Comparing Prescription Drug Proposals: Bush v. Gore
Table of Contents
Key Differences in the Proposals
The Gore and Bush proposals take dramatically opposing approaches to Medicare and prescription drugs for the elderly in at least five ways.
"Under Bush, decision makers would choose among all therapies on a level playing field."
Creating Incentives for Efficient Health Care Delivery. Medicare currently provides coverage for hospital therapy and doctor therapy, but not drug therapy. Failure to cover drugs in the current system creates perverse incentives that waste resources and endanger patient health. Whereas drug therapies are rapidly substituting for more expensive and less effective hospital and doctor therapies in the rest of the health care system, many seniors and their doctors have an incentive to avoid drug therapies simply because patients must pay out-of-pocket. Both the Gore and Bush proposals would improve on the current situation, but the Bush proposal goes further.
The Gore approach considers drug treatment apart from a patient's other care. There would be three separate sets of decision-makers - one for Medicare, one for Medigap and one for prescription drug coverage, making integrated delivery of health care difficult if not impossible.
"Studies show that when the elderly have two separate health plans (Medicare and Mediagap), there is a great deal of waste."
By contrast, the Bush proposal would offer one comprehensive package to make sure a single set of decision-makers evaluates all therapies on a level playing field. This integrated delivery of health care is vital. A 1996 study by the National Bureau of Economic Research found that every dollar spent on prescription drugs is associated with a decrease of four dollars in hospital expenses. A $10,000 drug treatment may be more effective than a $100,000 heart bypass operation. But whereas a health insurer covering a patient's prescription drugs along with other care would benefit from the switch to the drug treatment, an insurer whose policy covered only drugs would view the treatment as merely a $10,000 outlay.
Lowering the Cost of Health Insurance. Economic studies show that when the elderly have two separate health plans (Medicare and Medigap), there is a great deal of waste. A study by Milliman & Robertson, the nation's leading actuarial consulting firm on health benefits, asked what coverage could be purchased with the combined amounts now spent on Medicare and Medigap if seniors enrolled in a single plan without distorted incentives. Milliman & Robertson estimated that the resulting savings would be enough to pay for the same type of comprehensive coverage routinely available to the non-elderly, including prescription drugs.3 By following this approach, the Bush proposal theoretically would not require any additional spending, either by government or by seniors, in most cases. However, because the Gore proposal would build upon the inefficiencies of the current system, additional premiums would be needed for prescription drug coverage through a third plan.
"Gore would add a third plan, leading to more waste and higher costs."
Creating Freedom of Choice. The trend in the workplace is to give employees choices among health plans, rather than forcing everyone into a one-size-fits-all program. The Bush proposal would take the same approach to the elderly, allowing seniors to choose from among the same kinds of comprehensive health plans available to the non-elderly. In this respect, the Bush proposal would follow the recommendation of the National Bipartisan Commission on the Future of Medicare. Premiums would be set by market forces, just as they are for health plans used by millions of federal workers. Seniors could choose one comprehensive plan that included prescription drug coverage. They could choose an average-priced plan and pay the same premiums they pay under the current system. They could also choose plans that provide more or fewer services, and pay more or less than the average, depending on their choice.
"Theoretically, the Bush approach would not require more spending by the government or by seniors, in most cases."
Protecting Against Catastrophic Expenses. Despite its political popularity, Medicare violates almost all principles of sound insurance. It pays too many small bills the elderly could easily afford on their own, while leaving them exposed to thousands of dollars of potential out-of-pocket expenses, including the cost of their drugs. The Gore proposal would exacerbate the problem by paying half of the first $2,000 of drug costs, none of the next $3,000 and then all of the remainder for a middle-income patient. Gore's advisors frankly admit that this strange design is a result of political pressures inherent in a government-run health plan.4
The Bush proposal advocates catastrophic coverage for all out-of-pocket health care expenses, including prescription drugs, above $6,000. Beyond that, health plans would be free to adopt the same designs routinely employed in health plans available to non-seniors.
Coping with Adverse Selection. Both proposals would allow seniors to choose either the new arrangement or continue in their current status. Any time people exercise such choices, there is the danger that only the sick will join (adverse selection), making average program costs much higher than originally anticipated. With Bush's proposal, this is less of a problem because seniors would choose among comprehensive health plans. With the Gore proposal, it is a big problem because drug coverage is sold separately.
"Seniors would choose among the health plans similar to those available to non-seniors."
Since Medicare beneficiaries would pay $300 annually in prescription drug premiums under the Gore proposal, and would still have to pay half the cost of their drugs, they would not gain unless they have more than $600 in drug costs. Further, their total benefit could only be $700 ($1,000 minus the $300 premium) until they spent another $3,000 out-of-pocket on drugs, making their out-of-pocket drug costs $4,000, after which all drug costs would be covered. With this limited benefit to healthy people, it is likely that the prescription drug coverage would attract few of them. Conversely, seniors who expect to have high drug costs anyway would jump at the chance to enroll. If the plan disproportionately attracts the sick rather than the healthy (adverse selection), its costs will be much higher than originally proposed.
