Paul Krugman: The Deadly Doughnut

Paul Krugman looks at Medicare's new prescription drug benefit and asks whose interests are served by the legislation that created it:

The Deadly Doughnut, by Paul Krugman, NY Times: Registration for Medicare's new prescription drug benefit starts next week. Soon millions of Americans will learn that doughnuts are bad for your health. ... [L]et's look at how the Medicare drug benefit will work... At first, the benefit will look like a normal insurance plan, with a deductible and co-payments. But if your cumulative drug expenses reach $2,250, ... you'll suddenly be on your own. The Medicare benefit won't kick in again unless your costs reach $5,100. This gap in coverage ...[is] the "doughnut hole." (Did you think I was talking about Krispy Kremes?)  ... [T]his will place many retirees on a financial "roller coaster." People with high drug costs will have relatively low out-of-pocket expenses for part of the year... Then, suddenly, they'll enter the doughnut hole, and their personal expenses will soar. ...

How will people respond when their out-of-pocket costs surge? ...[B]ased on experience from H.M.O. plans with caps on drug benefits, ... it's likely "some beneficiaries will cut back even essential medications while in the doughnut hole." ... [T]his doughnut will make some people sick, and for some people it will be deadly. The smart thing to do... would be to buy supplemental insurance that would cover the doughnut hole. But guess what: the bill ... specifically prohibits ... buying insurance to cover the gap...

[B]ear in mind that I've touched on only one of the bill's awful features. There are many others... Why is this bill so bad? The probable answer is that the Republican Congressional leaders who rammed the bill through ... weren't actually trying to protect retired Americans... In fact, they're fundamentally hostile to the idea of social insurance... Their purpose was purely political: to be able to say that President Bush had honored his 2000 campaign promise to provide prescription drug coverage... Once you recognize that the drug benefit is a purely political exercise..., the absurdities ... make sense. For example, the bill offers generous coverage to people with low drug costs, who have the least need for help, so lots of people will get small checks in the mail and think they're being treated well. Meanwhile, the people who are actually likely to need a lot of help ... were deliberately offered a very poor benefit. According to a report issued along with the final version of the bill, people are prohibited from buying supplemental insurance to cover the doughnut hole to keep beneficiaries from becoming "insensitive to costs" ... A more likely motive is that Congressional leaders didn't want a drug bill that really worked for middle-class retirees. Can the drug bill be fixed? Yes, but not by current management. ... We won't have a drug benefit that works until we have politicians who want it to work.

 Next (11/14) column: Paul Krugman: Health Economics 101