Medicare's Poison Pill

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I'm also lucky that only one of my essential drugs is not on my insurer's "preferred" formulary—though that could change at any time. The price I'm charged by my insurer is based on a "list price" developed by the manufacturer, explains the Medicare Rights Center's Precht, and manufacturers can change this list price at any time without warning. By law, plans must report the net prices they pay (the list price minus any rebates) to Medicare, but not to consumers; since both insurers and drugmakers have a vested interest in maximizing their take from government coffers and old folks' pocketbooks, this means zero transparency exactly where it is needed most.

Further, according to Precht, the plans are counting on the fact that most old people will not, or cannot, shop around for a new plan every time one of their drugs' prices or their premiums go up. (The Center for Economic and Policy Research says premiums increased 25 percent this year alone.) "The senior market is viewed as sticky," he says. "Older people tend to want to stick with their plans," many of which "start off with a low premium and then the price goes up."

For 2008, my own monthly premiums are $32.50—an annual increase of $73.20 since last year. My total copays have gone up about $14 a month. But all in all I'd be doing okay—if it weren't for "the gap."

The gap is also known as the doughnut hole, and it works like this. Whatever Medicare Part D plan you choose, you receive coverage up to the "initial coverage limit," a threshold based on the full cost of the drugs you've received (not your copay amount). In 2007, the standard was $2,400; in 2008, it's $2,510. After that you'll have to pay full freight for your drugs until you reach yet another level of spending, at which point Part D's "catastrophic" coverage kicks in. And guess what: According to the 2007 House oversight committee report, when beneficiaries are in the doughnut hole and paying full price, they don't benefit from the rebates regularly offered by pharmaceutical companies to insurers; instead, the companies pocket the discounts. Last year, according to the report, Part D insurers stood to receive a billion dollars in rebates on drugs that seniors had actually paid for on their own.

Most of the people who fall into the doughnut hole—4.2 million in 2006, the last year for which numbers were available—probably have no bloody idea when the big plunge is coming. I certainly didn't. But then it happened, last August: Suddenly, my three $6 generic drugs cost $28.03, $29.00, and a whopping $106.29 for the generic version of the antidepressant Wellbutrin. My $28 drugs were now $33 and $61, and even my expensive "non-preferred" drug went up a few dollars. And I still had to keep paying my plan premiums. My monthly costs more than doubled, from $169.50 to $357.76.

Like a lot of people who fall into the doughnut hole, I'm never going to get out. The year ends before I reach the required out-of-pocket cost, and then the whole cycle starts over again. I could switch to a plan that offers gap coverage—but those are expensive and generally limit their coverage to generics. In 2007, 92 percent of enrollees in stand-alone Part D drug plans had no coverage in the gap.

Fortunately, I can afford to pay $357.76 a month for four or five months to get the drugs I need. It pinches my budget, but won't overwhelm it, especially as long as I keep working. But that's not true for everyone.

What would I do if I couldn't afford my drugs? Where would I cut back? The antidepressants are the most expensive, so I could stop taking those. I'd feel shitty, but since I've never actually been suicidal, at least it wouldn't kill me. I could take my chances on giving up my acid-reflux drugs, since only a fairly small percentage of people with untreated Barrett's syndrome actually develop esophageal cancer. I'd rather starve than give up my glaucoma meds. How many old people in the United States are facing these choices today? And now ask yourself: How many old people face similar dilemmas in France, or Japan, or Australia?

you start to wonder whether it's worth joining Medicare Part D at all. According to my calculations, in 2007 I spent $2,975 on drugs and premiums. If I didn't have a drug plan, I would have spent $3,976. So being on Medicare Part D saved me just $1,001.

I could have saved a lot more just by being Canadian. A 2004 analysis by the Health Reform Program at Boston University's School of Public Health found that drugmakers' US prices for brand-name drugs were 81 percent higher than the averages in Canada and six European countries. If the United States instituted the same policies (primarily, strict government price controls) that help force drug companies to sell their products to Canadians for 30 to 50 percent less, many American seniors could have no prescription plan at all, and still pay less than they do now. And the federal government could save itself the estimated $723 billion that Part D will cost during its first 10 years.

As it stands, investigators for Rep. Henry Waxman (D-Calif.) have found that in the six months after Part D went into effect, profits for the 10 largest drug companies increased a total of $8 billion—on average, 27 percent. The House oversight committee estimated insurance companies' 2007 profits from Part D would be $1 billion. As for the efficiency of the marketplace, according to the committee, "the administrative expenses, sales costs, and profits of the privatized Part D program are almost six times higher than the administrative expenses of traditional Medicare."

None of the health care advocates I have spoken with expect to see much improvement anytime soon. Democrats tried to pass a bill allowing the government to negotiate drug prices in Part D last year, but couldn't pull together the 60 votes needed to move it through the Senate (and Bush had promised to veto it regardless). Another mild reform involves letting the federal government offer its own drug plan under Part D; the public option likely would be a little cheaper for seniors, and the competition could curb some of the private plans' price increases. But unless the prices of the drugs themselves are lowered, advocates believe, the savings will not be significant. Narrowing the doughnut hole is another option: Edwin Park, senior fellow at the Center on Budget and Policy Priorities, says Congress could elect to start catastrophic coverage quicker, but that would cost money.

None of these measures addresses the core weakness of the program—its obligations to the insurance and drug industries. Medicare Part D is a small-scale model of just the kind of system some Democrats, including Barack Obama, now propose—a government-subsidized health insurance plan, one that preserves the profits of private middlemen at a high cost to citizens' and government coffers.

For conservatives, meanwhile, the goal is to take Part D as a model for the rest of Medicare—and they've already made some inroads. The 2003 law that established Part D contains a "demonstration project" beginning in 2010 that will require Medicare to compete with private plans (which, via a complicated pricing formula, will be rigged to have lower rates) in six metro areas. This is meant to be the model, the seed that will grow into the Brave New World of privatized Medicare.

Back before the drug bill passed, the senior advocacy group Gray Panthers saw the writing on the wall and denounced the legislation as "bait in an insidious strategy to undermine traditional Medicare and convert it into a private industry using taxpayers' subsidies to pay for it." They were right, and the way things are going, I may yet live to see it happen—as long as I keep taking my drugs.

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James Ridgeway is the senior correspondent at the Mother Jones Washington, DC, Bureau.

Photo: Mark Mahaney | Cartoon by Steve Brodner

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