Alan Reynolds

This year, Medicare began paying 68 percent of the cost of prescription drugs for seniors who sign up for Part D, or about $1,750 per enrollee by one estimate. You might think that giving away so much federal money would be politically popular, at least with those on the receiving end. But it doesn't always work out that way.

A Dulko Research poll in April did show that 58 percent of seniors who had enrolled in the plan approved of it at that time, although a plurality of registered voters did not. Unfortunately for Congress, elections are not held in April, when many had just signed up. The mood has soured since then as more and more seniors fell into the infamous "hole in the doughnut." A recent New York Times headline tells the tale: "Medicare Beneficiaries Confused and Angry over Gap in Drug Coverage."

Unsubsidized Medigap used to cover half of my wife's drug bills all year. Since switching to Medicare Part D, all of her drug costs have been out-of-pocket since April 15th, yet we owe monthly premiums to Medicare for these non-benefits. Want to switch back to Medigap? Tough luck -- that's illegal.

The new drug plan has a ridiculously low deductible of $250 and a co-payment of just 25 percent on drug bills from $251 to $2,250. Then there is no insurance at all for the next $2,850. Since this scheme covers three-fourths of routine drug bills, which is hugely expensive, there was nothing to spare for unexpectedly large expenses. Politicians figured more votes could be bought by covering the little stuff, because there are many seniors with yearly drug bills below $2,250 and relatively few with more serious expenses. But those with small drug expenses today nonetheless worry about larger expenses tomorrow, and the unknown is what genuine insurance is all about. Besides, politicians have miscalculated before.

In July 1988, the House passed the Medicare Catastrophic Coverage Act by an overwhelming 328 to 72 majority. That ill-fated law promised future coverage for prescription drugs with a $600 deductible in 1991 and co-payments that were supposed to drop from 50 percent to 20 percent after 1993. Sixteen months after that law passed, the House voted 360 to 66 to repeal it. Why? People discovered these distant promises were to be largely financed by a surtax of up to $800 on seniors who paid the most in income tax -- meaning a massive transfer payment from those who worked or saved the most to those who did neither.

Alan Reynolds

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