Very few people would disagree with the premise that all Americans, especially seniors, should have access to prescription drugs.
Prescription drugs have the potential to be the best investment anyone can make for overall quality of health. In fact, one study shows that every dollar spent on prescription drugs is associated with a decrease of $4 in hospital expenses.
With that said, the government should not add a new $118 billion program to pay for unlimited drug coverage for our nation's seniors. Why not? Because to do so would risk the future solvency of Medicare with a program that could be more efficiently and cost-effectively handled by the private sector.
First of all, it is important to remember that about 65% of seniors already have some type of drug coverage. Although some seniors do face prescription drug expenses that they cannot afford, surely we can find a solution for them without creating a gigantic financial burden on taxpayers and putting Medicare at risk.
It is also important to note that Medicare causes many of the problems suffered by seniors without a drug benefit, because it violates almost every principle of sound insurance. The program pays too many small bills the elderly could easily afford on their own, while leaving them exposed to thousands of dollars of potential out-of-pocket expenses. No private insurer would be allowed to sell a plan with these gaping holes.
To avoid the prospects of financial devastation, a majority of seniors acquire private insurance to fill the gaps in Medicare – either through a former employer or by purchasing supplemental "Medigap" insurance. Economic studies, however, show that seniors with Medigap insurance consume significantly more health care than those without the insurance. When patients have first-dollar coverage, they tend to be less prudent consumers of care.
In addition, most Medigap policies do not cover drugs and many employer plans have incomplete coverage; as a result, patients and their doctors have a perverse incentive to use doctor and hospital services when less expensive drug therapy would have been preferable.
Currently, the 17 percent of Medicare beneficiaries who are enrolled in a private HMO are enjoying more benefits at a lower cost. However, because the government's method of paying premiums to these private plans is highly imperfect, discrepancies exist, a number of HMOs have been underpaid – and those are the ones that are leaving the market and disrupting seniors health care.
According to a new study conducted for the National Center for Policy Analysis by Milliman & Robertson, the nation's leading actuarial consulting firm on health benefits, private health plans have the ability to eliminate much of the waste and inefficiency in Medicare and use the savings to cover the cost of prescription drugs not currently covered. A private plan can potentially eliminate much of this waste by providing a unified set of benefits with the same health care dollars.
The study assumes that if seniors leave Medicare and join a private plan, the plan will receive from Medicare a sum equal to the amount Medicare would have spent. Thus, private contracting occurs under conditions that promise no profit and no loss for the government. They estimate that an HMO, receiving what Medicare would have spent on each senior plus an amount slightly above what seniors currently spend on Medigap insurance, should be able to provide comprehensive coverage, including coverage for prescription drugs.
Seniors who want to exercise more choices should be able to enroll in a fee-for-service plan with a high deductible and a Medical Savings Account – in many cases for a premium that is considerably less than what they currently pay for Medigap. The out-of-pocket cost under these plans would vary, depending on the degree of managed care, and would average about $1,200 a year – far less than the unlimited exposure most seniors now face for the potential cost of drugs.
In many cases, moving to a private plan would not only provide coverage for prescription drugs, but would also generate considerable financial savings; for example, the average senior who currently has Medigap insurance would save more than $1,000 a year in lower premiums and out-of-pocket costs.
In a time when Medicare is in a real financial crisis, it makes much more sense to find a private alternative to prescription drug coverage, rather than pouring more money into a sinking ship.
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The National Center for Policy Analysis is a public policy research institute founded in 1983 and internationally known for its studies on public policy issues. The NCPA is headquartered in Dallas, Texas, with an office in Washington, D.C.