One of the more popular provisions of the PPACA has been the closing of the “donut hole” in Medicare Part D. Seniors who needed expensive prescriptions had previously been paying up to $3600 each year in out-of-pocket drug costs. Unless you’re quite wealthy (which most seniors aren’t), having to pay $3600 a year for medications is a challenge, especially on top of the premiums for Medicare B, a Medigap policy, and Medicare D. So it’s no surprise that most seniors were in favor of closing the donut hole in Medicare D.
Of course, nothing is ever as simple as we’d like it to be, and there is also some criticism of the closing of the donut hole. And the criticism makes sense from a federal spending perspective: drugs aren’t free – somebody has to pay for them. If we’re not requiring seniors to pay for a portion of their own drugs (which was the idea behind the donut hole), then tax dollars will be used instead. And tax dollars are not exactly easy to come by these days.
When it comes to medical care other than prescriptions (and long term care), Medicare has long done a relatively good job of equalizing access to basic care for all seniors (there’s still some inequality, particularly for those who cannot afford to pay for a supplemental Medigap policy). Why are prescription drugs not included under the umbrella of basic Medicare coverage like most other medical services? And why does Medicare still not get to set drug prices?
Prescription drugs are a conundrum even in the private health insurance market. In the decade since we got into the health insurance industry, we’ve seen a dramatic change in the way most individual health insurance plans are designed when it comes to prescriptions. Ten years ago, it was easy to find an individual policy in Colorado that would cover prescriptions right away, with simple copays. $10/30/50 (or close to that) was common pricing for copays. These days, plans that cover only generic drugs are all over the place, marketed by reputable health insurance carriers. Generic-only coverage really amounts to very little coverage at all when it comes to prescriptions, since generics tend to be very inexpensive anyway. Expensive drugs are not generic, so those policies are not covering any expensive medications. Separate prescription drug deductibles are also common now – most new individual policies now have prescription deductibles that range from $500 to $7500. That means that the insured has to pay for the first $500 to $7500 in drug costs – in addition to the regular medical deductible – before any drug costs are covered by the insurance carrier. This is not just a tactic used by disreputable or small time carriers – it’s become the industry standard, and it’s happened in response to spiraling prescription drug costs. Without these provisions, health insurance premiums would be rising even faster than they already are.
If Medicare were to include coverage for prescriptions in the basic plan, there’s little doubt in my mind that the basic premiums would have to increase substantially, unless drug manufacturers are willing to settle for smaller profit margins. And simply allowing Medicare to negotiate directly with the pharmaceutical companies would not necessarily be an easy fix either. The argument that curtailing pharmaceutical company profits would result in slower research and development is probably accurate to some extent. US-based pharmaceutical companies do tend to lead the way in R&D for new drugs, which may in large part be due to the single payer (and lower profit) health care models that many other industrialized countries utilize. But perhaps we could move towards a model where the National Institute of Health (NIH) plays a bigger role in R&D, utilizing tax dollars to do so (of course we would also need some sort of provision to prevent private pharmaceutical companies from then buying the rights to the NIH-developed drugs and selling them for exorbitant prices…). If the NIH did more of the R&D, pharmaceutical companies would have lower overhead. This could in turn lead to lower drug prices, as long as the whole system were well-regulated.
It does make sense to include provisions in health care reform that encourage doctors and patients to look for the lowest-cost effective treatments, including prescription drugs. But requiring seriously ill seniors (or anyone, for that matter) to pay what might amount to a large portion of their income for vital medications seems ill-conceived. On the other hand, simply covering any and all drugs in full also makes little sense, as it removes the incentive for doctors and patients to try to find the lowest-cost solutions to medical problems.
It seems like it would make sense to address the cost and coverage of prescription drugs from several angles. First, we could make prescription drug coverage part of the basic Medicare plan. This would result in increased Medicare premiums, but seniors wouldn’t have to buy separate Medicare D coverage. We could also ramp up tax-funded R&D of prescription drugs. And we could allow Medicare to set prescription drug prices directly with the pharmaceutical companies, employing the same sort of profit caps that the Medical Loss Ratio rules are doing in the health insurance industry. If the government can tell the health insurance carriers that no more than 15 – 20% of premium dollars can be spent on administrative expenses, including profits, why can’t similar guidelines be enacted for the pharmaceutical industry? Perhaps then we wouldn’t need to worry as much about who is going to pay the cost of prescription drugs for seniors. And maybe individual health insurance policies could start covering prescriptions with basic copays again.
