Once Unloved, Medicare's Prescription-Drug Program Defies Critics, But Issues Remain

Once Unloved, Medicare's Prescription-Drug Program Defies Critics, But Issues Remain

By David Wessel
The Wall Street Journal
December 7, 2006

The Medicare prescription-drug benefit, the biggest expansion of a social program since the Great Society of the 1960s, was panned by critics when it was in previews. Now, after a year's run, the elderly audience seems to be applauding, public and private actors are clicking better in the very complex production, and costs are below initial estimates.

Although the program's launch was marred by bureaucratic glitches, befuddled senior citizens, frustrated pharmacists and physicians, and experts asserting it should have been set up differently, critics' worst fears haven't materialized. That fact is often overshadowed by continuing partisan bickering over the program's design and by persistent public suspicion of drug makers, insurers and pharmaceutical-benefit managers.

Critics said the program, which subsidizes private drug-insurance plans that compete to sell coverage to Medicare's million beneficiaries one by one, would flop because too few insurers would offer policies. Most beneficiaries ended up with more than 40 options. The current complaint is that there are too many choices.

Critics said the program's initial unpopularity proved it was a mistake. It certainly didn't deliver the political boost to Republicans that they had hoped for. But it hasn't been the public-relations disaster that some Democrats suggested.

Now that many seniors are saving money on drugs, instead of struggling to pick a plan, polls have turned favorable. A survey of 3,400 beneficiaries by J.D. Power & Associates found 45% "delighted" with the program, rating their Medicare drug plans 10 on a 10-point scale; another 35% rated them an 8 or 9.

A Kaiser Family Foundation survey found that 80% of seniors enrolled pronounced themselves "satisfied" with their plan, though about one in five reported having "a major problem," most often encountering unexpected costs or having to switch medications from a drug that wasn't covered.

Critics carped about the shortcomings of the twisted, complicated design of the standard benefit, the result of a political compromise aimed at keeping down the cost. Because private insurers aren't required to offer the standard plan, fewer than 20% of enrollees are covered by that standard package.

Still, to the consternation of Democrats and many seniors, most beneficiaries are stuck with the much-derided "doughnut hole," a gap in coverage that requires seniors who avoid catastrophic illness to pay their entire drug tab themselves once they spend $2,250 out of pocket.

Critics said a lot of seniors simply wouldn't sign up, a vexing problem for any voluntary insurance program. Back in 2002, 45% of Medicare beneficiaries lacked prescription-drug coverage for all (18%) or some (27%) of the year. Now, more than 90% of Medicare beneficiaries have drug coverage. In all, 22.5 million people are enrolled in what is known as Medicare Part D, including 6.1 million people on the Medicaid health-insurance program for the poor who were assigned -- with some highly publicized glitches -- to insurance plans by the government if they didn't choose one. Another 16 million have Veterans Administration or employer-provided coverage, often subsidized by the government.

Still, more than one in 10 of Medicare's 43 millions beneficiaries have failed to sign up for drug coverage, including more than three million seniors whose incomes are so low that they would have to pay little or nothing for it. "Everyone agrees that's a big concern," says Mark McClellan, who recently stepped down as Medicare's administrator.

An enthusiastic defender of Medicare Part D, Dr. McClellan says the past year demonstrates consumers "can be a powerful force in health care as they are in the rest of the economy, but they do need support." The government, he cautions, cannot skimp on telephone operators, easy-to-use software and the like if it wants patients to be more involved in managing their own care, as it says it does.

Critics said the drug plans would offer enticingly low premiums the first year, and jack them up the second year. Premiums for many are going to rise in 2007 -- but not sharply. An analysis by Georgetown University's Health Policy Institute of 10 plans that have enrolled nearly 70% of Part D beneficiaries estimated that average premiums in 2007 will be $3.10 a month higher (12%) for those who stick with the same plan.

Critics said the complexity of matching tens of millions of elderly Americans with private-insurance plans would overwhelm the government's bureaucracy, and it has proved to be challenging. More problems are likely to surface on Jan. 1 for seniors who switch plans. Robert Reischauer, director of the Urban Institute think tank, says, "For a highly complex new program, the government and the prescription-drug plans did a remarkable job of implementation. Did it work perfectly? No. Were there little inequities here and there? Yes. But they did an immense amount to make this program work."

Critics said the program would be expensive, so expensive that the Bush administration hid internal estimates before Congress voted, and that it would be a heavy burden on the federal budget for decades to come. It will be. The latest official price tag is $729.1 billion over 10 years, and Congress and the Bush administration didn't offset that with spending cuts or tax increases.

Partly because fewer seniors enrolled than Medicare actuaries projected, Part D will cost taxpayers about $30 billion this year, below the $43 billion originally estimated. Dr. McClellan predicts the official $48 billion estimate for 2007 will be marked down. That isn't only because enrollment is below projections but because prescription-drug plans are pressuring drug makers to hold the line on prices and prodding consumers to use cheaper generic drugs or brand-name drugs for which plans have negotiated discounts.

Democrats argue the program could be even cheaper if the government, rather than private insurance plans, used its clout to negotiate with drug makers. They have vowed to change the law to allow that soon after they take control of Congress next year. They talk about using the hoped-for saving to sweeten the benefit, perhaps eliminate the infamous doughnut hole.

They may have trouble delivering: The official congressional scorekeepers aren't persuaded that the government would actually save money if Congress repeals a provision that bans the Department of Health and Human Services from interfering in price negotiations between drug plans and drug makers. Unless Democrats can take credit for saving money, it will be hard to make the benefit more generous.