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« Back to What are the Candidates’ Prescriptions for Medicare? main page    Transcript for: What are the Candidates’ Prescriptions for Medicare?THINK TANKWITH HOST: BEN WATTENBERG SATURDAY, OCTOBER 28, 2000 ANNOUNCER: Funding for Think Tank is provided by the John M. Olin Foundation, the Lynde and Harry Bradley Foundation, the Smith Richardson Foundation, and the Donner Canadian Foundation. (Musical break.) MR. WATTENBERG: Hello, I’m Ben Wattenberg. Adding a prescription drug benefit to Medicare has taken center stage in this year’s presidential campaign. What are the differences between the Bush plan and the Gore plan, and does either plan address Medicare’s long-term financial health. To find out Think Tank is joined by: Judy Feder, professor and dean of policy studies at Georgetown University; Robert Helms, director of health policy studies at the American Enterprise Institute, and editor of Medicare in the 21st Century, Seeking Fair and Efficient Reform; and Jeff Lemieux, senior economist at the Progressive Policy Institute, and former staff economist at the National Bipartisan Commission on the future of Medicare. The topic before the house, the candidate’s prescriptions for Medicare, this week on Think Tank. (Musical break.) MR. WATTENBERG: The Medicare program faces virtually the same financial problem that Social Security faces. As the baby boomers retire, the burden of Medicare expenses will fall more and more heavily on those still working. And Medicare’s share of the federal budget is expected to soar. In the days before the budget surplus policymakers used to worry about these trends, but apparently no longer. The talk now from both presidential candidates is about adding new prescription drug benefits to Medicare. GOVERNOR BUSH (From video): I want all seniors to have prescription drugs in Medicare. We need to reform Medicare, there has been an opportunity to do so, but this administration has failed to do it. VICE PRESIDENT GORE (From video): Under the Medicare prescription drug proposal I’m making, here’s how it works, you go to your own doctor, and your doctor chooses your prescription, and no HMO or insurance company can take those choices away from you. MR. WATTENBERG: These plans will cost money. Bush estimates the cost of his drug plan at $158 billion over 10 years. Gore’s plan would spend $253 billion over that period. Why the intense focus on prescription drugs this year? For one, it is an important issue in politically key states with large senior populations, like Florida and Pennsylvania. But, medicine has also come to rely more on drug therapies. In 1982 spending on drugs accounted for 5.3 percent of total personal healthcare expenses. Today, that figure stands at 9.3 percent, and it’s expected to keep rising. Lady, gentlemen, thank you for joining us here on Think Tank. Jeff Lemieux, let’s start with you, go around the room quickly, referring to the point in the set up piece. We have been indoctrinated over the course of at least a decade, my god, Medicare is going to go broke, it’s terrible, we’re going to fall off the edge of a cliff. And all of a sudden both candidates are out there saying, well, that’s true but here’s how I’m going to spend more money. What on earth is going on? MR. LEMIEUX: Well, I think it’s one thing and one thing only. And that’s that we now have projected big surpluses for the next ten years. We know that nobody thinks that Medicare spending isn’t going to be a big problem when the baby boomers retire, but that’s 10 years, 20 years, 30 years from now. So in the meantime we have these big budget surpluses, and it’s impossible for politicians to talk too much about Medicare austerity when they’re looking at that much surplus. MS. FEDER: Another point that’s changed in the debate, two things. One is that people have come to recognize that there is a big hole in Medicare, as you acknowledged, that drugs have become a big part of medicine, and seniors that need them the most don’t have the insurance protection that younger Americans who are insured have. The second piece is in the last couple of years, as a result of changes in the economy, and changes in Medicare policy that date when Medicare needs new money has gone way out in the future. A couple of years ago the trust fund that pays for the hospital part of Medicare was scheduled to be exhausted in 2001, or 2002. The date now is 2025. MR. HELMS: Medicare still has a long-term financial problem, and I think we get misled by looking -- MR. WATTENBERG: Does it make it out to 2025, now that the gate’s slammed? MR. HELMS: That’s for the part A, and what I’m trying to say is that I think it’s because looking at part A and what’s improved about the projections there misleads us. MR. WATTENBERG: Tell us part A, part B? MR. HELMS: Part A is the hospital side of Medicare, and it’s funded by the payroll taxes you pay into the part A trust fund. But, the fastest growing part of Medicare is part B, the part that covers physician coverage, and out of hospital care, and so on, and office visits and so on. And that is funded 25 percent from premiums, which get deducted from Social Security checks, but 75 percent comes right out of the general revenue. And that is the unfunded part of the future liabilities for Medicare. A recent study that Judy and I were involved in for the National Academy of Social Insurance measures that by 2030 we will have to have 111 percent increase in revenues just to cover the existing Medicare program before we add anything new to it. MR. WATTENBERG: Okay. Let’s start with the Gore plan briefly, Judy? MS. FEDER: Vice president Gore proposes that a prescription drug benefit become a fundamental part of Medicare, so that seniors will have some of their prescription drug costs paid just the way they have their doctor bills paid, their hospital bills paid. It is a modest benefit for which seniors have to pay a monthly premium. It provides for coverage with no deductibles, but then people pay half the costs of their own costs, split them with government. MR. WATTENBERG: From dollar one. MS. FEDER: From dollar one. It also provides some catastrophic protection, above 4,000 the Medicare program will pay. MR. WATTENBERG: What’s wrong with that? MR. HELMS: Well, first of all, I would rather we not add a drug benefit right away, of course I’m not a politician, but until we deal with the more fundamental problems. Then I think a drug benefit could be worked into some overall reform plan. But, I do think Mr. Bush proposal is more responsible than Mr. Gore’s in the sense that he’s concentrating more on the people that need it, the poor people who are having trouble buying prescription drugs. And also, as the Gore plan, he also has a catastrophic thing, although he starts it at $6000 rather than $4000. And I would argue that that’s more responsible, because it keeps the costs down. MR. WATTENBERG: Isn’t there -- we’ll come to you, Jeff, we haven’t forgotten you. Isn’t there a little bit of an inversion going on here? We have the Republican saying, we’re going to take care of poor people. And we have the Democrat saying, we’re going to take care of not only poor people, but we’re going to pay Bill Gates, when he reaches -- or his age 65 counterpart. You’re going to pay money to everybody whether they need it or not. MS. FEDER: I think the difference is that we have an -- or the reason it looks that way on this issue is that we have a Medicare program that provides all seniors and some people with disabilities coverage, regardless of income. We’ve had that program since 1965 when we had the very same debate. Should we do this for low-income people or should we do this for everybody. And we decided then we needed to do it for everybody in order to make it work properly. Insurance, private insurance doesn’t work for older people. They’re a difficult market to insure. And private insurance was not covering them in 1965, and won’t cover them today without government involvement. So to have a program that really guarantees everybody and doesn’t separate the sick from the healthy, and the modest income in particular -- when you do a means tested benefit directed at the needy, there’s always a cut off. MR. WATTENBERG: But, you don’t have a cut off, you give it to Bill Gates. MS. FEDER: What I’m saying is if you do what is proposed by Governor Bush, that you have a state program for the needy, as you say, the needy stops at about between $11,000 and $14,000. So say you’ve got somebody with an income of $15,000 -- MR. HELMS: Then they phase it out. MS. FEDER: No, that includes the phase out, I’m above the phase out. MR. WATTENBERG: Jeff has been sitting here with sort of a Mona Lisa smile, or whatever the political equivalent of that is. What’s your problem with these folks? MR. LEMIEUX: Already I’m starting to -- it amuses me that it sounds like these positions of Gore and Bush are a long ways apart. And I just don’t believe that’s true. I think that both sides have moved a lot -- President Clinton picked up some of the aspects of competition, and reform that were originally done in the Medicare commission, and that Governor Bush talks about. The Bush plan does now include subsidies for people even up to the Bill Gates level, although they’re only half as much. There is also an important difference in who would provide the benefit. The Clinton plan tends toward having one private entity give out the benefit under contract with the government. The Bush plan and the Medicare commission’s plan would have multiple competing entities, trying to compete on price and service. MR. WATTENBERG: Is the Bush plan closer to that much praised federal government plan that people keep saying, the federal government plan is so wonderful? Is the Bush plan modeled more on that than Gore’s is? MR. LEMIEUX: Both of them are modeled on that. Both of them would fundamentally make Medicare more competitive like the federal employee’s plan, where people can pick. The Gore plan, the Clinton plan is a little bit less that way for the drug benefits. MR. WATTENBERG: You said the Gore plan is just one provider, it’s not a competition. MR. LEMIEUX: For drug benefits, my statement was too broad, but for regular competition between the fee for service plan and multiple comprehensive HMOs that are already out there, serving about one out of every six beneficiaries, they both would use a federal employee system. MR. WATTENBERG: Okay. The Bush people, the anti-Gore people, let’s put it that way, claim that the Gore plan would lead to national price controls on drugs. Two questions, first to you, Judy, is that true or likely to be true, and secondly, is that good or bad? MS. FEDER: It’s not true as designed, because there is a strong recognition on the vice president’s part that a big government management of the healthcare system is not perhaps doable or desirable. They have tried to build upon the way in which the private sector tries to control drug costs, which is not price controls, it tends to rely on market mechanisms. The concern is that drug costs are rising over time. There is no magic in either the public or the private sector. It’s something that we as a nation will have to grapple with, and I think that’s why the pharmaceutical industry is afraid. MR. WATTENBERG: We’re going to talk about the pharmaceutical industry. We used to see this little thing, what’s wrong with this picture, you know, something is missing. MR. HELMS: I don’t think there’s any doubt that they would end up with cost controls, although they say they’re not. MR. WATTENBERG: Are cost controls and price controls the same thing? MR. HELMS: Yes, price controls, because they’re really proposing to contract with one contractor in each area, although it would be multiple contractors around the country, as I understand it. But, basically they would have a local monopoly. And I think it’s inevitable, it’s the whole history of Medicare, there was original language saying they would not interfere with the practice of medicine, and we now have controls on hospitals and physician fees throughout Medicare. And when they get into trouble with controlling the costs, there’s no doubt in my mind that they would use the power of the government to clamp down on the rates. And when you do that, I do think the industry would walk away from a lot of the R&D they’re now doing. They will walk away from the riskier type of research first. They will walk away from the research on AIDS related diseases first. If something is about to come out of FDA they’ll still market it. MR. WATTENBERG: Do you agree with that, Jeff? MR. LEMIEUX: Well, it’s true that in the course of Medicare history, to cut costs we’ve always moved from having a private entity make the decisions to having the government tell the private entity what to do. So I think it would be preferable to see if we could make a competitive system work. MR. WATTENBERG: Do you think that a plan that ends up putting on price controls will diminish the entrepreneurial spirit and ability of the pharmaceutical companies? MR. LEMIEUX: I think that I’d be even more worried rather than an overall reduction in research and development, and distortion in which research and development gets done. I mean, if I was a research manager and I thought the government was going to try and reduce the price of a particular kind of drug, but not another, I’d shift research into the other. MS. FEDER: I think we’re missing the forest for the trees. I think you want to look back, the forest is what does it mean to have government coverage, Medicare coverage of medical bills. And I want you to think about what’s happened to hospital growth over the last 35 years, I want you to think about what’s happened to physician incomes over the last 35 years. We value these services, and we pay for them. And one of the issues when we think about the future -- MR. WATTENBERG: A lot of the physicians I know are storming mad. MS. FEDER: They’re storming mad, because they’d like to earn more. And what we’ve not seen -- to call it price controls in Medicare, Medicare has moved over the years to limiting what it’s going to pay. It is not limiting physicians from what they charge to others. What you see is the marketplace actually becoming now, and it took them a long time, but even more aggressive than Medicare. Physicians, when they set their prices, and both the public and the private sector just pay them. So what we have is a struggle in that regard. So that’s the first thing. The second piece, let me do the second piece -- MR. WATTENBERG: Just hold on a minute, we’ll come right back to you. MR. HELMS: The potential for new drugs is so hypothetical, these are things that are not in existence now, what we’re talking about is the rate of discovery in future years. MS. FEDER: The second piece is, what’s going to happen to research. Now, you’ve got to remember how hugely profitable the pharmaceutical industry is. Now, I don’t disagree with Bob that incentives change, that the bigger the bang for the buck, the more you are likely to get certain kinds of things. MR. WATTENBERG: Gore makes the claim, he beats up on a number of industries, and he picks out one that in my judgment, arguably, is the most important, dynamic, and creative industry in America, which is pharmaceutical research, for all its many flaws. I mean, they are producing drugs that are making all our lives better. And Gore beats up on them that they’re making too many profits -- MS. FEDER: Ben, but a lot of that, you’ve got to look at a lot of -- a lot of what they’re doing is extremely valuable. I don’t disagree, and we want that. There’s a lot that they’re making money on that is of more questionable value. A lot of money made on me too drugs, you know, marginal differences that are not big differences. It’s a lot of money made that perhaps doesn’t have to be made to achieve the objective -- MR. HELMS: Sounds like competition to me. MS. FEDER: There is competition, absolutely, and I think that no one is intending to eliminate that competition. But, the question as to whether we are really getting value for the dollar in that industry is a really serious question. MR. HELMS: When you look at what’s happened to expenditures, it’s not so much prices, what it shows is there’s big changes in utilization. MR. WATTENBERG: Professor Lemieux, our adjudicator here. We’ve had a nice go around here. MR. LEMIEUX: I think we’ve gotten pretty far afield from the big problem here. The reason we’re talking about prescription drugs and Medicare is because way too many seniors have to face very high out of pocket costs when they go to purchase drugs on their own. They don’t have an advocate working for them. They don’t have an insurance company or a health plan negotiating good prices for them. The solution to the drug problem in Medicare is insurance coverage. We should expand Medicare and put drugs into the packet. I think that the least distorting way to do that would be through a way when seniors can pick which plan they want, based on price and benefits and quality, the best they can reckon, hopefully with someone to help them out with that choice. If we do that then I think that even if prices do come down, because these new insurance companies ratchet them down or negotiate very well with the plans, it will be in such a way that it won’t distort incentives for research. MR. WATTENBERG: Is that what the bipartisan Breaux-Thomas commission recommended? MR. LEMIEUX: Yes. MR. WATTENBERG: And that was appointed by President Clinton, and then it is said ignored by him. MR. HELMS: I wouldn’t say ignored at all. The president came out with a plan three months later -- MR. WATTENBERG: He never proposed it. MR. HELMS: He came out with a counter proposal three months later that was similar in many respects. I mean, the Medicare Commission was still based on the politics of austerity in Medicare, where we need to cut, we need to cut. The president realized, we have big budget surpluses, he said we don’t need such penny pinching. MR. WATTENBERG: Let me ask another question, it’s one that always troubles me. The drug companies sell -- I mean, it varies, I guess, but close to 50 percent of their product overseas. Almost exclusively to countries that have national price controls. So we have this phenomenon of people going to Canada, and saying, I can get my drugs cheaper. You can get your drugs cheaper because the foreign countries are, in essence, free riders on the American research and development program. We pay all the capital costs, and then the drug companies say, we’re going to sell it in America, we’re going to make a profit. If I only sell it for 2 cents more profit in Canada, I’m still ahead of the game, I’ve already done all the work. As we say in politics, that’s not fair. Now, what do we do about that? MR. HELMS: My view of the industry is that they have a big unregulated U.S. market, that’s driving their R&D decisions. MR. WATTENBERG: Right. MR. HELMS: They then have, since they’ve already expended the costs, they can then sell the cost in each separate country at whatever they can get. If you pass a once-price law -- MR. WATTENBERG: So we the Americans are paying for all the R&D and the foreign governments are riding -- free riders. MR. HELMS: If you want to look at it that way. Revenue is revenue, they get more revenue by selling to each one of those countries at whatever they can get. MR. LEMIEUX: It would be somewhat inhumane to demand that a very poor country have to pay the same prices as a rich country. MS. FEDER: What the discussion shows, I think, is that we shouldn’t over simplify this issue. That we’ve got a very large industry that provides a valuable product, but the costs are higher than we’d like to pay. That we’ve got a lot of people, as Jeff said, who don’t have coverage for drug, older people and let’s not forget the uninsured, but older people who don’t have prescription coverage. Those costs are going to be there whether we cover them or not. We shouldn’t stick it to them, they should have the coverage. And it’s going to take a combination, as it always does here, of market mechanisms, private and public coverage, insurers, purchasers, and public policy. You can’t ignore government in the picture. MR. HELMS: I want to agree with both of them in one respect. I do think -- MR. WATTENBERG: You’re here to disagree, Helms. MR. HELMS: I do think it’s important to get drug coverage somehow into Medicare, but I think Jeff is right, that you’ve got to do it in the context of a plan, so that people have choices about what they will do. Somebody has got to be responsible for making some hard decisions. If you just have a benefit out there, then everybody can say, well, the government is paying half of it, I’ll just start using more. I think none of the actuaries are going to be right about what that’s going to cost. MR. WATTENBERG: If you said to me, I’m going to pay 50 percent, I wouldn’t regard that as a free good. MS. FEDER: Exactly. MR. HELMS: Well, no it’s not a free good, but it’s a lot more than you’re paying now. MS. FEDER: But, you know, they’re paying the premiums, they’re paying half the price. It does take some of the burden off, insurance always does, that’s always a dilemma. But, let me talk to you about this choice issue. There’s a lot of oversell of choice in insurance. When we talk about a choice of insurers, it’s insurers choosing what they’re going to give you, on what terms, and whether they’re going to give you everything. MR. WATTENBERG: But, that’s where the market principle comes in. If I’m saying here, and I have to deal with Judy Feder, I’ve got a problem I say, well, if Judy’s plan isn’t good, you’re an insurance company, Jeff’s plan is pretty good, and then my colleague Bob Helms comes in and says, I’ve really got a good plan, I’m going to come back to you, and then you’re going to give me a better plan. MS. FEDER: The real problem in the insurance market that you’re missing, which is that in insurance the plans make out, and so do the consumers to some extent, if healthy people are in one place and sick people are outside, and there’s a real problem in terms of having a competitive insurance market. We know it from the insurance market that’s outside employers for the working age population. Start introducing that in Medicare and you’ve got some very real problems. So there is not a magic here that you would like to assume. And you’ve got to be real careful. MR. WATTENBERG: I demand magic. MS. FEDER: You demand magic? MR. WATTENBERG: I will legislate magic. MR. HELMS: But, look at the alternative, to have the Healthcare Financing Administration. MR. WATTENBERG: HCFA, the famous HCFA. MR. HELMS: Run a drug benefit, as they now do with hospitals or physicians I think is just unworkable. This is a much more complicated situation, many times more small claims than you have with hospitals or physicians. And I just don’t think they would be able to do it. MR. LEMIEUX: Judy is right, a strong government role is crucial in making markets work. And Bob is right, that HCFA is not the agency to do that. And to try and find an alternative there I think would be just really helpful. MR. WATTENBERG: Let me just say, we have to close now. Let me just again go once around the room as we did in the beginning. It sounds to me as if there are some common elements in play, as you’ve all indicated. What are we going to end up with? I mean, this is going to be a close Congress no matter who wins. I mean, there’s going to be a lot of brokering. If you had to say, it’s five years from now, ten years from now, what are we going to end up with? What’s your guess? MR. LEMIEUX: I think we’ll have better benefits in Medicare, both for drugs and in out of pocket exposure for other things. And I think we’ll have an improved competitive system. It will take some leadership. We were very close this year, but the campaigns get more bitter, and they tend to accentuate differences, not similarities. It will take the next president to be quite a leader. MS. FEDER: I think there’s a real push for drug benefits and a recognition that they matter. But, Governor Bush has said that he’s going to give benefits only to low income people. And essentially hold the rest of the population, people at $15,000 $20,000 and the rest of seniors -- he’s going to hold that hostage to what he’s tabbing as a major reform of Medicare, that will be very difficult to achieve, and depending on how it’s designed could do people a lot of harm. MR. HELMS: But, look at the campaign, not only are the two presidential contenders pushing for a prescription drug benefit in Medicare, but almost every member of Congress is running on that platform. And I just see after the election, and I can’t predict who’s going to win at this point. MR. WATTENBERG: I can, but I won’t. MR. HELMS: Okay. I’ll leave that to you experts. But, look at it, there’s going to be a tremendous effort, I think, to sit down around a table and say, okay, now it’s time to sort of cut bait here. And let’s design a plan. But, there’s going to be tremendous disagreement about that, because I don’t think we know enough yet about how to really design this plan. MR. WATTENBERG: So one thing we can stipulate is that, as usual, the pundits in Washington will have fertile ground upon which to plow. Thank you, Jeff Lemieux, Bob Helms, Judy Feder, and thank you. Please remember to send us your comments via email. We recently received a letter from Marie in New Jersey who writes: I am a high school teacher in an underprivileged community. One point I would like to make is that most of the problems that children have learning are due to a lack of parental authority and accountability. We received a lot of mail on this topic after our program on education, much of it expressing just that view. The parents have to take more responsibility. I agree. Thanks for your letter. For Think Tank, I’m Ben Wattenberg. ANNOUNCER: We at Think Tank depend on your views to make our show better. Please send your questions and comments to New River Media, 1219 Connecticut Avenue, Northwest, Washington, D.C. 20036, or email us at thinktank@pbs.org. To learn more about Think Tank, visit PBS Online at pbs.org. And please let us know where you watch Think Tank. This has been a production of BJW, Incorporated, in association with New River Media, which are solely responsible for its content. Additional funding is provided by the John M. Olin Foundation, the Lynde and Harry Bradley Foundation, the Smith Richardson Foundation, and the Donner Canadian Foundation. (End of program.) Back to top  Think Tank is made possible by generous support from the Smith Richardson Foundation, the Bernard and Irene Schwartz Foundation, the Lynde and Harry Bradley Foundation, the John M. Olin Foundation, the Donner Canadian Foundation, the Dodge Jones Foundation, and Pfizer, Inc. ©Copyright Think Tank. All rights reserved. 
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