I know the comparisons have been all over the media – TV news, newspapers, magazines – but I wanted to make sure everyone understands just how empty Republican objections to SCHIP are given the obscene waste built into Medicare Part D, the signature Republican health insurance program created in 2003.
After all, how can Republicans oppose a $35 billion increase in SCHIP funding over five years when the Part D program they created will waste $75 billion in taxpayer dollars over the same time period?
What? You haven’t seen the story play this way in the news?
How surprising. I mean, it seems like a pretty straight-forward way to frame the story: why not compare Republican’s supposed fiscal concern about SCHIP with their celebration of profligate waste in Medicare Part D?
(comparison after the jump)
Medicare Part D was created by the 2003 MMA (Medicare Modernization Act Middleman Multiplication Act). It provides pharmaceutical coverage to senior citizens through a crazy-quilt system that:
- Allows managed care organizations to skim nice profits off of processing the paperwork for seniors to get medicine, and
- Allows pharma companies to charge way more for drugs that are going to poor seniors.
In exchange, MCOs and pharma companies funnel big money back to Republicans – collectively, in the form of campaign contributions, and individually in the form of cushy jobs when they leave office.
To Republicans, this ecology makes Medicare Part D "win-win-win!"
You may have heard of Medicare Part D in the news lately – the Justice Department has started cracking down on deceptive marketing practices used by several of the Part D administrators.
But, as of last week, there’s lots of new analysis out on Part D, from the House Committee on Oversight and Government Reform (note: the link is to a 23 page PDF version of the report).
The conclusion:
The cost and pricing data obtained by the committee reveal that use of private insurers to deliver Medicare drug coverage is driving up costs and producing only limited savings on drug prices. The report estimates that taxpayers and Medicare Part D beneficiaries could have saved almost $15 billion in 2007 if administrative expenses in the program were reduced to the level achieved by traditional Medicare and drug prices were lowered to Medicaid levels.
If you annualize the $15 billion, over five years that's $75 billion in waste.
Let’s review the facts.
First, analysis of program finances shows that administrative expenses in "privatized" Medicare Part D are 6x those of the publicly run parts of Medicare:
Funny enough, as you see in the next chart, the "private sector" providers of Part D cannot even match the administrative expenses they charge their non-Part-D clients (the entities comprising the left bar are largely the same as those making up the right bar).
This is called milking the taxpayers.
Republicans argue that we should accept these obscene administrative fees because private sector entities, with all of their business savvy, will supposedly be able to negotiate deeper rebates on drugs, saving taxpayer money. But it turns out, as you see in the next chart, the publicly run Medicaid program (which serves ~40 million low income Americans) gets more than 3x the rebates on drugs that Part D entities get.
It would seem that Part D providers use their private sector business savvy to maximize their own profits. How unexpected.
Pharma companies make out too (also from the report):
Prior to January 1, 2006, there were 6.2 million Medicare beneficiaries who received their drug coverage through the Medicaid program. Under the Medicaid program, drug manufacturers paid average rebates of 26% on the drugs used by these beneficiaries. After January 1, 2006, these dual-eligible beneficiaries were switched to the Medicare Part D coverage. Average rebates under the Part D program are only 8.1%...
So what does this mean for the bottom line?
The dual-eligible beneficiaries will use an estimated $15.4 billion worth of drugs in 2007. Under Medicaid, drug manufacturers would pay $4.0 billion in rebates for drug expenditures of $15.4 billion. Under Medicare Part D, the manufacturers will pay only $1.2 billion in rebates. The difference in the size of the rebate payments – $2.8 billion – represents a significant increase in manufacturer profits.
So the taxpayers lose $2.8 billion. What does it really mean for the bottom line Republicans care about?
Drug manufacturers have acknowledged some of these windfalls. In its 2006 quarterly financial reports, the drug manufacturer Pfizer reported that the shift of dual-eligible beneficiaries to the Medicare Part D program had resulted in a $300 million windfall.
That's just for Pfizer, and given pharma operating margins, that's mostly profit. This is also called milking the taxpayer.
According to Republicans, milking taxpayers is OK when its their political constituents getting rich. (And you thought it stopped at Halliburton and Blackwater.)
Part D providers made so much profit in 2006, that an obscure provisions in the MMA (setting "risk corridors") was triggered, actually requiring them to give some of it back – over $4 billion (the Republican staffers who allowed the risk corridors provision into the bill are probably, by now, hanging upside down from rafters at Guantanamo).
Part D even allows MCOs to milk the sickest Medicare patients – those who fall into the "Donut Hole" where the patient is stuck paying 100% of drug costs. Apparently, even though the sick seniors pay all the drug costs, the insurers still collect rebates on every prescription:
Now, Republicans have several defenses of Part D.
"A large majority of seniors like Part D!"
This is called changing the subject. The issue isn’t whether seniors like having their drugs covered by insurance – of course they do. The issue is that taxpayers are being egregiously ripped off – on every single prescription filled – due to the way the program was designed.
I went to school near Boston. Many people around there like the infrastructure created by the "big dig" project. But I never met anyone who thought it was worth $19 billion.
Medicare Part D is the "Big Dig" of healthcare – times 10.
"But Part D is saving seniors lots of money!"
Yes. This is what health insurance does – it reimburses costs so that individuals don’t have to pay.
"But Part D is less expensive than expected!"
Its obvious from the material above that Medicare Part D costing less than expected has nothing to do with high levels of efficiency. It has everything to do with over-estimating how much the program would cost. This is particularly ironic, because Republicans went out of their way to bury even higher estimates of what it would cost back during the MMA debate.
In any case, long story short, Republicans blew the math back in 2003. Republicans blowing math. Go figure.
So taxpayers are being ripped off $15 billion a year off of a smaller than expected base.
Why not make Part D even cheaper still by running it more intelligently and more efficiently – by purging all the middlemen feeding off taxpayers and seniors like a pack of leeches?
For the simple fact remains: getting rid of the obscene institutional graft built into Medicare Part D would offset the increased funding proposed for SCHIP – more than two times over.