More harm than good

February 02, 2005

BY ADDING a prescription drug benefit to Medicare, Congress said it made sure all elderly Americans would have help buying medicine. In extending drug coverage to the relatively few who lack it, though, the new program will likely accelerate a reduction of benefits for the majority of retirees who have such coverage today.

What's more, taxpayers are going to underwrite the process.

Health policy analysts are still trying to decipher reams of regulations the Bush administration proposed last month for offering the drug benefit, which becomes available next January.

But it's already clear that if lawmakers don't want to wind up doing more harm than good they should enact some hasty fixes to the program before it goes into effect.

Of course, as noted here often before, the most important step Congress could take to make prescription drugs more affordable for all Americans would be to allow Medicare to negotiate with pharmaceutical companies for discounts.

As the Medicare drug benefit was designed, the federal government is required to pay retail, yielding no break at all to taxpayers and beneficiaries. That gaping flaw in the legislation has long been obvious.

New details are emerging, however, in the complicated bargain lawmakers made with employers to discourage them from dropping retiree health benefits once the new Medicare coverage is available. It's kind of a bribe, really, in the form of handsome subsidies to defray the employers' cost.

In order to qualify for the subsidy, an employer isn't required to maintain benefits at their current level, which generally is much more generous than what Medicare will offer. Instead, Congress said employers must provide retirees with coverage that is at least as good as the Medicare benefit. Some contend, though, that the new regulations will allow employers to get away with providing even less coverage than would be available under Medicare and yet still get the taxpayer subsidy.

By some estimates, as many as 10 million Americans 65 and older could effectively be forced to sign up for the "voluntary" Medicare drug benefit because their private, usually employer-paid, coverage has deteriorated or disappeared altogether.

Employers have been easing away from retiree health benefits for years, largely as a response to the explosion in costs. Lawmakers offered the subsidies to avoid accelerating that trend, and they were careful not to attach too many strings to the money.

But as the program is designed, the subsidies could become a windfall for employers who not only reduce current coverage, but offer less generous benefits than Medicare. Taxpayers deserve a better return on their dollar than that.

Congress should tie the subsidies to a requirement that employers maintain their current level of retiree benefits - and make the job easier by attacking drug prices at the source: the pharmaceutical industry.

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