In 2003, Congress apparently took the wrong lesson from that 1988 fiasco, figuring extra Medicare benefits might still attract AARP support so long as the cost could be concealed. As Michael Kinsley rightly noted, the new drug benefit was enacted "without even a theory about how it will be paid for." We have a special payroll tax earmarked for Medicare, yet no congressman dared suggest that increased Medicare benefits ought to be even partly financed by an increased Medicare tax.
Many of us oldsters were quite willing and able to buy catastrophic drug insurance without all these unfinanced subsidies. The trouble was, it wasn't legal.
A year after repealing its 1988 catastrophic catastrophe, Congress moved in the opposite direction and prohibited the sale or purchase of insurance for major prescription drug expenses. Congress then designed and mandated 10 standardized Medigap policies which prohibited coverage for major drug bills, yet required insurance companies to pay for expenses that should never be insured -- deductibles. Only the two costliest Medigap policies were permitted to offer any insurance for prescription drugs, and those policies covered only half the cost of the first few thousand dollars.
An otherwise interesting paper by David McAdams of M.I.T. and Michael Schwartz of the University of California at Berkeley, about several perverse incentives of the new drug benefit, claims that "private markets have failed to provide meaningful stand-alone prescription drug coverage for seniors." Yet this was a failure of government, not markets. Private markets were prohibited by law from providing such coverage. Medicare Part D, by contrast, covers the largest and smallest drug bills too generously, leaves a hole in the middle and adds another $8 trillion to the already unbearable load of unpayable promises to future retirees.
Ironically, these new subsidies to producers and consumers of prescription drugs could easily prove to be a political liability for Republican incumbents in November. Seniors who feel deceived and pushed around can be extremely angry and vocal while the mildly satisfied are more or less indifferent and stay home. Some in Congress may offer to fill the hole with more of that money they don't have, but younger taxpayers know who ends up with such unpaid bills. And the perennial Democratic favorite -- trying to shift most expenses to the loosely defined "rich" -- is precisely what killed the 1988 plan.
Assuming this whole impetuous venture does not just wind up summarily scrapped, like its 1988 precursor, any politically viable repair is likely to require two cheap and simple changes. First, allow people who switched from a Medigap policy with drug coverage return to such a policy if they absolutely despise their experience with Part D. Second, allow anyone of any age to buy (and insurance companies to sell) a less-generous "catastrophic" policy to cover 80 percent of drug bills in excess of $5,100 a year on mutually agreeable terms with no federal subsidy. In other words, give freedom a chance. It works.