Jul 5, 1999, Vol. 4, No. 40 • By ROBERT M. GOLDBERG
AS THE WHITE HOUSE GEARS UP to promote Bill Clinton's universal prescription-drug benefit for the elderly, it seems to have learned a thing or two from its historic health-care defeat of 1994. Like that earlier plan, Clinton's promise to pay for the prescription drugs of older Americans will put health care for millions more people under the control of the federal government -- in this case, the prescriptions of nearly 40 million Medicare recipients. And like the earlier plan, the Clinton drug benefit promises better care for less money, but will inevitably end up with rationing and price controls that will degrade the quality of care available to the elderly. What's changed is that the White House is even less forth-right about the true cost and character of its health-care scheme than it was five years ago.
The White House is mindful of the fact that Medicare is going bankrupt, so it claims that the new drug benefit would pay for itself. It's hard to see how. For one thing, a universal drug benefit would encourage the nearly 70 percent of retirees who already have private coverage for prescription drugs to drop it in favor of the new federal entitlement. This alone would add about $ 20 billion a year to Medicare spending. Covering the 30 percent who don't already have such coverage would add another $ 10 billion or so. Even with an additional premium proposed by Clinton -- as low as $ 10 a month -- the program would hardly be self-financing.
That's why the White House claims that increased subsidy of drugs would lead to lower overall healthcare costs. But this, too, is exceedingly unlikely. It's true drugs can be cost-effective, but only within the context of a well-coordinated effort to manage disease. And no one mistakes Medicare for well-coordinated health care. Consider one of the most cost-effective drugs there is -- aspirin. For just pennies a day, it can lower your chances of a heart attack, yet over 25 percent of seniors fail to take the drug, even after a heart attack. Similarly, older Americans barely avail themselves of the flu and pneumonia shots that are already covered by Medicare. When you consider that Medicare now reimburses for prescription drugs for hospitalized seniors, that, moreover, most seniors already have private drug coverage, and that a government survey shows fewer than 2 percent of seniors say they have trouble getting the drugs they need, it's preposterous to think that a new prescription-drug subsidy will lower health-care costs.
So how will this new entitlement be paid for? Price controls, of course. Now, the White House claims talk of price controls is propaganda from the pharmaceutical companies; the government, it says, just wants the same discount drug companies now give to health-maintenance organizations (HMOs). That sounds reasonable until you realize that HMOs don't control anything like the 60 percent of all prescriptions written that the government would pay for under the Clinton plan. The federal government would then be the largest purchaser of prescription drugs in the world, and it could indeed force drug companies to lower their prices. But the high-quality, innovative medicine Americans now take for granted would be endangered.
Democratic populists in Congress and the White House like to rail about the profits of drug companies. Well, yes, companies in a free economy make money. And if they are in an industry that depends on new and improved products for profits, they reinvest a lot of what they make. If the White House were to propose federal control of 60 percent of the telecommunications or high-technology sectors of the economy, the idea would rightly be rejected outright because it would kill innovation. But somehow the administration keeps a straight face when it proposes controlling most of the pharmaceutical market and says that such a plan won't hurt biomedical innovation.
There are further perversities that would flow from price controls. Seniors would likely be forced to use only the drugs the government wanted them to have. While the Clinton White House brags that private firms would administer the drug benefit, the list of drugs available -- as well as how and when -- would be dictated by Medicare bureaucrats. The potentially harmful outcomes of such rationing can be seen with drugs that Medicare already covers.
There is, for instance, the sadly instructive saga of erythropoietin (EPO), a biotechnology product used to reduce the anemia that people suffer when they go through kidney dialysis. Dialysis patients on EPO are healthier and live longer than those without it. In 1993, in an effort to contain the cost of EPO, Medicare did three things: It put a price control on the drug, rationed the amount patients could get, and refused to reimburse its use for patients above a certain level of healthy blood cells. Under the Medicare protocol, the number of people who died increased and people with healthy blood levels wound up getting sicker. It took five years of lobbying and administrative review to get Medicare to loosen its EPO controls. If the Clinton drug benefit is adopted, it will simply extend Medicare's mishandling of drug benefits to all prescriptions.
There is also the phenomenon Duke economist Henry Grabowski calls the social drug lag -- thanks to price caps, seniors would be last in receiving access to new medications. Negotiations with the government over prices could delay the access of seniors to most innovative medicines for years or -- if the government blacklists a company that refuses to budge -- forever.
Finally, no amount of populist rhetoric alters the fact that the Clinton plan will mainly benefit the well-off. Nearly 50 percent of seniors have family incomes of $ 25,000 or more and spend less than one percent of their income on drugs. Hence the Clinton plan will create an entitlement that will largely go to a group who can afford their drugs and their drug coverage.
Like the Health Security Act of 1994, the Clinton drug plan should be scrapped. It may seem like a panacea. But it is really a poison pill that seniors and non-seniors alike should avoid.
Robert M. Goldberg is senior research fellow at the Ethics and Public Policy Center in Washington, D. C.