Inside
MEETING NO TICES
See
Page 6
V olume 107
Number 2
J anuary 20, 2006
P ortland
All aboard the gravy train!
Seniors are the supposed beneficiaries of the new Medicare Prescription Drug Benefit,
but the closer you look, the more it seems like it was set up to benefit drug and insurance companies
By DON McINTOSH
Associate Editor
In the beginning, Medicare was a
simple idea: The government would
help pay the medical expenses of the
old. Sign up at age 65 — get a Medicare
card, and present the card when you go
to the hospital or doctor. They bill Un-
cle Sam for most of the expense. You
focus on getting better.
Set up in 1965, Medicare is a single-
payer health insurance system — for
senior citizens.
It’s funded by a small payroll tax
paid by workers and employers, plus
monthly premiums paid by those en-
rolled, plus a direct transfer from the
government’s general revenues.
Medicare was an extension of Presi-
dent Franklin Delano Roosevelt’s New
Deal, and was seen by its authors as a
stepping stone to universal health care.
It came about because of 10 years of ad-
vocacy by the AFL-CIO and a landslide
victory for Democrats in the 1964 elec-
tions.
Because it’s a simple concept, with a
uniform benefit and universal eligibil-
ity, it’s very efficient. Medicare’s ad-
ministrative costs are 1.6 percent.
But in the reinvention of Medicare
that is now under way, simplicity and
efficiency have lost out to ideology and
special interests.
The ideology is market ideology.
The special interests are drug and insur-
ance companies.
On Jan. 1, Medicare expanded into
paying for prescription drugs.
Medicare could have issued a drug
benefit card to all seniors, directed all
pharmacies to send a bill to an address
Building Trades Council
first labor group to back
Kulongoski for re-election
The Oregon State Building and Construction Trades Council
(OSBCTC), the statewide organization representing a majority of
Oregon’s construction unions, has endorsed Democrat Ted Ku-
longoski in his bid for a second term as Oregon governor.
“Ted Kulongoski has been a very good governor for the state of
Oregon. His commitment to getting Oregonians back to work has
been effective and is a breath of fresh air for Oregon politics,” said
Bob Shiprack, executive secretary of OSBCTC. “Governor Ku-
longoski has earned the endorsement of our 30,000 members and
their families.”
Construction trades delegates praised Kulongoski for his work
in rebuilding Oregon’s economy and for supporting critical trades
issues, ranging from prevailing wages to working conditions. Ku-
GOV. TED KULONGOSKI
longoski was commended for bringing jobs back to Oregon fol-
lowing the state’s economic downturn in 2001, and for improving
the state’s fiscal affairs. He also received high acclaim for securing much-needed capital improvements in the state’s
transportation infrastructure, which had gone lacking for too many years.
“Ted has balanced job creation and our environment. He appreciates both, as do most Oregonians,” said Shiprack.
“The governor has accomplished a great deal without the normal political bragging, and the Oregon Building and
Construction Trades members appreciate his efforts.”
Shiprack also recognized Kulongoski’s efforts as insurance commissioner “in establishing Oregon’s revamped
workers’ compensation system that protects injured workers, which is now the envy of many other states.” He added
that the Oregon governor played a key role in the creation of construction jobs by streamlining the state’s construc-
tion permitting process. Shiprack noted that job growth spurred by Kulongoski’s initiatives has attracted more young
adults into the field, enhancing the future vitality of Oregon’s construction trades.
The Oregon State Building and Construction Trades Council is an umbrella organization comprised of 26 affili-
ated union locals representing more than 30,000 construction workers.
in Washington, D.C., and used the com-
bined purchasing power of 42 million
enrollees to bargain with drug compa-
nies for the best deal possible.
But the architects of the new drug
program believe in market ideology.
So instead, the government created
a completely artificial market, in which
nearly every feature is defined by the
law. In this “market,” new entities called
“Prescription Drug Plans” compete
with each other — with marketing and
advertising — for participants. For
every participant the plans sign up, the
government pays the plans a certain
amount. It’s called capitation. Just as
decapitation is head subtraction, capita-
tion is head addition — the plan counts
heads, sends the bill to the government,
and the government pays a per-head
bounty.
So rather than bill the government,
pharmacies bill the middlemen, and the
middlemen bill the government. The
formula by which the plans are reim-
bursed eludes easy explanation. But it’s
enough to cover the plans’ administra-
tive and marketing costs, and profit.
“Every time you see a mailing or
piece of advertising for one of these
plans, that’s a dollar that could have
gone for lowering drug prices,” says
Bill Vaughan, senior policy analyst for
Consumers Union, the group that pro-
duces Consumer Reports magazine.
Humana, a Kentucky-based health
benefits company, is reportedly spend-
ing $80 million on outreach efforts for
its prescription drug plans. Aetna plans
to spend about $50 million, and other
companies are dedicating substantial
amounts. Presumably they expect to get
back every penny. In addition, Pharma-
ceutical Research and Manufacturers of
America (PhRMA), the drug industry
lobby group, is hiring public relations
firms like Oregon-based Ulum Group
to tout the merits of the new program at
outreach, education and enrollment
events. PhRMA didn’t respond to
Northwest Labor Press requests for in-
formation on how much its outreach ef-
fort is costing. Medicare itself is spend-
ing $500 million on publicizing and
explaining the new program, and has
assigned over 9,000 employees to an-
swer questions about the new benefit.
The new program’s administrative
costs will be 12 to 13 percent the first
year, according to Medicare estimates
— more than six times the cost when
Medicare doesn’t deal with a multitude
of middlemen.
“There’s an ideology that private
plans are more efficient and save
money,” says Bob Berenson, senior fel-
low at the Urban Institute, a Washing-
ton, D.C. think tank. “But the facts on
the ground are that adding private plans
in Medicare costs extra money.”
Berenson points to Medicare’s ear-
lier move toward privatization, called
Medicare+Choice. Medicare+Choice
allowed Medicare participants to enroll
in private insurance plans in place of
traditional Medicare, with Medicare
picking up the tab. Medicare+Choice
was created by the Balanced Budget
Act of 1997, and it was supposed to
save Medicare money through the mir-
acle of private-sector efficiency exem-
plified by the new breeds of health in-
surance: HMOs and PPOs (Health
Maintenance Organizations and Pre-
ferred Provider Organizations.)
Within three years, the government’s
own budgetary watchdog agency was
reporting that the new program was
costing Medicare more, not less. In an
August 2000 report to Congress, the
General Accounting Office concluded
that Medicare was spending 21 percent
more per enrollee.
Did those facts cause a rethinking of
market ideology? No, Berenson says.
Ideologies are impervious to evidence.
In fact, the Medicare Modernization
Act of 2003, which created the new
Medicare Drug Benefit, rewrote the
rules to favor private insurance plans
even more. Medicare+Choice was re-
named Medicare Advantage, with all
the advantage going to the private plans.
In a nutshell, Medicare is funding its
own competition, and so generously
that Medicare Advantage can afford to
offer greater benefits to seniors than tra-
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