Northwest labor press. (Portland , Ore.) 1987-current, January 20, 2006, Page 12, Image 12

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    ...New Medicare drug plan costs taxpayers $32.1 billion
(From Page 8)
month for the first year.
However, the subsidy program
seems to favor employer-sponsored re-
tiree drug plans over union-sponsored
plans. That’s because the subsidy is a
tax-free grant given directly to the “plan
sponsor.” Union benefit trusts are al-
ready tax-exempt. But companies pay
taxes on ordinary income. That means
that all other things being equal, a large
company would get a bigger rebate
sponsoring its own plan than contribut-
ing to a union plan.
It’s not clear the subsidy will work
in any case. In 2005 the Kaiser Family
Foundation sponsored a survey of 300
large employers that provided retiree
drug coverage. About 10 percent said
they intended to drop coverage in the
first year of the new program. An equal
number planned to supplement govern-
ment-sponsored plans with additional
coverage. Expectations of remaining in
the subsidy program dropped each year
for the next few years.
Kathryn Bakich, head of National
Health Compliance for Segal Company,
the largest benefits consulting firm in
the U.S., said it was impractical for
unions and employers to change what
they were doing in the first year, be-
cause details of the new plans weren’t
announced until September 2005.
“Most of our clients are taking the
subsidy,” Bakich said.
The Medicare Modernization Act
leaves almost no private health care en-
tity unhelped. After the employer sub-
sidy, there is gravy for others lower on
the food chain: rural hospitals, medical
equipment manufacturers, auditors, ac-
tuaries, doctors. In every case, the vi-
sion is to use government regulation,
and taxpayer dollars, to assist the pri-
vate sector.
“There are certainly contexts where
the private sector is markedly more effi-
cient,” says Yale University political sci-
ence professor Jacob Hacker. “But in
this case. essentially what the govern-
ment is providing is insurance, and
when it comes to insurance, there’s a
very strong rationale for the govern-
ment to be the primary insurer because
it’s so much better at spreading these
risks and doing it in a more efficient
Medicare drug program
mindbogglingly complex
Associate Editor
There’s a new government benefit available for senior and disabled citizens who
are eligible for Medicare — subsidized prescription drug coverage.
That’s the good news. The bad news is: The program is insanely mindbogglingly
In a nutshell, here’s how the new program works, from the beneficiaries’ stand-
point: Senior and disabled citizens who are eligible for Medicare — and who don’t
have existing drug coverage — have until May 15 to sign up for a Medicare-ap-
proved private insurance plan.
Participation is voluntary, but if they don’t sign up by May 15 and later want to
join, they face a late penalty of higher premiums. The penalty is 1 percent each
Medicare says the new drug coverage will pay about half the cost of drugs for
the typical senior. Though some plans are more generous than others (and may
have higher premiums) plans have to offer at least a basic minimum benefit. The
minimum benefit looks like this: Beneficiaries pay the first $250 (a deductible).
From $250 to $2,250 they pay 25 percent of drug costs (a co-pay). From $2,250 to
$5,000 they pay 100 percent of the drug costs (this is termed a coverage gap or
“donut hole”). And for costs above $5,000 a year, they pay 5 percent.
Formularies — lists of covered drugs — also differ among plans and can change
at any time. But the plans are required to offer at least two drugs in each of 43 ther-
apeutic categories.
In Oregon, there are 71 Medicare-approved private prescription drug insurance
plans to choose from; in Washington, 73. Each plan is different, with different
monthly premiums, deductibles, co-pays, different drugs covered, and different
pharmacies participating. Some plans are “stand-alone” plans that go with tradi-
tional Medicare. Others are “Medicare Advantage” plans that have added a drug
benefit to a set of other benefits. Medicare Advantage plans are like government
subsidized HMOs. But they replace “traditional Medicare” so you can’t have both
at the same time.
In the Northwest, the average premium cost of a new Medicare stand-alone drug
plan is $32 a month. That would be in addition to the $88.50 monthly premium for
basic Medicare.
By visiting the Medicare Web site and plugging in preferred pharmacy and the
list of prescription drugs currently taken, seniors can narrow the list of choices
down to just 6 or 10.
But then, a 2005 poll by the Kaiser Family Foundation found that 73 percent of
seniors had never gone online at all. So they’ll need someone else to do it for them
— relative, friend, co-worker, neighbor, or government-provided volunteer.
HMOs and PPOs have lost credibil-
ity as efficient ways to finance health
care, adds the Urban Institute’s Beren-
“Health plans have failed in the pri-
vate sector,” Berenson said. “They’re
passing on all the cost increases mostly
to workers in the form of increased co-
payments. And in the face of that
record, Congress goes and says we now
plan to raise taxes, on the rich or any-
one else, to pay for the program. In fact,
the Bush Administration has been dis-
mantling old taxes and breaking all pre-
vious records for running up deficits.
That means that the overpriced drugs
it’s subsidizing for today’s seniors will
be paid for, with interest, by tomorrow’s
The bill will eventually come due.
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(Turn to Page 10)
want them to solve Medicare’s prob-
Last year, the Congressional Budget
Office estimated that the new Medicare
drug benefit will cost taxpayers $32.1
billion in 2006. That outlay is expected
to triple in seven years.
But unlike original Medicare, which
was largely self-funding, the drug ben-
efit is a new expense without any plan
for new revenue. There is no equivalent
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JANUARY 20, 2006