Republicans and Democrats have competing plans to provide prescription drugs for seniors. Beyond the combative rhetoric, however, the similarities outweigh the differences. Both plans are expensive, bureaucratic, and threaten future treatment options for seniors.

The Republican plan is estimated to cost $155 billion over 10 years while Democrats predict a $253 billion price tag. The Republican plan would have Medicare oversee private insurance companies selling government-subsidized and approved prescription drug plans. The Democrats’ plan would have Medicare give a uniform prescription drug benefit. Ultimately, both plans would force HMOs participating in Medicare to provide drug coverage.

Faulty Assumption. Both plans are based on the assumption that seniors are suddenly unable to afford skyrocketing drug prices. Recently President Clinton said that prescription drug costs shot up more than 10 percent last year. But are seniors spending more on prescription drugs because drug prices are escalating? In fact, seniors are buying more prescription drugs of the new and expensive type. Though more expensive, these drugs can mean dramatic savings in other areas, such as reduced patient suffering, less time spent in the hospital, and less need for invasive surgery.

For example, John Calfee, a scholar at the American Enterprise Institute, explains that using "clot-busters" to treat strokes can result in substantial savings—far lower than more traditional treatments. (See figure.) For many ailments, including heart disease and a variety of conditions that affect seniors, prescription drugs have become the preferred treatment, and more treatments are on the way. The pharmaceutical industry is currently developing more than 600 medicines for diseases such as Alzheimer’s, arthritis, and stroke. 

Expanded Bureaucracy. The prescription drug plan would also establish another federal agency, the Medicare Benefits Administration (MBA), within the Department of Health and Human Services to administer the new benefit. The Medicare program is already freighted with bureaucracy and plagued with more than $246 million a day in fraud.

Dropping Private Coverage. Under plans currently on the table, seniors could actually lose prescription drug coverage. The benefit creates an incentive for the private sector to drop existing coverage and exclude plans that now provide seniors with catastrophic coverage. Last week, 18 of the 37 largest HMOs announced plans to drop Medicare due to over-regulation. Neither could the Medicare program rely on the market competition provided by private insurers. Private insurance coverage provides access to price discounts, freely negotiated by pharmacies and producers, that reduce drug costs by 30 to 39 percent.

Source: Fagan, S.C., et.al., "Cost-effectiveness of Tissue Plasminogen Activator for Acute Ischemic Stroke," Neurology, v. 50, April 1998, p. 883-889.

Fleecing Taxpayers and Limiting Choice. Two-thirds of seniors on Medicare already have prescription drug coverage, which hardly constitutes a crisis. And under the Democrats’ one-size-fits-all plan, taxpayers would buy medicine for all 39 million elderly and disabled, including wealthy seniors such as Warren Buffet, Rupert Murdoch, and George Soros. If the Democrats simply gave the $253 billion to the 13 million seniors with little coverage, they would each receive $1,946 per year for 10 years—almost four times the amount that the majority of seniors spends in drug costs.

Under the GOP plan, coverage would be restricted to drugs on an approved formulary list. If a senior or a physician wanted to prescribe an unlisted drug, the cost would not be covered. And physicians would not decide which drugs would be on the list. That job will fall to federal bureaucrats, whose concern will be containing costs, not the well-being of beneficiaries. Seniors’ access to medicine would become restricted, just as the Medicare program currently limits expensive procedures.

What Government Control Means. The government would also set the prices it would pay for medicines, hindering the addition of new drugs to the formulary. When drug consumption increased, the formulary would be strained to cover fewer medicines, excluding the newest and most costly treatments. For example, in Ontario, Canada, in an effort to control costs, the government approved only 25 of 99 drugs approved by Canada’s federal government in 1998 and 1999. In Britain, where 16,000 women die from breast cancer every year, the National Health Service is currently denying women Taxol and Taxotere, because they are too expensive. Going down the same road to a government formulary in the United States would ultimately leave seniors with fewer treatment options. Moreover, once drugs and prices are set for the formulary, pharmaceutical companies will not have an incentive to create new medicines.

Before 1997, restrictions prevented Medi-Cal, the California Medicaid program, from prescribing atypical schizophrenia drugs. The program insisted that two cheaper, older medications be prescribed before any newer treatments. However, if patients were given a new treatment (risperidone), $4,842 would have been saved per year. In addition to the relief of unnecessary suffering, Boston Consulting Group found that unrestricted access to newer medications could save California $17 million annually. In 1997, restrictions on prescribing atypical schizophrenia drugs were lifted, doubling the number of patients who returned to work as a result of using new medications.

A Better Way. In their effort to show themselves more generous than the other, both Republicans and Democrats have offered plans that are too costly, inflate bureaucracy, and jeopardize choice. American seniors deserve better. Rather than complicate Medicare with a convoluted approval process, legislators now have the opportunity to give seniors a choice.

Medicare should be reformed into a back-up catastrophic program and today’s workers should be allowed to divert Medicare payroll taxes into medical savings accounts (MSAs). Seniors should also be able to enroll in a private-sector plan with a high deductible and MSA. The health concerns of seniors, and everyone else, are too important to be sacrificed to political posturing.

*Laura Dykes is a public policy fellow at the Pacific Research Institute’s Center for Enterprise and Opportunity.

For additional information, contact Laura Dykes at (415) 989-0833.