sector fat cats breathed a sigh of relief on their way to the bank. Billy Tauzin, Louisiana Republican sponsor of MMA, stepped down as chairman of the House committee that regulates the pharmaceutical industry to become the new president and CEO of the Pharmaceutical Research and Manufacturers of America, the drug industry's top lobbying group. Tauzin's new $2 million pay package makes him one of the highest-paid lobbyists in Washington. (USA Today, December 15, 2004). And Tauzin is just one example of the true results of MMA. There are many others.

Anticipating a windfall for pharmaceutical companies, Fortune magazine's Web site in January 2004 announced a pending health-care boom, listing 10 stocks that would soar with the passage of Medicare Part D. From the start, it was clear that the primary beneficiaries of this plan would not be poor senior citizens, but rather corporate health insurance and pharmaceutical companies.

Later, the true horror of MMA became apparent. In March 2006, Milt Freudenheim of the New York Times warned,

the drug program could prove to be a feeder system into a much greater private presence in Medicare (which is) a longstanding goal of the Bush administration. … Insurers … know that the real money is not in providing drug insurance. The rewards are much richer in other types of Medicare policies, including complete managed care plans.

Michael B. McCallister, HMO Humana's chief executive, said that he saw the Plan D drug program as an enticement for recipients to sign up for Medicare Advantage, which is managed by private insurers and subsidized by Medicare. "[T]he real financial opportunities lie in upgrading Part D enrollees to other Medicare-linked policies."(New York Times, March 31, 2006).

Plan D is a windfall for drug companies, who may pocket $139 billion in profits from the Medicare bill. In July 2006, Merck and Schering-Plough, two major drug companies, reported second-quarter profits well ahead of expectations. (New York Times, July 25, 2006).

Holes in the Program

The most significant immediate problems with Plan D are administrative problems getting people enrolled and covered, and a provision that includes a gaping "doughnut hole," where recipients pay full price for their prescription drugs for a prolonged period of time. This is how it works:

MMA beneficiaries pay a $250 deductible, then 25 percent of the cost of covered Plan D prescriptions up to $2,250. After that, the beneficiary pays full price for their prescriptions until their out-of-pocket payments equal $3,600. Then the beneficiary pays $2 for a generic or preferred drug and $5 for other drugs, or a 5 percent co-pay, whichever is greater.

Many people have gone to the drug store to pick up what they thought would be a covered prescription, only to find that they have fallen into the doughnut hole, and must pay full price for their medication. This is a serious hardship for many. True, there is a provision that theoretically protects the poorest people from the doughnut hole, but it is a serious problem for many, especially moderate-income seniors. To add insult to injury, this deductible is recalculated on a yearly basis. A beneficiary who spends $3,600 by December 31 of one year will start their deductible again on January 1 of the next year.

Lawmakers claim that the "coverage gap" was a necessary provision in the plan. It limits the cost of the new program while providing some benefits to almost everyone. (New York Times, July 30, 2006). Medicare beneficiaries may look forward to another double-digit increase in their premiums next year, from $88.50 to $98.40. Bush administration projections based on presumptions that Congress will decrease Medicare payment rates for physicians suggest that the rise could be even higher. Mark McClellan, administrator for the Centers for Medicare and Medicaid Services, said the increased premiums were the result of increased services, such as physical therapy and lab tests, which physicians are using to provide better health care. McClellan also said that the system is not sustainable (The Buffalo News, July 12, 2006). He did not, however, speculate on what will happen when the profit bubble bursts.

Clearly, the Medicare Modernization Bill is the work of Bush and his insurance and drug industry cronies. It was pushed through Congress by devious means, and sold to the US public with spurious lies. The plan has made the federal government customer to the drug companies – and taken away the government's bargaining power as such. As a result, seniors and disabled Americans stand to lose their life savings and bebankrupted by drug expenses.

What can you do? If you are a Medicare recipient, you may visit the AFL-CIO Web site. AFL-CIO lists a variety of resources that explain the plan at :www.aflcio.org/issues/medicare). Families USA also has an excellent Web site at www.familiesusa.org.

If you are angry and frustrated with the Bush administration's clear endorsement of mega-profits for private industry at the expense of senior and disabled Americans, please take action. You may follow the example of a group of Goshen, New York residents who showed up with boxes of Munchkins (doughnut holes) to protest Plan D. You may write to your representatives in Congress, urging them to scrap or modify MMA. These measures may bring some temporary relief. However, the complete removal of profits from all health care – the approach known as socialism – remains the only true and lasting solution.

--Anna Bates is a contributing editor of Political Affiars. Send your letter to the editor to pa-letters@politicalaffairs.net