The pharmaceutical and insurance industries both profit enormously from the current design of the Medicare drug benefit. They also are both powerful lobbies that make large contributions to politicians. Therefore it is not surprising that many politicians are willing to spew utter nonsense to defend the program from its critics. However, there is no obvious reason that the media should just repeat the same nonsense. For example, a USAToday article reports on a new study that shows that insurance companies have often been raising drug prices over the course of the year, even though beneficiaries are locked into their plans. The article reports without comment a defense of the program from the insurance industry and Center for Medicare and Medicaid Services that the prescription drug benefit is saving people money. The federal government is spending almost $40 billion a year on the plan (about 6 times the current SCHIP appropriation), it would be really remarkable if it were not saving people money. This would be comparable to a defense contractor responding to complaints about huge cost over-runs by saying that they built the weapon system. Since this is an unbelievably low benchmark, a reporter might reasonably ask the question "is that the only success you can claim?" The article also prints without comment the industry's defense that only about 10 percent of beneficiaries, people who fall in the doughnut hole, would be affected by these price increases. This is also a rather dubious defense. Most seniors don't have very high drug expenses. For them, the benefit is nice, but it was not really a necessity. It is precisely the people with high drug costs, the people who fall into the doughnut hole, who really need the benefit. It is not much of a defense to say that people with low drug costs are not hurt by higher drug prices. A bit more background and context could go a long way to inform readers.
--Dean Baker
