President Bush and the new Congress should waste no time giving all Medicare beneficiaries access to prescription drug coverage. No, I’m not talking about creating Medicare “Part D” – a government-run drug benefit that would eat up trillions of taxpayer dollars while destroying research and development on life-saving drugs.

Under that type of benefit, the federal government would institute price controls and impose other regulations and restrictions, euphemistically dubbed a “formulary.” With the government acting as a monopoly purchaser, drug companies would lose profitability and the pipeline of expensive research and development on breakthrough drugs would dry up. Nor am I talking about creating a Republican version of Part D.

This approach relies on private insurers to offer a stand-alone prescription drug benefit. Like the government version, this plan would make seniors pay a second Medicare premium in addition to the monthly Part B premium that they already pay. But the bigger problem with stand-alone drug plans is that private insurers don’t want to sell them.

Considered in isolation, prescription drug purchases are not an insurable risk. Stand-alone drug policies don’t exist in today’s marketplace because only people who use a large number of prescriptions would purchase a drug-only policy. Premiums would rise rapidly, convincing even those with moderate prescription usage to opt out of the plans.

For that reason, Bill Gradison, past president of the Health Insurance Association of America, has said, “I’m very skeptical that drug-only private plans would develop.” Yet regardless of whether it’s run by the private sector or the government, Medicare Part D would be an artificial addition to an outdated, 1960s-style benefit program.

Serious Medicare reform involves giving all seniors access to real health insurance that offers a broad array of benefits. Many Americans under age 65 receive this type of coverage through their workplace, but they are severely limited in their choices. According to the 2002 Kaiser/HRET survey of employer health benefits, 92 percent of employers who offer health benefits provide only one option to their workers. Likewise, some seniors have access to private plans through Medicare+Choice, but their choice of plans is equally restrictive – HMOs are generally their only option.

The best example of what Medicare ought to become is the Federal Employees Health Benefits Program (FEHBP), which covers nearly nine million federal employees and retirees, and their family members. This population has aged over time – nearly half of FEHBP enrollees are now retired – and it includes members of Congress, such as 99-year-old Sen. Strom Thurmond of South Carolina.

In fact, Senator Thurmond voted to create the FEHBP in 1959 and has received his prescription drug coverage from it since. That’s not to say that prescription drug coverage was in high demand in the 1960s. Back then, drugs did not play as important a role in the health-care system and many plans did not provide coverage for it. That’s why Medicare was not given a prescription drug benefit when it was enacted in 1965. Yet today, all of the privately-run insurance plans in the FEHBP offer prescription drug coverage, while Medicare, after 37 years, still does not. The reason is simple.

Politicians, rather than insurance professionals, are in charge of designing Medicare’s benefits. Therefore, changes to Medicare require the approval of a majority from both chambers of Congress as well as the President. Congress has spent the past three years debating how to add a drug benefit to Medicare. Indeed, several politicians prefer wielding a drug benefit as a campaign issue. But even if Congress succeeds in passing a drug benefit, the same laborious political process would be required to make changes in the future.

In contrast, the FEHBP has been able to change with the times because its participating plans are largely free to design and alter their benefit packages as they see fit. As a result, federal employees are able to choose between several PPO plans and, if they live in metropolitan areas, HMOs as well. And as part of the continuing evolution of the FEHBP, participants will be able to enroll in a consumer-driven health plan in 2003. Offered by the American Postal Workers Union, the plan combines a health reimbursement account with high deductible insurance coverage.

The open season for federal workers to choose their plan for 2003 takes place from November 11 through December 9. As he turns 100 on December 5, Senator Thurmond might consider taking advantage of this new consumer-driven option. Medicare beneficiaries should be so fortunate.

Chris Middleton is the Senior Health and Tax Policy Analyst for the Center For Entrepeneurship of the Pacific Research Institute in San Francisco. He can be reached via email at cmiddleton@pacificresearch.org.