In 1988, Congress voted for a prescription drug benefit to be added to Medicare. A few months later, when the full magnitude of the cost became apparent, they rescinded the vote and the program was relegated to the dustbin of history.
This demonstration of fiscal responsibility was reflected in the cutback of many government spending programs at the time. Welfare as we once knew it, the legacy of Lyndon Johnson's Great Society, was brought to an end by President Clinton and a responsible Congress. In the waning years of that administration, we began to enjoy a budget surplus.
The new prescription drug benefit, designed to bring seniors into the camp of Republican voters and to reward both the drug and insurance industries, has turned out to be the poster child of bad legislation. It is the worst expression of what some are calling the "Kleptocracy" that has seized power in Washington.
A whistle-blowing actuary was fired for pointing out that the $450 million cost was grossly underestimated. He turned out to be correct. The real cost will be in the trillions -- $700 million to $800 million in the first year alone.
Why is this legislation bad? Let me count the ways.
First, we have the inability to negotiate on price. Supposedly, the insurance industry unnecessarily implanted into the process is supposed to bring a dose of free-market economics into play. What a joke. Since they can't negotiate for drug pricing, the only factor differentiating them (there are 41 operating in California) is their ability to adjust profits by tweaking administration fees and marketing costs.
More insidious is the freedom they have to unilaterally stop covering specific drugs at any time. Lipitor, a popular drug for cholesterol, was just removed from one vendor's list after many people had already chosen that program.
Any printed materials outlining covered drugs are generally out of print the minute they leave the press. Reliable up-to-date lists are only available online. The minute an insurance company begins to lose money, they will just remove expensive drugs they otherwise promised to cover.
Free market economies don't always work the way some think tanks would want us to believe. "Oligopoly" describes a world in which subtle price fixing takes place.
Today, in the absence of negotiated prices, the drug companies can price products using oligopolistic intuition. Remember when a basic Ford, Chevrolet or Plymouth were all priced within a hundred dollars of each other? The entire auto industry made plenty of money legally because they got a sense of what the pricing needed to be without actually colluding. Inability to negotiate sets the stage for this behavior, and this is what we have done to ourselves.
The Veterans Administration pays a fraction of what the new Medicare program pays for identical drugs. Why? Because vets can negotiate by saying, "Here's what we will pay for this drug and we will buy lots of it. Who wants to capture our corner of your market?" A bidding war breaks out until some drug company gets that business. Any price collusion among them would send their executives right to jail.
This is what real free markets are all about, but negotiating price like this has been specifically outlawed in the Medicare prescription drug program.
Further, the VA has no insurance industry insinuated into the mix with their notorious layer of expensive additional administrative fees. I don't know what a G-13 U.S. civil servant is paid these days for running the VA program, but it's certainly not the $250 million received by a few single insurance industry executives.
Why doesn't Medicare operate with the same reasonable, cost-effective format? Because the law was written by the drug and insurance industries utilizing the arm-twisting skills of the lobbying industry. These people, who have tripled in number in the past five years, were paid more than $100 million by the drug industry to see that this bill be passed.
Beyond just the fundamental problems, the bill is full of deceptive practices.
The "donut hole," for example, is described in a way that makes it appear to be only the difference between $2,250 and $3,700 or $1,450. Noooo. The donut hole itself is $3,600, and 95 percent coverage doesn't click in until someone has hit $5,100 in costs (and spent $3,700 of their own "donut hole" money).
Congress, or the lobbyists writing the bill, deliberately chose these confusing semantics to give the appearance of a smaller donut hole.
This should be déjà vu all over again. We rescinded a drug law in 1988. The tax-cut laws all end in 2010. We should chalk this one up to the growing list of bad legislation and revisit it again after we have reformed campaign financing.