Congress Gets Hooked on Rx Drug Plans

Published August 30, 2002

Bidding wars over a Medicare prescription drug benefit are accelerating, with political leaders behaving as though they were in a high-stakes poker game with no tomorrow.

Earlier this year, President George W. Bush proposed spending $77 billion over 10 years for a drug benefit for low-income seniors. The latest offering from Senate Democrats could cost 13 times that: $1 trillion or more.

Providing a prescription drug benefit through Medicare clearly is important, especially for low-income seniors without insurance coverage. But creating a benefit that is prohibitively expensive for taxpayers and that would send pharmaceutical research into a tailspin clearly is reckless.

Nevertheless, many officeholders believe this could be the make-or-break domestic issue for the fall elections, and there appears to be no limit to the bidding.

Proposals Abound

The newest proposal by Senate Democrats would create a drug benefit for Medicare with a $25 monthly premium, no deductible, and fixed fees for medicines. Seniors would pay $10 for generics, $40 for brand names, and $60 for “nonpreferred” drugs. After $4,000, the government would pay all drug costs.

The House Democrats’ version would require seniors to pay a $25 monthly premium, a $100 deductible, and then 20 percent of drug costs up to $2,000, after which full catastrophic coverage would kick in. Both plans appear generous, but would quickly lead to heavy-handed, destructive, and ultimately unworkable price controls, with restrictions on access and huge new costs to taxpayers.

House Republicans have offered a more modest drug benefit bill, which would cost “only” $350 billion and incorporates needed Medicare reforms. But they are clearly at a disadvantage in this escalating bidding war. The GOP plan would ask seniors to pay $34 a month for coverage that pays 80 percent of drug costs from $251 to $1,000 and 50 percent of costs from $1,001 to $2,000. Catastrophic coverage would trigger at $4,500. The benefit would be dispensed by private, competing health plans.

On Second Thought …

Anyone looking at the different proposals would say the Democrats’ plans look best: They are easier to understand and appear a lot more generous. But the cost to taxpayers and future health care consumers from an open-ended entitlement would be enormous.

The federal government instantly would get involved in setting prices and restricting access to the newest drugs, policies that have seriously damaged pharmaceutical research and innovation in Europe.

For senior citizens worried about government controlling what’s in their medicine chests, the word “nonpreferred” means politicians would decide which drugs will be available and which won’t.

Few expect legislation to be signed into law this year. That is a good thing. Americans need time to grasp the extraordinarily important consequences of such a new entitlement. It is not simply one more Medicare benefit, as many would have voters believe.

Instead, it could well be a referendum on medical progress. Pharmaceuticals are software for the body—the latest medical technologies that extend life expectancy, improve the quality of life, and enhance doctors’ abilities to treat and even cure disease.

Seniors are demanding a prescription drug benefit because they know these products represent the cutting-edge of today’s medicine. Controls and access restrictions that would result from an overly generous drug entitlement are certain to dry up the investment capital needed to continue this progress, as already has happened in Europe.

Once the world’s greatest medical innovator, excessive government interference in the European marketplace has crippled research. Governments have used their purchasing power to push down the prices of drugs. The end result is significantly less profit and, consequently, significantly less revenue available for research.

Between 1975 and 1994, the United States developed 45 percent of new major drugs. France produced only 3 percent, Germany, 7 percent, and Britain, 14 percent.

Because of price controls imposed by other countries, consumers in the United States pay a disproportionate share of research costs, often leading to higher prices. The solution is for other wealthy industrialized nations to pay their fair share for research … not to cripple research here that holds the promise for cures for cancer, Alzheimer’s disease, Parkinson’s disease, and a host of other deadly and disabling illnesses.

Grace-Marie Turner is president of The Galen Institute, a nonprofit organization focusing on health care economics, and a contributing editor to Health Care News. This commentary was distributed by Knight Ridder/Tribune Information Services.