Commentary

Medicare’s Muddled Meddling

This article appeared on Townhall.com, November 17, 2005.
What if Medicare threw a really lavish party and nobody showed up?

Last week, as Medicare cheerleaders valiantly attempted to persuade, bribe or threaten seniors to sign-up for one of dozens of different prescription drug plans, there were numerous reports of people being so totally befuddled they might just take a pass.

Each plan has its own formulary, which decides how much of which drugs will be covered and which of those covered will be placed in a higher “tier” with a co-payment of $60 or more. I found one plan that charges $20.87 a month yet pays nothing on six of my wife’s seven prescriptions. Making such choices sufficiently risky and difficult to scare many away might be one way to save money, but there are wiser solutions.

The cost to taxpayers of Medicare Part D was initially estimated at $400 billion over the next 10 years, but that was soon revised to $520 billion and then $760 billion. Those first 10 years would be cheap compared with the following 20. The number of people eligible for Medicare will nearly double by 2030. Medicare is projected to rise from 12 percent of the federal budget to 25 percent by 2025, which is literally unsustainable because young taxpayers will not sustain it.

We got into this mess as a result of 40 years of political hubris. Despite ample evidence to the contrary, legislators and bureaucrats continue to believe they should dictate what sort of insurance coverage seniors should be allowed to buy. This arrogance persisted even after the Medicare Catastrophic Coverage Act of 1988 was given a decent burial by the Medicare Catastrophic Coverage Repeal Act of 1989. It continued even after the “Medicare C” plans of 1997 (mostly HMOs) faced declining enrollment since 2000.

When it comes to the new Medicare drug plans, Congress assumes folks in their 80s must be sufficiently proficient with computers to log on to medicare.gov and pick between dozens of different Medicare drug plans. Yet that same Congress imagines those same seniors must be protected from any opportunity to choose insurance that makes economic sense.

Isn’t insurance supposed to protect against surprisingly large expenses, rather than routine outlays? Only a group of politicians would choose a policy that covers a generous 75 percent of the first $2,250 yet not one cent of the next $2,850. Why are seniors compelled to have a zero or $250 deductible on Part D of Medicare and only a $110 deductible on Part B?

When buying home or car insurance, smart shoppers would choose a deductible of at least $500.

Must we drift all the way to a zillion-dollar “Part Z” plan before seniors realize the whole ABC edifice of Medicare was built on quicksand? All seniors are forced into mandatory Part A hospital coverage, thanks in part to lobbying in the late ’50s by the American Hospital Association. That leaves those over 65 with little practical choice but to pay $78 a month for the add-on Part B, which (despite big subsidies) mainly rations bureaucrat-approved physician services.

Checkbook.org and Washingtonian magazine publish lists of best doctors in the Washington area, as judged by their peers. In my experience, if you pick up the phone and start going down the list of best doctors, you will always be told they “are not accepting new Medicare patients.” Why should they?

Even if Medicare’s price controls and regulations were not so effective in shoving seniors to second-rate providers, Part B also has glaring gaps — such as not covering prescription drugs, eyeglasses, hearing aids and most preventative care. To fill those gaps, more than 90 percent of seniors had some supplemental health insurance in 2002. According to the Kaiser Family Foundation, 39 percent had employer-sponsored coverage, 16 percent were in an HMO, 10 percent were on Medicaid and 25 percent had purchased Medigap insurance.

Most supplemental plans — except the least expensive seven of 10 Medigap plans — did offer drug insurance. Although taxpayers must now pay fat subsidies to businesses to bribe them to retain retirement drug benefits, however, some already decided to seize this Medicare-D opportunity to discontinue such benefits.

Next year, federal law will prohibit Medicaid from providing prescription drugs that Medicare will offer, thus prudently compelling the elderly poor to make small co-payments. Those with employer plans and those on Medicaid account for half of all seniors, and they might well wonder whether Plan D is trying to fix something that, for them, was not broken.

Those who bought Medigap policies are a different matter. It is for them that the most interesting changes occur, but also why hundreds of billions in subsidies is sheer profligacy. Those of us who paid for Medigap policies are not poor and were not asking for a handout. Until now, however, only the priciest Medigap plans were allowed to offer even limited drug coverage (with a 50 percent co-payment up to a maximum of $6,000).

My wife pays $225 a month for one of these overstuffed policies. The drug benefit within that $225 policy would cost only about $61, but to buy or sell a separate drug policy until now would have been a federal crime. If asked to explain such restrictive regulations, federal potentates offered some mumbo-jumbo about the absolute impossibility of ever permitting insurers to offer “stand-alone” prescription drug insurance. They were ignorant, or they lied, or they were ignorant liars.

Today, those foolish rules for Medigap policies have suddenly been turned upside down and inside out. Insurers are not only allowed to offer stand-alone drug insurance, but are now prohibited from bundling such insurance with other Medigap insurance. “If you drop your Medigap prescription drug coverage,” the Medicare website warns, “you cannot get it back.” Savor the irony of that statement. What it means is that the same Medigap-bundled drug insurance program that until now was the only choice insurance companies were allowed to offer will now be just as illegal to buy or sell as stand-alone policies were before.

The new rules seem less foolish than the old rules, but why impose so many rules? And why are threats of penalties being used to drive us into this new federal corral?

Fixing the problem of untangling stand-alone drug insurance from the Medigap straightjacket did not require hundreds of billions of dollars of taxpayer subsidies. It did not, in fact, require one cent. All that was needed was for the government to admit it made an inexcusable blunder by prohibiting the sale and purchase of stand-alone prescription drug benefits.

The solution to 90 percent of the problem Medicare Plan D hopes to fix at such huge bother and expense has always been obvious, simple and free: Just announce that seniors will henceforth be entirely free to purchase whatever drug insurance policy they prefer — just as free men and women under the age of 65 have always been free to purchase every other sort of insurance.

Alan Reynolds is a nationally syndicated columnist and a senior fellow at the Cato institute.