Got Drugs?

The new Medicare prescription law is a policy disaster. It offers a pittance or worse for most elderly, is a boondoggle for the drug and insurance companies, and threatens to privatize and dismantle Medicare itself. But because Republicans now can claim they delivered a prescription drug plan for seniors, political strategists in both parties regard it as a big boost to Bush’s re-election bid.

But Bush’s victory could be turned into a political albatross and help drag him into defeat next year if critics can get voters to focus on details, not sound bites. The president’s Medicare plan could be used to show how Bush and the Republicans have sabotaged the public good and devoted themselves to corporate interests.

By catering to the rich and corporate special interests, Bush has made life tougher for the average American family. And his favoritism is not simply unfair—it’s bad for the economy, bad for America as a community, and especially bad for low- and middle-income people.

A Medicare-focused attack on Bush could succeed for two reasons: The plan is complex and many seniors will be worse off than if there were no change in the law. For example, despite subsidies to corporations to continue prescription insurance, the Congressional Budget Office concluded that 23 percent of retirees with employer-paid plans—or 2.7 million individuals—will lose those benefits and have worse coverage under Bush’s bill. The poorest and sickest seniors will pay more because Medicaid won’t pick up their costs, and hard-pressed states will face new bills for the very poor. In addition, according to the Economic Policy Institute, nearly half of seniors who have drug bills of less than $810 a year may pay more than they now do. Stricken also is universal coverage, as Medicare previously provided, in favor of cost sharing and drugs that could vary according to region.

This backlash against Bush already has a firm foundation. Just before the congressional vote, a Hart Research poll showed that 64 percent of voters 55 and older rejected the proposed plan when they heard the details; only 19 percent supported it. “The more seniors learn about this benefit, the more unhappy they become,” says Ron Pollack, executive director of the health-care advocacy group Families USA.


The skimpy, confusing coverage is a tattered fig leaf for a wide range of destructive policies. Here progressives—including unions, senior groups, health-care advocates and the panoply of liberal Democratic interest and constituency groups—have the opportunity to introduce legislation next year to repeal each of the flawed, pro-corporate policies. If Republicans (and their Democratic allies) resist, it will demonstrate that the plan’s supporters are more interested in protecting corporate interests—which will receive $125 billion in direct subsidies out of the $400 billion the bill will cost over the next decade—than in providing help for seniors.

One obvious target would be to repeal the prohibition on Medicare bargaining with pharmaceutical companies to obtain lower prices, much as the Veterans Administration already does. Such bargaining is the main reason drug prices are lower in all other industrial countries, all of which have national health insurance. Additionally, Congress could mandate that importation of drugs from Canada be legal. The Republican bill leaves that decision to the Health and Human Services Secretary Tommy Thompson, who said re-importation will be prohibited.

The new plan requires Medicare to contract with private plans, but if no or only one company offers a plan in an area Medicare will provide an alternative. Medicare already pays HMOs 19 percent more for services similar to what the program provides. Under the new plan, the subsidy would increase to as much as 30 percent above Medicare costs. In addition, the new law provides $12 billion in subsidies for private insurers to provide prescription plans—money essentially taken from help for the very poor in conference committee.

• Congressional Democrats should advocate providing prescription drugs through Medicare. When that fails, they should insist on a level playing field—no subsidies for private plans and a Medicare option everywhere.
• Progressives should push to eliminate the law’s demonstration project of competition between traditional Medicare and private health plans. The new law permits the heavily subsidized private insurers to cherry pick healthier beneficiaries. That would leave traditional Medicare with higher costs, and premiums charged to Medicare participants would increase sharply. If the demonstration plan can’t be eliminated, there should be no subsidies for private plans and no freedom to cherry pick participants.
• Health-care and tax reformers should support legislation to eliminate health savings accounts. Unlike all other tax-advantaged savings plans, this would permit individuals to avoid taxes both when the money is deposited and when it is withdrawn—setting a dangerous precedent conservatives are likely to push for other plans. These health savings accounts—combined with a high-deductible insurance policy—also are likely to drain relatively healthy, high-income individuals from traditional insurance pools. Employers are likely to shift away from the low-deductible plans most offer now toward this less expensive type of health plan. As a result, premiums for comprehensive, employer-based insurance for the average working person could more than double, according to the Center on Budget and Policy Priorities.
• Under the duplicitous label of “cost control,” the new law merges the Medicare trust funds for hospitals (now paid from payroll taxes), outpatient care (now paid by premiums and general revenue) and drugs. It arbitrarily limits general tax revenue to 45 percent of the total cost of Medicare. As Jeanne Lambrew, a health policy expert with the Center for American Progress think tank, argues, this will trigger a Medicare crisis about a decade early. Then the law would prohibit using more progressive income taxes as a solution and leave a choice of benefit cuts, higher premiums for seniors or increased payroll taxes—all regressive options.

Is there much chance of passing these reforms next year? Probably not, even though the Republican prescription plan narrowly passed with extraordinary arm-twisting of hostile conservatives and capitulation by a small but crucial number of Democrats. But each battle could highlight how Republican devotion to corporate interests undermines one of the two cornerstones of the country’s essential but inadequate retirement system.

Even without such pre-election confrontations, almost two-thirds of likely voters now think that Bush acts for big business and not the people, according to a poll by Democracy Corps. And that percentage is growing. Already high levels of cynicism about business—a belief that corporations are too powerful, make too much profit, and fail to balance profits and the public interest—have grown sharply in the past three years among Democrats and independents, according to the Pew Research Center for the People and the Press. Conversely, Republicans have grown more pro-business.

Unfortunately for Democrats, several 2002 polls, reported in a recent American Enterprise Institute study, show that voters think Democrats and Republicans are both too influenced by big corporations. Democrats are seen as only slightly more likely than Republicans to reform corporations.

Despite the high level of distrust of corporations, popular opinion is often of two minds about big business—seeing it as an arrogant, abusive and corrupting power but also as a source of economic wellbeing. Politically, the key is demonstrating how the public good is undermined and the wellbeing of most individuals suffers when government fails to make corporations operate in the public interest.

Not only are jobs and income growing too slowly for most Americans to get ahead financially, but also many people are swamped with growing consumer debt, higher medical costs (as employers shift the burden to their pocketbooks), cutbacks in needed local services, rising local taxes (which are highly regressive, hitting hardest on the most vulnerable) and rising tuition costs. Under the Bush administration the economic security of the great majority has declined as the economic fortune of a rich minority has increased. Democrats can turn Bush’s Medicare triumph into an electoral victory if they link these two trends in the public’s mind and champion the public interest and the popular majority against corporate privilege and power.