The Raid on Medicare

By Kelly Hearn, AlterNet. Posted September 20, 2004.

Earlier this month, the Bush administration announced a 17 percent increase in Medicare premiums, saying the hike was necessary to pay for added services and general increases in expenses. But the news rekindled criticism of the Medicare Modernization Act of 2003, a.k.a. the "Medicare prescription drug bill." That massive bill – estimated to cost the federal government $534 billion over the next 10 years – essentially means windfall profits for the pharmaceutical industry and substandard benefits for the average senior citizen. What's more, it ties up the government's hands, barring it from negotiating lower drug prices with manufacturers, the way other agencies like Medicaid and Veterans' Affairs do.

The biggest expansion of coverage since Medicare was established in 1965, the bill - signed into law by President Bush last December – was supposed to provide coverage for drugs that senior citizens consume at home (the regular Medicare program just pays for drugs given in hospitals and doctors offices). But after being chewed on by nearly 1,000 drug industry lobbyists and washed down with millions of dollars in campaign contributions, the measure stumbled embarrassingly short of its mark. It became a symbol of the grip that the pharmaceutical industry – Big Pharma – has on Washington.

In essence, passage of the law was akin to a major heist. And what taxpayers and seniors lost – and what big pharma gained – is only beginning to emerge. So is the issue of how they pulled it off. Given the differing record and positions of Bush and John Kerry, the outcome of Nov. 2 could have a significant impact on the health and pocketbooks of millions of Americans.

"The bill is tragic," says Alan Sager, a Boston University professor who has closely studied the new law with his colleague, Deborah Socolar. "While this law will help some seniors get drugs they need, my colleague and I predict drug-makers will garner $139 billion dollars in increased profits over eight years, thanks to this new benefit, as inadequate as it is to patients and as expensive as it is to the federal government."

The Congressional Budget Office projected the law will cost taxpayers $400 billion over 10 years, but after it was enacted, the Bush administration revealed that the costs could reach $534 billion (that potentially illegal withholding of data is the subject of a federal investigation).

Sager and Socolar calculated in October of 2003 that 61 percent of Medicare dollars spent to buy more medicine will become profit for drug-makers.

Bill of Goods

The impetus for the law was that it would do a ton for the people who need drugs most. Did it?

John Rother, policy director for the AARP, which supported the bill, calls the law "a first step" that benefits low-income seniors, nearly a third of whom will qualify for "very generous benefits worth $4,000 a year with no premiums or deductibles." It will also help seniors with the most expensive drug bills, he says. But for those with moderate drug needs, the benefits "will provide only modest help."

Some critics say that unbalanced coverage creates an unacceptable "donut hole." According to Public Citizen, once the law takes effect in 2006, the poorest seniors making less than $12,000 (or $16,400 if a couple) will be spared nearly all costs if their assets, not including a car and home, are less than $6,000 for a single person and $9,000 for a couple. The other two-thirds of seniors will face a $420 premium, a $250 deductible and a share of the cost of drugs that will vary according to the size of the bill. By 2006, the watchdog group says, the average senior will face $3,160 in total drug costs; under the new law, seniors will still have to cough up 66 percent of that amount.

Big Pharma came out smelling better.

For its lobbying efforts, it landed a motherlode of future customers. The Medicare Rights Center, an advocacy group, says Medicare enrolls 35 million adults aged 65 and over and six million younger persons with disabilities. The typical Medicare beneficiary has an annual income of $14,300 and at least two chronic health conditions. Extending a drug benefit to those millions means a mammoth expansion of Big Pharma's customer base.

But the industry hit the jackpot in two other ways: getting those new customers while avoiding any price controls and blocking legislative attempts to let Americans buy cheaper drugs from other countries.

Kelly Hearn is a correspondent for The Christian Science Monitor and a former science and technology writer for UPI. Based in Washington DC and Telluride, CO, he is currently investigating the political influence of major pharmaceutical companies.

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