NCPA - National Center for Policy Analysis

Seniors Should Be Allowed to Choose

June 20, 2003

More than a quarter of seniors do not have insurance for prescription drugs. Why is that? Perhaps it is because it is illegal for seniors to buy a separate policy for drug insurance, says Alan Reynolds.

Many seniors buy private insurance, called Medigap, that supplements Medicare coverage. About 25 years the federal government began imposing minimum standards on Medigap policies, requiring them to cover co-payments for hospitals and doctors.

  • Due to the initial imposition of minimum standards in the 1980s, Medigap policies became more expensive and Medigap use dropped 25 percent, according to economist Amy Finkelstein.
  • In 1992, more federal mandates reduced seniors' choices to 10 standardized Medigap policies, says Reynolds, and none of the plans is allowed to cover eye care or hearing aids, for example.
  • Only the two most expensive Medigap policies are even allowed to offer drug insurance -- limited to 50 percent of $3,000 in drug bills above a tiny $250 deductible.

Such a package deal is unnecessarily expensive and unsuitable for those who want only part of the package, says Reynolds.

Rather than simply repealing the mandate that drug insurance must be bundled with other costly benefits --which would allow seniors to work out their own deals for the insurance they want -- the Senate now hopes to keep the worst features of the 1992 drug mandate but sweeten the deal with taxpayers' money.

If Congress would simply make it legal for seniors to purchase any sort of drug insurance, then a variety of programs would emerge, explains Reynolds.

Source: Alan Reynolds (Cato Institute), "Cure For Costly Drug Plans Is The Freedom To Choose," Investor's Business Daily, June 20, 2003.


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