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Fun With (Medicare) Math!

DR has commented a couple of times lately (here and here) on the difficulties the GOP is going to have selling their dreadful Medicare prescription drugs bill to voters in general and seniors in particular. The Washington Post has a good article today, “Seniors Skeptical of Medicare Bill”, based on talking to seniors in Florida, that suggests the polls DR has been citing accurately reflect seniors’ suspicion of the GOP’s bill.

Seniors quoted in the story express strong disappointment no effort has been made to control drug prices, that the bill will make it harder, not easier, to obtain cheap drugs from Canada and that the AARP didn’t work for a better deal for its constituents. The article also points out the seniors are “experts on pills” and are hyper-aware of how much their drug costs are.

It follows that they will be hyper-aware of how much they will and will not be helped by the new bill. That’s why the concept that the GOP will be generally helped just because a bill with some sort of benefit for seniors–no matter how lousy!-- has been passed is so ridiculous. Seniors are going to be calculating how much–“to the penny”, as one senior put it in this article–their out-of-pocket drug costs are going to be under this new bill and they’re not going to be pleased. And they are going to know there’s nothing stopping drug prices from continuing to escalate rapidly and, therefore, their out-of-pocket costs as well.

Let’s do the math that seniors are already doing all over America. A good way to start is with another excellent Washington Post article that came out the day after the bill passed. The article “Drug Benefit’s Impact Detailed: Many Will Face Big Out-of-Pocket Costs”, does an exemplary job of clearly outlining the structure of the drug benefit.

Here’s the basic idea: the benefit covers 75 percent of drug costs up to $2,250 in spending, then provides no coverage until $3,600 in out-of-pocket cost is reached, then covers 95 percent of drug costs after that.

This sounds, if not great, quite a bit better than it actually is. Here’s why. Before you get a penny of actual coverage, you have to absorb $670 in costs ($250 deductible and a $420 annual premium); then to get coverage up to that $2,250 figure, you have to lay out an additional $500 co-pay (25 percent of the $2,000 left after the deductible). So, at that point, the beneficiary has laid out $1,170 for $2,250 in coverage–a savings of less than half (48 percent).

At this point, the no coverage “doughnut hole” kicks in. But that’s not so bad, since coverage picks up again at $3,600 in costs, so the hole is “only” $1,350, right? Wrong! It only picks up again at $3,600 in out-of-pocket costs, not drug costs, which is quite a bit farther down the pike. Especially since out-of-pocket costs are defined to include only the deductible ($250) and the co-pay ($500), not the annual premium costs ($420). Thus, since the beneficiary, by this definition, has had only $750 in out-of-pockets costs on the first $2,250, he or she has to pay $2,850 more ($3,600-$750) to reach the point where additional coverage kicks in. That means from $2,250 in drug costs to $5,100 ($2,250 + $2,850) in drug costs the beneficiary gets no coverage whatsoever. At that point, the beneficiary will have paid $4,020 ($1,170 + $2,850) on $5,100 in drug costs, a savings of just 21 percent. (For a graphical representation of this sad story, see Angry Bear’s excellent post on this issue.)

But perhaps the typical senior–who doesn’t spend quite as much--will get a better deal and feel better about the benefit? This seems doubtful. The average drug spending by Medicare beneficiaries is projected to be about $3,250 in 2006, when the benefit takes effect. Under the bill just passed, a beneficiary will wind up having to pay 70 percent of this typical drug bill.

That doesn’t sound to DR like the drug benefit seniors had in mind. The GOP apparently doesn’t understand that what made Social Security and Medicare so wildly popular with voters is that they were very good benefits and dramatically improved the lives of those affected. The drug benefit just passed doesn’t remotely meet this standard and Republicans will find, to their sorrow, that failing to meet that standard will make a huge political difference.

Comments

Well, this is all great, but the real questions are these:

Will the Democrats be able to communicate to seniors, over the din created by AARP and the GOP, the realities you describe? Given the Democrats' inability to communicate much of anything lately, I have my doubts.

Will seniors see the Democrats as opponents of this bill, and therefore side with them when they realize how bad it is? Given the Dem support for the bill, that's hard to figure.

Will seniors see Democrats as having a viable alternative and as being the party that can implement that alternative? Again, doubtful.

Sorry to be such a downer.

Someone should write up a little Java applet that does the calculations, and put it up on the web.

do we find it the least bit ridiculous that this debate is taking place AFTER the bill has been passed?

I suggest that all AARRGGG members send their next membership checks unsigned.

When the call comes, say "It is not a perfect check, but it IS a step in the right direction."