Politics & Policy

Costly Prescriptions

Lawmakers might want to study their prescription before they make Americans take it.

Everyone knows that prescription-drug costs are bankrupting American seniors–especially everyone in D.C. This is, after all, the premise driving the largest increase in Medicare since its 1964 birth–a prescription-drug benefit that promises to cost taxpayers at least $400 billion over the next decade. The only problem, it simply isn’t true.

Americans as a whole spent one percent of their income on drugs in 2001, the last time the government tabulated the data. Americans spend less on prescription drugs than they do on alcohol, tobacco, and admission fees to concerts, movies, and cultural and sporting events.

The average senior spends $884 a year on drugs, roughly three percent of his income. This is less than the amount seniors spend on entertainment. “You could just as easily say that football was the problem,” wagged Princeton health-care economist Uwe Reinhardt.

Private data tell the same story. Research compiled by the Kaiser Family Foundation shows that four in ten seniors spend less than $250 a year for prescription drugs. One in six spends nothing. The reason isn’t complex. Seniors already have multiple sources of drug coverage, including employer provided retiree coverage, Medigap policies, and Medicare HMOs. Lower-income seniors often rely on Medicaid and targeted state programs.

Drug spending does appear to be a major problem for two percent of Medicare beneficiaries who earn less than twice the poverty level yet spend $4,000 a year on drugs. Yet a two-percent problem requires a two-percent solution, not the massive-yet-inadequate program Congress is contemplating.

Members of Congress, however, prefer to pander to the entire senior voting block, a tactic that will surely backfire when seniors discover the bill promises them precious little and may even cost them significant sums. Members got a glimpse of this on the August recess town hall circuit. “Who the hell wants this,” exclaimed an Iowa senior at a town-hall meeting sponsored by Sen. Tom Harkin (D.).

That’s a question many more will soon be asking about the deal that’s emerging in Congress. Between its premium and deductible, a senior will have to spend $695 on pills before the new plan offers anything. Seniors can then expect to pay out-of-pocket for $481 until they’ve purchased a total of $2,200 of product. At that point, they’re on their own for the next $2,844 in spending. It’s only at that point, after a senior has spent $3,600 out-of-pocket on drugs and $420 on the premium, that the plan acts like a private prescription drug plan and pays for everything save a $5 or $10 co-payment.

The bottom line is that Congress is offering American seniors, 76 percent of whom already enjoy third-party prescription coverage, a drug plan with a $4,000 deductible. A private insurance company offering such a deal would likely have no takers.

Members of Congress would be wise to break tradition and actually study the details of their bill before their constituents do. One reason the bill plays well with the public is because no one understands its provisions. A Wall Street Journal poll found that only eight percent of seniors were very familiar with the legislation. And while everyone welcomes something for nothing, seniors are on record as not wanting to pay for the new benefit. An ABC poll in July found that while 67 percent of seniors welcomed a new government benefit, the support dropped to 40 percent when pollsters asked if they’d be willing to pay anything for it.

Yet pay seniors certainly will if congressional leaders get their way. Members of Congress faced with the prospect of voting on the final package better hope it doesn’t cost them their jobs at the polls next November.

Sally C. Pipes is president and CEO of the California-based Pacific Research Institute.

Sally C. Pipes is the president, CEO, and Thomas W. Smith Fellow in Health Care Policy at the Pacific Research Institute. Her latest book is The False Promise of Single-Payer Health Care (Encounter). Follow her on Twitter @sallypipes.

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