11/04/00 9:45 a.m.
Continue the W. Revolution
Bush has plotted the correct course for Medicare.

By Robert Goldberg, National Center for Policy Analysis

efore the Gore campaign tried to derail George Bush with a last-minute, filthy-ditch campaign aimed at the nominee's past, it was trying to defend the current Medicare program as a great government HMO. In fact, the Gore and Bush Medicare plans take dramatically opposing approaches to Medicare and prescription drugs for the elderly. And whatever happens on Election Day, Republicans should honor and build upon the political courage and intellectual honesty of George W. Bush by pushing his program of Medicare and prescription-drug reform because it is superior policy and better health care for millions of senior citizens.

As most know by now, Medicare currently provides coverage for hospital therapy and doctor therapy, but not drug therapy. Failure to cover drugs in the current system creates perverse incentives that waste resources and endanger patient health. Whereas drug therapies are rapidly substituting for more expensive and less effective hospital and doctor therapies in the rest of the health care system, many seniors and their doctors have an incentive to avoid drug therapies simply because patients must pay out-of-pocket. Both the Gore and Bush plans would improve on the current situation, but the Bush plan goes further.

The Gore plan considers drug treatment apart from a patient's other care. There would be three separate sets of decision-makers — one from Medicare, one from Medigap and one from prescription drug coverage, making integrated delivery of health care difficult if not impossible.

By contrast, the Bush plan would offer one comprehensive package to make sure a single set of decision makers evaluates all therapies on a level playing field. This integrated delivery of health care is vital. A 1996 study by the National Bureau of Economic Research found that every dollar spent on prescription drugs is associated with a decrease of four dollars in hospital expenses. A $10,000 drug treatment may be more effective than a $100,000 heart-bypass operation. But whereas a health insurer covering a patient's prescription drugs along with other care would benefit from the switch to the drug treatment, an insurer whose policy covered only drugs would view the treatment as merely a $10,000 outlay.

The driving force behind higher drug costs is the increased use of drugs, not increases in price. For example, a study published in Health Affairs of large managed care and major employer-sponsored health-benefit plans nationwide, covering more than two million people, found that increased volume of prescriptions accounted for $5 of cost increases for every $1 of price increases, even when the price of new drugs was taken into account. That being the case, controlling the total cost of prescription drugs becomes more of a challenge, especially when considered on a stand-alone basis rather than as a part of a comprehensive health plan.

So the crucial difference in the two plans is how they control drug costs and how cost control efforts affect the health care of seniors. Drug formularies probably will exist under either a Gore or Bush approach. A formulary is a list of generic and brand-name medications a health plan will cover. Dr. Susan Horn conducted a study of pharmaceutical restrictions in six managed-care plans. She found that restricting seniors' access to pharmaceuticals was associated with more emergency-room admissions, hospital stays, and doctor visits for such illnesses as depression, heart disease, ulcers, and diabetes. The question is: Under which plan will these lists of drugs be more likely to be used to limit access to new and better drugs at the price of increased risk to patients?

The Gore plan would be forced to use formularies more aggressively — and would be more likely to harm the health of seniors — for two reasons. First, the Gore plan leads to a one-size-fits-all drug plan and price controls. A General Accounting Office report observed about the Clinton prescription-drug plan (which Gore adopted as his own), private drug-benefit managers would face political pressure to offer seniors everywhere the same drug benefits and same prices.

Gore's plan projects that prescription-drug spending will increase an average of 5 percent per year (the same projection used by the Clinton administration). However, discussions with private-sector PBM executives and congressional testimony by those executives suggest a higher rate of increase. Some former PBM executives predict that to limit spending increases to 5 percent a year, the Gore administration would have to enact draconian limits on access to new drugs and in many cases restrict seniors to generic or older medicines in many important disease categories in large part because Gore gives so much of the Medicare benefits to healthy and wealthy seniors at the expense chronically ill and poor elderly.

Bush would leave the formulary and utilization-control decisions in the private sector, since prescription-drug coverage would be one part of the Medicare beneficiary's coverage by a private plan. Unleashing millions of elderly consumers into the marketplace, most of whom are healthy and relatively well off, will move health plans in a direction that some were already heading. Health expert J. D. Kleinke points out that health plans are rapidly moving towards multi-tier drug coverage where insurers prepay for drugs that are the most "medically and economically useful" for patients while assigning a copayment to drugs that are not. More to the point, individual health plans — driven by competition for consumer dollars — will have an incentive to show how the availability and use of new and better drugs pay off in terms of improved health and well-being (and fewer dollars spent on other services).

A consumer-driven Medicare system will be able to more effectively capture the savings inherent in the use of newer pharmaceuticals. A exhaustive study by Columbia University School of Business professor Frank Lichtenberg found that the number of hospital stays, bed days, and surgical procedures declined most rapidly for those diagnoses with the greatest increase in the total number of drugs prescribed and the greatest change in the use of new drugs. His estimates imply than an increase of 100 prescriptions is associated with 1.48 fewer hospital admissions, 16.3 fewer hospital days, and 3.36 fewer inpatient surgical procedures.

The Bush prescription-drug plan is not perfect, but perhaps its greatest asset is that it assumes that drug therapy is a part of overall health-care treatment for the elderly. Thus, rather than dealing with drug benefits as a separate matter, Bush treats them as an integral part of reforming Medicare. Further, the Bush plan does not promote price controls and offers wider access to new drugs than the Gore plan.

By encouraging greater use of newer, more cost-effective drugs and consumer choice and by confining subsidies to seniors in real need, the Bush plan will hold down total Medicare spending more effectively with less real pain than the Gore plan. Under the Gore plan, rising drug costs as a stand-alone budget item would be a tempting target for price controls and rationing.