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Saturday, August 12, 2006

The Medicare Drug Benefit is Working According to Plan

No surprise here. The Medicare prescription drug plan is providing large benefits to the group targeted by the legislation - health insurance companies. It's unsurprising because the insurance companies played a large role in writing the new rules. However the other intended beneficiaries, legislators hoping to win votes, may not fare as well. And many seniors, especially the poor who are most in need of help, have seen their drug costs go up:

Inside Job How Humana and other insurance companies rigged the Medicare prescription drug plan, by Barbara T. Dreyfuss, American Prospect: Last week saw the news that Humana, one of the country’s largest health insurance companies, experienced much better second-quarter earnings than had been expected. The announcement amounted to confirmation that the Medicare drug benefit is working exactly as planned -- not for the people enrolled in it, but for the insurers who drafted it.

Humana’s profits jumped 10 percent, much better than Wall Street had anticipated, helped by a surge in seniors enrolling in Humana’s Medicare drug and HMO plans. .... Humana has also doubled its Medicare HMO membership in the past year...

Simply put, the Medicare drug program has been good news for Humana. But for seniors who had hoped that the Medicare drug plan, which began in January, would relieve them of worries about drug costs, things are not so rosy. About one-fifth of seniors in the Medicare program, concentrated especially among the poor who had been on Medicaid, report that they now pay more for their medicines than they had before. Since insurers can decide which drugs they cover and which they won’t, many seniors are finding that new medicines they need are not paid for by their plan. And millions of enrollees are now approaching the level of total drug expenses that will provoke a cutoff from any further Medicare help with costs -- the now-infamous "donut hole."

The problems with the program stem from the original motives of the Medicare drug bill’s architects. The goal was not to provide comprehensive and inexpensive protection for seniors. Rather, for the Republican congressional leaders that rammed it through Congress in 2003, it was a way to win votes in the 2004 and 2006 elections. Details of the program were only important if they helped assure its passage through Congress. ...

Insurers had for years been strongly opposed to providing drug-only insurance to Medicare enrollees. ... Startup costs would be huge; there would be risk of adverse selection in enrollment; and future drug products and their costs produced too many unknowns.

Because of such reluctance, Republican congressional leaders were determined to give insurers what they wanted to win their full support. ... To a degree rarely seen in Washington, the Senate staff called on insurers to help draft the plan. Lobbyists are often asked what they would like to see in a bill, and even write sections of them. But the collaboration with health insurers on the Medicare drug bill was of a different level altogether, as conversations with staff-level congressional participants attest...

But senators were not merely going to take the word of Washington lobbyists that insurers would participate in the program. They wanted guarantees from “the company decision-makers” themselves (in a phrase used by one participant) that they would be an integral part of the push for the bill. Hill staff wanted to talk directly with insurance company CEOs, chief actuaries, and the heads of marketing. If these people signed off on the program, then Congress could enact a company-run benefit.

A handful of major companies had serious discussions with Hill staff. But those insurers that provided direct access to their top decision makers had more say in drafting the bill. “Certain companies had more hands-on discussion with policy makers. They made available their chief actuaries, which is a great service to the Hill,” said one participant in drafting the plan. Humana and PacifiCare (which later merged with UnitedHealth Group) were the most helpful...

Humana was not only involved in drafting the bill, they also had several former officials in top posts within the Bush administration as the program went into effect. The top Medicare official in charge of selling the program to seniors was Julie Goon, who had set up Humana’s Washington office in 1990. When the bill was going through Congress, Goon was in charge of legislative affairs for the health insurance trade group, then named American Association of Health Plans. This June she became President Bush’s senior health policy adviser. Goon replaced Roy Ramthun in that post. Ramthun was a top Humana official for eight years, including the time when Congress drafted and passed the Medicare bill.

Humana is optimistic that it will continue to benefit from the Medicare program. McCallister told analysts last week that the Medicare business was “a long-term growth engine” for the company. Indeed, Humana and UnitedHealth/PacifiCare together cover nearly half the seniors who have enrolled in drug plans.

But while insurers like Humana are reaping big benefits from the Medicare drug program’s complex, wildly inefficient structure, many seniors haven’t been so lucky. A coalition of consumer and labor groups is campaigning for significant changes to the program, and many Democrats and a few Republicans have introduced legislation to make the program work more in beneficiaries favor. Republicans may find that Medicare drug coverage is still an issue at the polls this November -- but not quite in the way they had hoped.

    Posted by on Saturday, August 12, 2006 at 03:18 AM in Economics, Health Care, Politics | Permalink  TrackBack (0)  Comments (7)

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