High on the Drug Benefit

The AARP, the nation's leading organization for senior citizens, has just released a remarkable new study. Apparently, the new Medicare drug benefit provides a better deal for most seniors than importing drugs from Canada, a practice which the organization has long supported.

 

"How is this possible? Everybody knows that Canadian drug prices are usually far lower than American ones," the AARP asks in an article describing its study. "That remains true. But Medicare drug coverage is insurance, so enrollees are charged copayments instead of full price," it concludes.

 

Seniors who sign up for the new Medicare drug benefit receive subsidized coverage, which means they pay only part of the drug's cost — and they also receive insurance protection against the prospect of large drug bills in the future, neither of which Canadian pharmacies can offer.

 

It's important to note that AARP does have a bias. It supported enactment of the drug benefit, and it offers its own Medicare drug plans in partnership with UnitedHealth. That said, however, AARP makes a strong factual case that seniors are indeed better off signing up for the new drug benefit than importing drugs from Canada.

 

The AARP used a variety of examples — from seniors with plans that have low monthly premiums to those with higher premiums; from a $250 deductible to no deductible; from full coverage in the gap to no coverage in the gap.

 

In all but one instance, seniors did better with the Medicare plan than with drugs imported from Canada. (In that one example, the senior needed a low-cost maintenance drug that didn't reach the deductible.)

 

The AARP study concluded: "Nearly all of our interviewees would be better off financially, by varying amounts, under a Medicare plan, with those using the most drugs potentially reaping the greatest savings over the year."

 

Also, the AARP study didn't include seniors with low incomes, who receive much larger subsides. Nor did it include those who have integrated drug coverage through Medicare Advantage plans. Both of these categories of seniors would almost certainly do better with Medicare than with Canadian imports.

 

Competition for enrollment among the private drug plans has played a key role in helping seniors get superior coverage. AARP notes that these plans "have been scrambling to win over customers with good deals for 2006." Competition is intense: While Congress expected the average premium for Medicare drug plans to be $37 a month, nearly every state has a plan with a $20-a-month premium and some plans offer coverage for as low as $2 a month.

 

But that doesn't mean seniors are necessarily happy with the new offering. The news has been filled with early reports about seniors, pharmacist, and physicians being confused and facing roadblocks in filling prescriptions.

 

Trying to enroll millions of people in a new program in a short time necessarily causes disruption, and this harkens back to when Medicare was first created in 1965. Social Security offices were swamped with questions. Patients and doctors didn't understand the new program, and seniors were complaining then that they hadn't received their new Medicare cards, just like today.

 

Seniors today can call 1-800-Medicare or visit www.medicare.gov to begin the process of finding which drug plan works best for them. Many senior citizen's centers, community centers, retirement homes, and churches also are scheduling times with experts who can help seniors navigate the system. Seniors have until May 15 to enroll in a drug plan without penalty.

 

A survey late last year by America's Health Insurance Plans found that 57% of seniors who had enrolled in a drug plan found the effort worth it, and only 16% did not. Almost all of them (by a margin of 56 to 9%) would recommend that their friends sign up.

 

Medicare administrator Mark McClellan reported last month that so far, 21 million seniors are enrolled in the drug program, most automatically through their retiree health coverage but with one million enrolled in the competing private drug plans.

 

Competition means choice, and choice can mean complexity. But the AARP has concluded signing up is worth the effort.

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Grace-Marie Turner is president of the Galen Institute, a non-profit research organization in Alexandria, VA, that focuses on free-market ideas for health reform. She can be reached at galen@galen.org.  

 

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The AARP started the New Year with a big surprise, issuing a study that concluded the new Medicare drug benefit provides a better deal for most seniors than importing drugs from Canada, which the organization has long supported.

“How is this possible? Everybody knows that Canadian drug prices are usually far lower than American ones,” the AARP Bulletin asks. “That remains true. But Medicare drug coverage is insurance, so enrollees are charged copayments instead of full price?And the private plans that provide it have been scrambling to win over customers with good deals for 2006.”

It’s important to remember that the AARP did support enactment of the drug benefit – amidst much criticism from its liberal friends – and it does offer Medicare drug plans in partnership with UnitedHealth. So they do have a bias.

But the AARP used a variety of examples, from seniors with plans that have low monthly premiums/a $250 deductible/and no coverage in the doughnut hole, to those with higher premiums/no deductibles/and full coverage in the gap. In all but one instance, seniors did better with the Medicare plan than with drugs imported from Canada. (In that one example, the senior needed a low-cost maintenance drug that didn’t reach the deductible.)

Further, the AARP study didn’t include seniors with low incomes and those who have selected integrated Medicare Advantage plans, both of whom would certainly do better than with Canadian imports. The AARP study concluded: “Nearly all of our interviewees would be better off financially, by varying amounts, under a Medicare plan, with those using the most drugs potentially reaping the greatest savings over the year.”

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The news has been filled with early reports that seniors, pharmacists, and physicians are confused and face glitches in checking drug plan eligibility since the January 1 launch of the program. Trying to enroll millions of people in a new program in a short time necessarily causes disruption, and this harkens back to when Medicare was first created in 1965.

The New York Times reported that Social Security offices were swamped with questions. Patients and doctors didn’t understand the new program, and seniors were complaining that they hadn’t received their new Medicare cards, just like today. But the system will work things out (especially for those seniors who signed up in late December and wondered why they didn’t have their cards by January 1).

Medicare administrator Mark McClellan reported last month that so far, 21 million seniors are enrolled in the drug program, with one million signing up for stand-alone drug plans in the first 28 days.

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The Canadian Internet drug industry is fighting back, saying their drugs are still cheaper than Medicare’s. But they are missing a key point that the AARP emphasized: The new Medicare drug benefit provides insurance coverage against the risk of high drug expenses, which the Canadian pharmacies can’t offer. (And BTW, does it need to be said again, that importing drugs from Canada is dangerous and illegal?)

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And the year closed on a high note, with The Wall Street Journal Europe publishing a commentary I wrote comparing the U.S. and European drug research industries. See below for a summary and link.

And Happy New Year, everyone, with all of its promises for a new start in 2006.

Grace-Marie Turner

RECENT NEWS ARTICLES AND STUDIES:

  • Europe’s ailing drug industry
  • Cutting through confusion in Part D
  • Who invents new medicines?
  • My hospital was doomed

EUROPE’S AILING DRUG INDUSTRY
Author: Grace-Marie Turner
Source: The Wall Street Journal Europe, 12/28/05

Grace-Marie Turner looks at the decline in the once-vibrant pharmaceutical research industry in Europe and concludes that “Deliberate government policy, in the form of price controls imposed by national health-care systems, is slowly choking off a once-thriving sector.” And she warns that those in the U.S. Congress who advocate allowing the federal government to “negotiate” drug prices for Medicare would send the U.S. down the same road of price controls and reduced incentives for innovative research. She says that Europe could reverse its course and “lure talented drug researchers and pharmaceutical investments back home by recognizing the value of pharmaceutical research – not only in creating new medicines but in reviving a valuable industry.”
Full text: www.galen.org

CUTTING THROUGH CONFUSION IN PART D
Author: Joseph Antos, Ph.D.
Source: American Enterprise Institute, 01/04/06

Although many seniors are overwhelmed by the more than 3,000 drug plans now available in the Medicare prescription drug benefit program, they can cut through the confusion “by following the first rule of smart shopping – choose the lowest cost option that meets your needs,” writes Joe Antos of the American Enterprise Institute. “Instead of focusing on the details of every plan, seniors should limit their investigation to the plans that offer the lowest total cost (including the plan’s premium) for their prescriptions over the year,” writes Antos. Plan information is readily available from www.medicare.gov or the 1-800-MEDICARE phone line, but Antos warns that “[s]eniors should not spend much time worrying about most of the other details of the benefit since the total annual cost summarizes that information in a way that is readily comparable across plans with different structures.”
Full text: www.aei.org/publications

Wisconsin’s Appleton Post-Crescent also addresses seniors’ concern over the new drug benefit and offers a helpful list of resources for those having problems getting started with the plan. The paper lists many resources for information about the prescription drug program, and although the focus is on Wisconsin residents, the tips can easily be altered to fit seniors in other states.
Full text: www.postcrescent.com

WHO INVENTS NEW MEDICINES?
Source: Pfizer’s Economic Realities in Health Care Policy, Volume 4, 2005

This publication provides an excellent collection of research from many different sources involving the roles of public science and private research and the international roles in investing and rewarding pharmaceutical R&D. In 2004, private pharmaceutical companies spent an estimated $38 billion on R&D, private biotechnology firms invested an additional $10.5 billion, and the publicly-funded National Institutes of Health spent approximately $27 billion (which supports pharmaceutical research as well as a vast array of other biomedical research), writes Andrew Toole, Ph.D. of Rutgers University. Pfizer economist Neal Masia concludes: “US government policy has encouraged a successful model of public-private cooperation in pharmaceutical R&D. Partly as a result of that cooperation, the US is at the global forefront of pharmaceutical innovation.”
Full text: www.pfizer.com

MY HOSPITAL WAS DOOMED
Author: Bruce C. Wilson
Source: The Wall Street Journal, 01/05/06

Cardiologist Bruce Wilson details his experience as chairman of the board and partial owner of the now defunct Heart Hospital of Milwaukee. He describes the “tremendous” efficiencies that came with focusing on only one area of medicine and the high patient satisfaction ratings at his hospital. He writes about the trend of hospitals buying the practices of family doctors and internists in the 1990s and argues that “while hospitals and legislators are saying that it is a conflict for doctors to own even a minimal stake in a hospital, nobody seems to be saying that it’s a conflict for hospitals to own doctors.” He concludes, “We are experts in our field — why should experts be denied ownership of their own companies? No other industry in America is so rigidly regulated; yet it is competition that brings innovation and better products and services.” Full text (subscription required): online.wsj.com

UPCOMING EVENT:

Medicare’s Hidden Administrative Costs: A Comparison of Medicare and the Private Sector
Council for Affordable Health Insurance News Conference
Tuesday January 10, 2006, 11:30 a.m.
U.S. Capitol, Room HC-8

CAHI will announce the release of its newest study, “Medicare’s Hidden Administrative Costs: A Comparison of Medicare and the Private Sector.” To RSVP, please email meetings@cahi.org.

Health Policy Matters is a weekly newsletter containing summaries of timely and informative studies and articles on free-market health reform. It features research and writings by participants in the Health Policy Consensus Group, articles of interest from the health policy world, and announcements of coming events. Health Policy Matters is published by the Galen Institute, a not-for-profit public policy organization specializing in information and education on health policy. For more information about the newsletter and our organization, please visit our website at http://www.galen.org/.

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