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164 IRET Congressional Advisory 1 (2003)

handle is hein.taxfoundation/iretcgadv0161 and id is 1 raw text is: INSTITUTE FOR RESEARCH ON THE ECONOMICS OF TAXATION
IRET is a non-profit 501 (c)(3) economic policy research and educational organization devoted to informing
the public about policies thait will promote growth and efficient operation of the market economy.

November 20, 2003

Advisory No. 164

MEDICARE BILL: DANGERS AND OPPORTUNITIES

The Medicare bill has called forth a lot of
emotion, sound, and fury, but it is neither the cure-
all nor the disaster that is it has been made to seem.
It is a hard bill to analyze due to its length and
complexity, and to the high degree of uncertainty
about the responses it will trigger on the part of
consumers and employers.
The program will not leap at once to socialized
medicine. It is certain to cover many of the needy
elderly. But, as currently drafted, it will not be
attractive to the entire elderly population. It even
provides some additional payments to induce private
health care providers to return to the MedicarePlus
Choice system. However, it micro-manages the
process and threatens to stifle that initiative as it
strangled the previous attempt.  Therefore, the
outcome of this experiment will depend heavily on
how Congress and the Administration act in the
future. If they do not work hard in the future to
preserve the limited private sector initiative in the
bill, and if the program is not on target with its
various balancing schemes, the program could easily
spin out of control into a heavily subsidized,
universal, single payor system. If, instead, the
Congress and the Administration work hard to
expand the private plan options, it could lead to a
better health system down the road.
Helping the poor is a national consensus.
Society has chosen to aid the poor in obtaining
the many new life-saving medicines that have
become available since Medicare was established,
just as it helps them to obtain food and shelter.
Drugs are a far larger part of medicine today than

they were when the Medicare program was founded.
It makes little sense to provide subsidized hospital
and physician care while leaving drugs out of the
program. Some conditions that can be kept in check
with medication can, if left untreated, lead to
expensive hospital stays. Thus, there will be some
efficiency gains from reducing the price distortion
between Medicare-covered hospitalization benefits
and privately-borne drugs costs. Nonetheless, the
Medicare bill is a very cumbersome way of helping
the poor to afford drugs.
Who needed help?
Over 75 percent of the elderly have drug
coverage  under  Medicaid, Medigap    polices,
MedicarePlus Choice plans and HMOs, employer
retirement health plans, or other private insurance.
Of the roughly one-quarter of the age group that is
not covered, many are not poor, but are healthy and
feel no need for the protection.
The only pressing problem is how to help the
near-poor who are too rich for Medicaid but,
because  they   require  multiple,  high-value
prescriptions, are badly stressed by their drug
outlays. The concern for such individuals could
have been addressed with a low-income drug
subsidy, such as a beefed-up version of the $600
drug discount cards being offered in the Medicare
bill.
The discount card could also be a useful tool to
enable consumers to negotiate a better deal of some
medications. It should be noted, however, that
several drug companies are already offering discount

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