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August 10, 2007

Medicare Analogies

It's incumbent on us to say, rather honestly, that Medicare Part D is working better than expected. More than 90 percent of seniors now have drug coverage, and the poor seniors, who get their drugs through Medicaid, have signed up in record numbers. Yet Medicare Part D is still a bad program.

I've long struggled to explain this, because if something's a bad program, we assume that people won't like it. But satisfaction with Part D is quite high -- and costs are even coming in a bit below estimates. So what gives?

Imagine the government starts up a subsidized cars program. Millions of individuals who don't currently have a car are going to get one, and will only pay 15 percent of the cost. But when the program is actually implemented, it turns out that though everyone is getting an economy car, the government is letting the dealers dictate the prices. So all these $15,000 Civics are costing $35,000.

Now, millions of people just got a brand new car. And they paid only a small amount out-of-pocket for it. And insofar as your aim was to increase mobility, you've succeeded. But the program wasn't a good deal. The government is overpaying for every car by around $20,000. And the program's recipients are getting much less car than they should be for their money. So though the aims are being fulfilled and the folks with subsidized autos are satisfied, everyone involved -- taxpayers, government, and the poor -- are being ripped off while the car dealerships make out like bandits. It's just that it's harder to see the rip-off, and easier to see the new cars.

August 10, 2007 in Health Care | Permalink

Comments

Part D appears to be working for Medicare beneficiaries (the original term as in “insurance beneficiaries” now routinely labeled “recipients” as in Medicaid or welfare recipients.)

Had he survived, even a Medicare-eligible Elvis would probably be happy if he found the right formulary. The PBM would be happy too. But it would be a rather large FedEx delivery of a 90 day supply of all those Schedule I and II meds.

Health care reform/economics is impossible to put on a bumper sticker.

Posted by: DAB | Aug 10, 2007 11:05:26 AM

Ezra,

I don't think this is right. The PBMs negotiate on behalf of the Part D plans, just like they do for employer plans.

So to continue your analogy-- Medicare is paying $15,000 for Civics just like everyone else. The people who think Medicare Part D is a "bad deal" think either 1) $15,000 is more than anyone should be paying for a Civic or 2) buying in greater bulk should entitle Medicare to buy Civics at less than $15,000

That's very different than what you wrote...

Posted by: wisewon | Aug 10, 2007 11:42:16 AM

Actually having Part D coverage, I would say the program is working about as expected. Most seniors have been relieved of some costs, and some seniors have been relieved of most costs. The drug companies have found a slot that pours out quarters every time they pull the lever.

Of course people enrolled. If you didn't, SS would enroll you. Saying that people are satisfied, though, is a bit of a stretch. When you live on an SS income, you start to see a five or ten dollar rebate as an unexpected windfall. When you ask the insured if they're happy, they're obviously not going to say "Oh no, I liked it better the way it was before".

Humana very thoughtfully sends me a monthly statement showing that they reimburse the drug seller one half of what I would pay for the same drug as a private citizen. The drug seller is not losing money selling to Humana at half price- we know that because in many cases the drug seller is Walmart Pharmacy, and Humana is also a Walmart company.

And this half price markdown achieved by the muscle of the marketplace is for a generic, which at full MSRP is only half the price of the same drug with a brand name.

It's a complicated dance with the drug companies and insurers frequently stepping on the insured's toes, and don't doubt that we the insured are feeling the pain.

Posted by: serial catowner | Aug 10, 2007 11:45:07 AM

Well, wiseone, you don't know the whole story. The pharmacists have been told that the generic I referred to, albuterol inhaler, is not available. But only the generic is on the formulary.

So the average person who walked up to the counter, as I did, and was told that the generic was not available, and that the charge would be $70, well, they probably pay the $70.

So, in theory the insurance companies are paying the dealer invoice price, but in actual practice I think a lot of seniors still pay quite a bit out of pocket.

Posted by: serial catowner | Aug 10, 2007 11:52:34 AM

So when you write about the overwhelming popularity of social programs like Medicare and Social Security as justification for even more social programs, we should probably ignore that, right?

Posted by: Alex | Aug 10, 2007 1:56:16 PM

Seniors arent "satisfied" they want it all. They want 100% of all drugs paid for by the fed and they wont be "satisfied" until they get that.

Posted by: joe blow | Aug 10, 2007 8:12:17 PM

The best thing about Part D is that it represents something, as opposed to nothing, which is what Medicare beneficiaries were getting in the days before the 2003 Medicare Modernization Act came into being. As serial catowner correctly notes, when you ask a senior if they're satisfied, they basically are left with the choice of saying either "yeah" or "compared to what?"

I'd like to see what the poll would look like if the question were put: Do you feel like you actually understand Medicare Part D? You'd probably get a quizzical look from Einstein himself on that one. Part D is pretty good to people who are on 5 or less meds (assuming that no more than 2 of the prescriptions are Tier 3 or Tier 4 in the formulary) and who have at least some kind of income. For people who are destitute (medicaid recipients), it's a moot point, since their drugs, including any premium for a Part D plan, are paid for by the state, with some federal funding. If, however, you are still working, making a couple thousand a month and are on half a dozen or more meds - and 3 of them are Tier 3 or Tier 4 - you're simply screwed. The "donut hole" will eat your lunch.

How is that? Well, you're paying about $27 a month for the Part D plan's premium (latest national average) and - even though the chances are good that you won't have to meet a deductible (although the law allows insurance companies to charge up to $265) - once $2400 has been spent, you are in what is known as the "coverage gap" or "donut hole". Here is how the Medicare and You 2007 manual describes it : Medicare drug plans may have a “coverage gap,” which is sometimes called the “donut hole.” A coverage gap means that after you and your plan have spent a certain amount of money for covered drugs (no more than 2,400), you have to pay out-of-pocket all costs for your drugs while you are in the “gap.” The most you have to pay out-of-pocket in the coverage gap is $3,051.25. This amount doesn’t include your plan’s monthly premium that you must continue to pay even while you are in the coverage gap. (bold emphasis is mine).

Remember now that we're not talking about someone who spends most of her time showing off her new iPhone to her friends. Our example is someone who's knocking down $2K a month and, after taxes, is coming up with, say, $800-900 every thirty days to get through the gap"(with six scripts, where three are high-tier, she's going to hit the pay-100%-no-man's-land in the 7th or 8th month, depending on drugs her doctor wants her to take). In reality, by the time she come up for air on the other shore of the "gap", the insurance company will probably have spent less than a thousand on this person, since her co-pays are so high on the Tier 3/4 drugs and, as far as the first $2400 is concerned, the clock is ticking according to the RETAIL price of the drug, not what the beneficiary is actually coming up with out-of-pocket.

So essentially, if you're in pretty good shape and on a couple of meds a month - say, a diuretic and one of the statins - you're more than likely gonna say "Sure, I'm satisfied". And you should be, because for you it's a pretty damn good deal. In spite of what joe blow apparently thinks of the older folks, most seniors I meet are perfectly OK with a situation like this, once they understand how it works - and if they're in reasonably good health. If you're the person in my example, though - not indigent, yet not really mainstream middle class - your days and nights are filled with despair about making ends meet, getting your meds and paying your premium. Worst of all, surely, is that - if your medication profile puts you in this kind of place - it is more than likely the case that you are pretty SICK. That's what is really fucked up about Part D: the most ill spend 24/7 trying to keep it together, just to stay on the boat.

Posted by: BdubBellingham | Aug 11, 2007 12:08:39 AM

One expensive medicine (in our case a $30 a pill anti-viral my wife takes) can quickly propel you into the donut hole in the Part D programs. Before 100% coverage then starts, you typically will have shelled out $3600 in out of pocket expenses.

These Part D programs are really just catastrophic coverage. Nice to have, but not what they could be. For someone living solely on Social Security, though, $3600 is pretty catastrophic.

Posted by: bob h | Aug 11, 2007 7:42:49 AM

Very nice analogy.

Posted by: has_te | Aug 11, 2007 11:08:33 AM

I'm not sure why you think part D is 'popular.' There is no choice about enrolling unless one already had insurance that covered prescriptions. It can be cheaper than buying prescriptions on one's own, but really that isn't always so. AND it's another case where the control of what gets prescribed has been transfered from one's own physician to some hidden entity in some corporate office who has absolutely no goals but to make money.

Posted by: gail | Aug 11, 2007 1:26:11 PM

I'm not sure why you think part D is 'popular.' There is no choice about enrolling unless one already had insurance that covered prescriptions. It can be cheaper than buying prescriptions on one's own, but really that isn't always so. AND it's another case where the control of what gets prescribed has been transfered from one's own physician to some hidden entity in some corporate office who has absolutely no goals but to make money.

Posted by: gail | Aug 11, 2007 1:27:18 PM

"One expensive medicine (in our case a $30 a pill anti-viral my wife takes) can quickly propel you into the donut hole in the Part D programs. Before 100% coverage then starts, you typically will have shelled out $3600 in out of pocket expenses.

These Part D programs are really just catastrophic coverage. Nice to have, but not what they could be. For someone living solely on Social Security, though, $3600 is pretty catastrophic."

More of our greedy AARP seniors lining up at the trough. Its not enough that they got yet another social welfare program that makes big pharma even richer, now they have the audacity to declare that once again "its not enough."

If the viral drug is so expensive, then quit fucking buying it.

Posted by: joe blow | Aug 12, 2007 10:24:40 PM

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