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I write on behalf of the nearly 300,000 members of Citizens for a Sound Economy to urge you to vote NO on any bill that provides a Medicare prescription drug benefit without fundamental restructuring of the entire Medicare system. While it may be tempting politically to add a prescription drug benefit to Medicare, such action would be unwise for two obvious reasons:
First, no matter how drugs are to be delivered to beneficiaries the cost of the program would be enormous and almost incalculable. It is important to remember that in 1965, the cost of the Medicare system was expected to total $12 billion in 1990. This consensus forecast proved to be a $95 billion underestimate as longer life expectancy and advances in medical technology far exceeded expectations. A prescription drug benefit targeted at the middle class – like S. 2, the “Tri-partisan 21st Century Medicare Act,” and S. 2625 the “Medicare Outpatient Prescription Drug Act of 2002” – would be likely to far exceed today’s cost estimates as eligible beneficiaries with above average drug costs crowd the government purchasing pool and employers drop retirement coverage.
Secondly, given underlying political and economic realities, a prescription drug benefit would inevitably lead to price controls on pharmaceuticals, bionics, and other innovative medical therapies. This would be a disaster given the fecundity of private American pharmaceutical and biotech research, which has produced over 330 new drugs and bionics in the 1990s and continues to lead the world in both commercial and scientific medical developments.
That the Senate has chosen S. 812, the “Greater Access to Affordable Pharmaceuticals Act” as its base bill in this debate is instructive on this point. This bill would enfeeble innovators against generic competitors who violate their patents. A pharmaceutical patent is a commercial license created and enforced by government to provide a financial incentive for drug companies to invest in drug research and development. Given the exemplary record of domestic drug developers, the rise of generic drugs to 50 percent of all prescriptions, and the relatively few instances where patent holders have subverted generic applications for purely anticompetitive reasons, there is little reason to emasculate patent protection along the lines of S. 812.
Because seniors have become increasingly dependent on prescription drugs and bionics to fulfill their health care needs, it does not make sense that America’s old-age health insurance program does not cover the costs of such treatments. But given Medicare’s precarious financial footing, a drug-only benefit would be a poison pill that could undermine the entire system. Lawmakers should use this opportunity to completely reform the Medicare system based on defined government contributions to allow beneficiaries to purchase health insurance in a competitive market.
Since drugs are often an alternative to more expensive medical procedures, like surgery, and save, on average, $4 in traditional medical care for every $1 spent on drugs, prescription drug coverage would likely be included in private medical plans. But to work, insurers must be able to underwrite the entire health care costs of an individual above a set deductible. An artificial drug-only insurance market would require huge subsidies because it would prevent insurers from off-setting drug costs by pricing premiums to include the risk of illness and treatments the drugs are intended to prevent.
A drug-only benefit would also do nothing to reform the current Medicare system, which is set to run a deficit in 25 years and become insolvent soon after that. It is important to recognize that unlike Social Security benefits, which can be set at arbitrary levels, Medicare benefits are dependent on the health care sector of the nation’s economy. The ability to pay for medical services is, to a large extent, a function of the supply of medical professionals, hospitals, clinics, and medical equipment suppliers. Regulations today to reduce costs could deplete the supply of these medical inputs in the future, which would lead to increased costs and rationing. This fate can be avoided through Medicare reform that would return health care output and pricing decisions to the interplay of the market, where health care options can be more closely designed to meet the needs of individual beneficiaries.
Thank you very much for considering these often overlooked facets of this complex issue. Should you or your staff need further consultation on this bill and its amendments, please feel free to contact CSE’s Director of Government Relations, Dani Doane at (202) 942-7688.