Labor Advocate Online

The Medicare Rip-Off
by Jerry Gordon

Proponents of single-payer universal health care have long been painfully aware of Medicare’s limitations. It covers a little less than half of all medical expenses for the elderly. It offers scant coverage for nursing homes and no coverage for prescription drugs other than those required during a hospital stay. It does not cover dental services. Benefits are reduced by co-payments and deductibles, which keep rising. And, of course, coverage is limited to persons 65 and over. So a number of reforms are clearly in order.

But reforms should keep intact the system’s virtues. Its strength is its universality and uniformity: everybody 65 and older is covered —rich and poor, healthy and sick—and all receive the same benefits. Medicare is publicly administered, without the exorbitant profits, huge executive salaries and emoluments, and without the duplication and waste pervasive in the privately run health care system. Administrative costs under Medicare are only about 2.9 cents per dollar compared to nearly 30 cents in the private sector.

Expand Medicare to include all residents regardless of age; eliminate the premiums, deductibles and co-pays; make coverage comprehensive—these are the real ways to reform Medicare. But Congress and the Bush administration have gone in a different direction. The law just passed—whose stated purpose is to help seniors pay for prescription drugs—is calculated to privatize Medicare. In the process, while limited benefits are made available to some seniors, the legislation will prove costly to millions of others, while further enriching the giant pharmaceuticals and the health care insurance industry.

Inadequate Funding
One major reason why so many seniors oppose the new law—a University of Pennsylvania Election Survey group's poll found only 39% in favor—is because of the gap in coverage. Seniors who incur prescription drugs expenses in excess of $2,250 a year must pay all the bills themselves from that point on until they have paid $3,600 out of pocket. After that, Medicare pays 95% of remaining costs. This payment formula has been widely noted, but not too much has been said as to why such a provision is in the legislation.

There is no logical or rational reason. What happened is that early on, Congress arbitrarily set a $400 billion limit on the package and all members agreed to abide that figure. In context of what is at stake and what is needed, this is a pittance.

Congress routinely authorizes appropriations of virtually unlimited amounts of money for the government’s priorities, which do not include social programs or taking care of human needs. Four hundred billion has been approved for the Pentagon for just one year (the $400 billion allotted under the new Medicare program is for ten years); an estimated $200 billion will be spent for the war on Iraq—a war waged for oil and empire; corporate welfare schemes consume about $150 billion annually; interest payments on the national debt are running at $318 billion a year according to the latest figures; and so it goes. But money for jobs, education, health care, affordable housing, protecting the environment, feeding the hungry and other essential social programs is never available in the amount needed, or anywhere close to it.

Where Is the Money To Go?
While supporters of the bill trumpet its many alleged benefits for seniors, much of the money appropriated will actually end up in the pockets of the insurance companies, HMOs and especially the giant pharmaceuticals. They are the real winners, not the seniors.

In the first place, the plan has been shorn of all cost containment protections. The government has been expressly forbidden from negotiating lower prices with the pharmaceuticals, the reason being that—heaven forbid!—this could lead to price controls. So the pharmaceuticals will be free to charge whatever the market allows. (They already charge U.S. seniors the highest prices in the world.) Even a member of Congress, Sherrod Brown of Ohio, has stated that “The bill gives $139 billion more in profits to the most profitable industry in America, the drug industry.”

As for lower-priced drugs coming in from Canada, this, too, has, in effect, been proscribed. The law bans re-importation of drugs (produced in the U.S., sent to Canada, and then imported from Canada) without the express approval of the Department of Health and Human Services. Such authorization has been withheld to date and no change on that score is foreseeable.

Second, the legislation has established a system, which, unlike traditional Medicare, is privately administered. It will be run by the very insurance companies and private health plans that have been fleecing seniors for decades. They view the legislation as a business opportunity to gouge the public further, and this time with the more active assistance of the government.

For years, health companies have been embedded in Medicare with their “Medicare + Choice” options. The government gave them so much per enrollee, they offered seniors limited benefits beyond what Medicare provides, such as prescription drugs, and they still ended up making profits. But when the government reduced payments in the late 1990s, the Medicare business became less profitable and many HMOs gave it up altogether.

The arrangement under the new legislation is different. While Medicare will promulgate rules and regulations, the administration of the program is turned over to the health care companies, with the government’s costs capped. There will be an immediate boost in government payments to the managed care companies who smell big profits in the deal. This has already resulted in a flurry of renewed interest on their part. It is no surprise that Humana Inc. shares rose nearly 7% within two weeks after the Medicare bill took final shape.

An example of transferring control of health care from public to private is the much heralded discount card, which is to be issued next April or May and will presumably reduce drug costs by 15%. The government will not be issuing the cards, as it does with Medicare and Social Security. In all likelihood, this will be done by the PBMs—pharmacy-benefits managers. These PBMs are the companies that already administer drug programs for many employers and issue the familiar cards that many workers use to pay for prescriptions.

The pharmaceuticals can be counted on to rack up huge profits from the greater volume of sales under the new system, the PBMs will, of course, be charging handsomely for their services, and the retailers will also be taking their cut. What is left for seniors is far short of $400 billion in benefits.

Third, there are the multi-billion dollar incentives the plan offers employers who currently provide prescription drug benefits to retirees. There are an estimated 11.4 million nonfederal retirees who have health insurance provided by former employers. These retirees fear that their more generous private coverage will be reduced or eliminated as a result of the legislation. The government has offered employers who provide the benefit more than $70 billion to continue doing so. As discussed below, even this amount may not be adequate to save the benefits these retirees enjoy. But the point here is the willingness of the government to subsidize companies with such a hefty contribution in order to get them to do what they are already doing without the subsidy.

Fourth, as stated by the Wall Street Journal (11/25/03), “The Medicare bill includes payments to health maintenance organizations [in the amount of $12 billion] to encourage them to compete with the government program, and eases regulations on the companies.” In fact, the 678-page Medicare legislation from beginning to end is laced with subsidies, incentives and handouts to big companies, making it a profit bonanza for them—notwithstanding the claim that the law was passed to benefit seniors.

How Much Help is Really Given to Seniors?
Let’s begin with low-income people, supposedly the big winners of Congress’ imagined largesse. Seven million of the poorest and neediest will lose their Medicaid benefit that currently provides them the prescription drugs they need without charge. Moreover, the new legislation bars a Medicaid “wrap around,” meaning that what is missing in Medicare will not be available under Medicaid.

As a palliative, seniors with incomes below 135% of the federal poverty line ($12,123 for an individual)—an estimated three million people—will receive a $600 subsidy toward drug purchases in 2004 and 2005. In 2006, the premiums, deductibles and coverage gap will also be waived for people in this category. But there is a catch: to qualify, these seniors must own less than $6,000 in non-residential assets.

The stingy aid given to the most impoverished will undoubtedly be blown up out of all proportion to show how concerned Congress supposedly is over their plight. Indeed, Sen. Dianne Feinstein cited the provisions in the law purporting to help them as justification for supporting it. But the thirty-seven million other seniors, many of whom are also in dire need of assistance, will not qualify for it.

Moreover, there will be no approved and comprehensive list of medications provided under the bill. There will be a choice of plans, each offering its own list of authorized medications. Seniors in the lowest income bracket who suffer rare medical conditions and need special kinds of prescription drugs could end up with no help to pay for them, unlike under Medicaid where they get them for free.

Another group of the elderly who will be hurt financially by the legislation is those with a limited need for prescription drugs. They will be paying an estimated $35 monthly premium (the law sets no specific figure for the premium, just a guideline, which makes possible substantial premium increases in the future) plus the $250 deductible. Seniors with low drug expenses will be net losers under the law once they pay these premiums and deductibles. Yet they will be pressured to sign up for Medicare by stiff late enrollment penalties.

Taking into consideration all the funding aspects of the program—premiums, deductibles and co-pays—here is the way it works out on an annual basis:

Not a very generous package!

There is no real dispute over the miserly nature of the legislation. Even the Wall Street Journal (11/26/03) admits that “the new drug benefit will cover only about one-third of an average senior’s drug spending.” Other estimates place the figure at one-fourth.

Retirees With Existing Prescription Drugs Benefits
As noted above, under the new legislation the government will give incentives to employers who currently provide retirees with prescription drugs coverage as an encouragement to them to continue doing so. But despite this, a large number of these retirees still stand to lose their benefits. A New York Times article (11/26/03) explains why:

“Employers now provide drug benefits to 11 million retirees. But if, as pessimists predict, many large employers calculate that the incentives are not enough, millions more retirees than Congress expects will watch as their relatively rich private drug benefits are replaced by the government’s more meager package…. The legislation offers employers tax incentives to continue paying for retiree expenses that amount to 28% of drug costs, from $250 to $5,000 a retiree a year. But it’s estimated that employers would save, on average, $1,000 a retiree if they refused the tax initiatives and dropped coverage.”

The Congressional Budget Office estimates that 3.8 million retirees, about one-third of all nonfederal retirees who have health insurance provided by former employers, will have their more generous private coverage reduced or eliminated. Even those employers who don’t eliminate the benefit outright will likely use the cheaper Medicare plan as justification for reducing it.

A hallmark of a progressive society is how it provides for those who have toiled a lifetime and hope to spend their years of retirement in dignity and security. Yet in the last decade, over five million retirees and their families in the U.S. have either lost health care protection altogether or had their benefits sharply reduced. This figure does not include the 650,000 steelworkers losing benefits as steel companies go bankrupt and buyers refuse to pick up legacy costs.

In the years ahead, retirees, who currently receive a prescription drug benefit from former employers, will watch apprehensively to see what these employers do about the benefit. Not knowing whether these retirees will end up with Medicare’s far inferior program will be stressful to them and their families. With their incomes fixed and limited, they may not be able to afford the premiums, deductibles and co-pays that the Medicare plan demands. Many could end up, as is already the case with millions of other seniors and non-seniors, forsaking medicines urgently needed for their health and survival because they won’t have the money to pay for them.

Splintering the Seniors Movement
Under the law, seniors will be confronted with the need to make choices on a wide array of questions, whereas under traditional Medicare the only real decision is whether to limit participation to Part A, which covers hospital bills, or also to sign up for Part B, which pays doctors’ bills.

Participation in the Medicare prescription drug program is voluntary. A Medicare recipient could stay in traditional Medicare and get drug coverage by signing up for a stand-alone drug insurance policy. Or the person could join a private plan covering drugs along with doctor’s services and hospital care. So the first decision seniors must make is whether to join the Medicare plan.

Then there is the question of the drug card. Which one should be purchased among the many offered? This will depend on each individual’s medical condition and needs.

Then there will be the multitude of plans subsidized by the government. Which one to join? The benefits will vary, as will the coverage and the costs. Again, it becomes an individual choice.

The intended result of this is the fragmentation and loss of cohesion of the seniors’ movement. Instead of confronting common problems, every senior will be forced to address her or his personal situation, with infinite variations.

What has been hailed as an achievement—free choice to decide each individual’s specific program—is a recipe for mass confusion and uncertainty. We can anticipate the growth of a cottage industry of consultants who, for a fee of course, will advise as to which plan best fits an individual’s specific needs. And, of course, if the person’s health takes a turn in one direction or another, the plan chosen may prove sorely lacking.

It is a pernicious and divisive scheme, a transparent attempt to weaken the ability of seniors to defend their benefits. It is a calculated plan to dismantle Medicare and subject seniors even more then they are today to the tender mercy of the insurance companies, HMOs and pharmaceuticals.

AARP’s Betrayal
AARP (formerly the American Association of Retired Persons) was formed 45 years ago as an insurance company selling policies covering seniors. It has evolved into a business conglomerate selling products to the elderly while posing as an advocacy group. It receives more than $150 million each year in commissions on insurance, mutual funds and prescription drugs sold to its members.

William Novelli, AARP’s chief executive officer, is a former public relations man who wrote the forward to Newt Gingrich’s book on what should be done about the nation’s health care system (Gingrich has long advocated turning Medicare over to private companies). Novelli also worked on an advertising campaign to elect Nixon. Under his leadership, AARP has moved sharply to the right.

AARP’s endorsement of the Medicare bill is largely credited for its passage. The organization conducted an intensive lobbying campaign and spent $7 million in advertising in support of the bill. It did all this without bothering to poll its members to make sure they were well informed about the bill’s contents and agreed with embracing it. Although the organization has 35 million members—more than 1/10 of the nation’s population its decision to support the bill was made by only a 21-member Board.

Reaction has been fast and furious. As provisions of the 678-page bill became more widely known, AARP experienced a revolt in its ranks, how extensive remains to be seen. So far 15,000 resignations from the organization have been acknowledged.

Many other senior organizations have denounced the bill, but none as yet have the clout, numbers or resources to challenge AARP’s domination of the seniors’ movement. This much is clear: a real struggle is underway to shape a more class oriented senior’s movement and to provide an alternative vision for what seniors need and how to win it.

Privatizing Medicare
At the heart of the unfolding controversy is the Bush administration’s attempt to privatize Medicare. Many commentators point to the pilot program scheduled to commence in up to six metropolitan areas in 2010, which will usher in direct competition between Medicare and private plans. However, this is not where the gravest danger of privatization lies, at least not at the moment.

The demonstration projects called for by the bill have drawn widespread skepticism and disbelief. There have been similar type proposals in the past and they have one nowhere. Wall Street Journal columnist Holmes Jenkins dismisses the idea in the paper’s 11/26/03 issue as “pure window-dressing” and says “By acclamation, serious people are pooh-poohing” it.

The privatization danger is more immediate and is being accelerated in the here-and-now by passage of the new legislation. The drive is on to undermine Medicare and eventually bury it. This is to be accomplished by the government’s encouraging seniors to join private plans. But the insurance companies do not have to accept them. These companies will grab the well-off and the healthy. Medicare will be left with the poor and the unhealthy. Medicare will be strapped for funds. Premiums may well go through the roof, as well as deductibles and co-pays. (As it is, Medicare premiums are going up to $66.60 starting in 2004 and—thanks to the new lawdeductions will be increased from $100 to $110.) Medicare could become too expensive and be discredited, raising the specter of the government’s abolishing it altogether.

The incentive for beneficiaries to join the HMOs and other networks is money. Private plans may temporarily reduce premiums and out-of-pocket costs. Premium rebates would be added to beneficiaries’ social security checks. The government would encourage seniors to leave Medicare and join one of the private health plans.

This sort of thing is part and parcel of the worldwide drive by big corporations and their agents in government to privatize and turn the clock back centuries when people had little or nothing in the way of a safety net to meet their critical needs. Bush is one of the foremost exponents of this trend, as shown by his plans to privatize 850,000 government jobs, and with the restructuring and privatizing of social security a likely element of his re-election bid and second term agenda.

But this is not a one-person crusade. As the politics of the Medicare vote showed, bipartisan support was indispensable for passage and it was forthcoming.

The Vote
The bill was adopted in the House of Representatives by 220-215. The Senate passed it 54-44. However, these were not the most revealing votes.

At the critical moment, the only hope for stopping the legislation was through a filibuster in the Senate. For this, 40 votes were required. The Democrats, looked to by millions as the guardian of the people’s interests, have 48 members in the Senate. Even with as many as eight defections, they could have prevented the legislation from passing. But the vote for cloture was a lopsided 70-29, with 22 Democratic senators going along with Bush and the overwhelming majority of Republicans to close debate. After that vote, it was all over.

Bipartisanship is alive and well in the U.S. Congress, as we have seen repeatedly, with Democrats joining Republicans to authorize Bush’s war against Iraq, enact the Patriot Act, confirm Ashcroft as attorney general, and pass Fast Track, NAFTA, and welfare “reform.” Now representatives of the two corporate-run parties have once again joined together to put their seal of approval on the Medicare rip-off.

Where Do We Go From Here?
The Medicare defeat raises profound questions about the future struggle to protect and expand seniors’ health care benefits within the context of providing comprehensive health care for every resident.

As an immediate matter, the legislation just passed must be exposed to the fullest and the demand raised that the traditional Medicare system be preserved and expanded in a way that will truly benefit seniors. At the same time, it has become all too obvious that reforming the market-driven U.S. health care system cannot cure the country’s health care crisis. Incremental attempts at reform result either in negligible progress or, as is the case here, in adoption of retrogressive measures.

What is needed is an all-out mobilization by labor and its allies to win a single-payer universal health care system covering the medical needs of all residents from cradle to grave, including, of course, prescription drugs. So long as the health care industry and the giant pharmaceuticals are permitted to run the nation’s health care system without challenge from a broad labor-led coalition, the situation will go from bad to worse.

This latest failure of the Democratic Party to stave off a bill characterized by Alan Sager, a Boston University health policy professor, as “a Medicare with no brain and no heart—just a checkbook,” will hopefully open the minds of more and more supporters of that party to an alternative political course. It is clear that so long as labor does not have an independent political party of its own, supported by its allies, to fight for the needs of working people and the great majority, more defeats on the legislative front on labor’s rights, health care, trade, civil liberties, civil rights, war and peace, and other issues of crucial concern—will be forthcoming. Labor has the power to establish and build such a mass party. All that is needed is the will to do so.

Jerry Gordon, a well-known veteran of the trade union and antiwar movements, lives in Cleveland and is chair of the Ohio State Labor Party.