NCPA - National Center for Policy Analysis

Prescription Drug Benefit Would Endanger Medicare

November 17, 1999

Can needy seniors get prescription drugs without toppling the already shaky Medicare system? Wouldn't the proposed $118 billion program to cover all seniors with new drug benefits eventually entail federal price controls on prescriptions? Those pitfalls of President Clinton's prescription drug initiative have analysts deeply concerned.

  • About 65 percent of seniors already have some type of drug coverage -- and studies show that Medigap insurance prompts them to consume significantly more health care than those without the insurance.
  • According to a new study for the National Center for Policy Analysis by Milliman & Robertson, private health plans have the ability to eliminate much of the waste and inefficiency in Medicare and use the savings to cover the cost of prescription drugs not currently covered.
  • A private plan can potentially eliminate much of this waste by providing a unified set of benefits with the same health care dollars.
  • The study assumes that if seniors leave Medicare and join a private plan, the plan will receive from Medicare a sum equal to the amount it would have spent otherwise.

Thus, private contracting occurs under conditions that promise no profit and no loss for the government.

Seniors who want to exercise more choices should be able to enroll in a fee-for-service plan with a high deductible and a Medical Savings Account -- in many cases for a premium that is considerably less than what they now pay for Medigap insurance. The out-of-pocket cost would average about $1,200 a year.

Moving to a private plan would not only provide prescription drug coverage but would also generate financial savings -- more than $1,000 a year on average in lower premiums and out-of-pocket costs for those who now have Medigap coverage.

Source: Pete du Pont (National Center for Policy Analysis), "Wrong Rx for Senior Drugs," Washington Times, November 17, 1999.


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