...New Medicare plan forbids government purchasing pool
(From Page 1)
ditional Medicare is allowed to offer.
By the end of 2005, about 500 managed
care plans had contracted with
Medicare, covering about 6 million en-
rollees.
“People are missing the point of the
Medicare Modernization Act by focus-
ing on the prescription drug benefit,”
Berenson said. “The real thing is it’s an
attempt to systematically do in tradi-
tional Medicare by making private
plans more attractive.”
is, you have to know two things:
1) In bargaining for a better deal,
size matters. Larger groups of buyers
get a better deal than smaller groups of
buyers.
2) The authors of the Medicare
Modernization Act specifically forbade
the government from forming the
biggest purchasing pool of all — it for-
bade the government from bargaining
on behalf of all 41 million Medicare re-
cipients. That would have lowered
prices, possibly to the Canadian level,
and hurt the profit margins of drug com-
panies.
Instead, seniors will be divided
among a great many plans. No state has
fewer than 11 plans. Oregonians have
71 plans to choose from. Washingtoni-
ans have 73.
And the ownership patterns of the
new PDPs raise all kinds of questions
about financial conflicts of interest. The
newly hatched PDPs were formed by
drug companies, HMOs, PPOs, phar-
maceutical benefit managers, large pri-
vate employers and even the AARP, a
private non-profit. The only entities ex-
pressly forbidden by the law from form-
ing PDPs were state and local govern-
ments. They might have run the plans
too efficiently, drawing customers away
from private-sector competitors, and
that goes against market ideology.
Presumably, the PDPs are negotiat-
ing some discount on the drugs they
buy, just nowhere near the discount the
government could have gotten directly.
But again, when the sponsors of the
Medicare Modernization Act of 2003
weighed the interests of drug and insur-
To get the new drug benefit, seniors
who don’t have employer or union drug
coverage have two options: join or stay
in one of the Medicare subsidized
HMOs, or sign up for a stand-alone
Medicare-approved Prescription Drug
Plan (PDP).
Market ideology says that by pool-
ing the drug purchasing power of many
enrollees, the Medicare Advantage
plans or stand-alone PDPs can bargain
down the price of drugs and thereby
save money for taxpayers or enrollees.
To understand how preposterous that
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ance companies against the interests of
seniors, seniors lost out.
Not only did the law ban the U.S.
government from trying to get a good
deal from drug companies, it also pro-
hibited reimportation from Canada,
which does bargain a better deal for its
citizens. All of the bill’s sponsors — 19
Republicans and one Democrat — were
recipients of generous campaign contri-
butions from PhRMA. And one of the
bill’s sponsors, Louisiana Senator Billy
Tauzin, left the following year to be-
come president of PhRMA.
Medicare projects its new program
will account for 28 percent of the total
U.S. prescription drug market. Experts
differ on whether the new Medicare
drug benefit will cause drug prices to go
up or down in the short run. Some think
discounts negotiated by PDPs will tem-
porarily reduce prices while others
think drug companies will treat the new
benefit like a blank check and raise
prices.
After drug and insurance companies,
there’s a third group the new drug pro-
gram will subsidize: employers and
unions that were previously providing
retiree prescription drug benefits.
Critics of the Medicare Moderniza-
tion Act argued that the new govern-
ment benefit would cause employers to
drop coverage. Why keep paying for a
retiree drug benefit when the govern-
ment offers other options?
To prevent that from happening,
Medicare set up a subsidy program.
Employers and unions that contribute
an amount equivalent to Medicare’s
contribution to drug plans will be par-
tially reimbursed. The formula is com-
plex, but basically rebates 28 percent of
each qualifying retiree’s allowable pre-
scription drug costs. The subsidy is pro-
jected to amount to $56 per retiree per
BENNETT HARTMAN
MORRIS & KAPLAN, LLP
Attorneys at Law
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111 SW Fifth Avenue, Suite 1650, Portland,
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NORTHWEST LABOR PRESS
JANUARY 20, 2006