Throughout the past year of presidential campaigning, one of the top issues for both candidates has been that of whether or not there should be a prescription-drug benefit added to Medicare. Both George W. Bush and Al Gore have proposed a plan to expand Medicare to include full prescription-drug coverage for senior citizens receiving Medicare, at the expense of taxpayers. It is obvious why this issue has been such a priority for both candidates. Senior citizens vote at a much higher rate than other age groups. Both candidates know the importance of these senior citizen votes and believe that the proposal of adding a prescription-drug benefit is something that will appeal to a vast number of senior citizens. Both candidates have portrayed the issue as being very critical and as a serious problem that needs to be addressed.

The question, however, is whether or not such drug coverage is a worthwhile project to undertake. Is the problem indeed serious enough to call for the type of reform that the candidates are proposing? Medicare is already a very costly program to keep up, and adding prescription-drug coverage would increase these costs even more. In order to fund this project, there will need to be a tax hike. Should taxpayers subsidize this prescription-drug benefit? Is there a good reason why this redistribution should take place? What are the benefits and costs of this proposal? These and other questions will be addressed in this paper as we examine the following topics: the need for senior citizens to have prescription-drug coverage, the political rhetoric involved with this issue, the projected shortfall in the budget of the Medicare program, and who really would benefit if a prescription-drug benefit was added to Medicare.

Need for Prescription-Drug Coverage

Many people argue that the lack of a prescription-drug benefit is the major shortcoming of the Medicare program. But are Medicare recipients really in need of such a benefit? According to a study done by the AARP Public Policy Institute, about 25.6 million, or 65 percent, of noninstitutionalized Medicare beneficiaries already receive some type of prescription-drug coverage, whether it is through employer-sponsored health plans or individually purchased private health policies. This leaves about 13.5 million Medicare beneficiaries who are without prescription-drug coverage. These 13.5 million Medicare recipients are supposedly the ones that the presidential candidates are attempting to help by proposing this addition to Medicare. However, it is interesting to note that even those who do have prescription-drug coverage from some other source still incur out-of-pocket costs for prescription drugs, although they are less than what is paid by those with absolutely no drug coverage. The average out-of-pocket prescription drug spending of the Medicare recipients with coverage is $320 per year. For Medicare beneficiaries without any drug coverage, the average out-of-pocket spending for prescription drugs was $590 per year. Of course, this figure is the average cost paid by those without insurance. The proposed addition to Medicare is aimed at protecting the relatively few senior citizens who have drug bills in the thousands of dollars annually and who have no relief from these costs. Why don’t these people find some sort of prescription-drug coverage? Of the 13.5 million Medicare beneficiaries without prescription-drug coverage, many of them choose not to be covered because they do not spend enough of drugs to make it worth their money. But some of them are not covered because of some barriers to obtaining drug coverage.

Medicare beneficiaries with employer-sponsored prescription-drug coverage are the largest group of beneficiaries with drug coverage. For those who do not have an employer-sponsored health plan, privately purchased policies are available, such as Medigap. This may be the only option for a lot of the Medicare recipients who do not have any drug coverage. But such policies are not feasible for many of these people with no coverage because of high premiums. High deductibles, high cost-sharing, and benefit caps are other aspects of Medigap that make it difficult or irrational for many people to purchase.

Another option for non-covered seniors on Medicare is to get prescription-drug coverage through their state Medicaid programs. This option, however, is not always available because their income may be too high, or their assest are not sufficiently low to qualify for Medicaid.

These barriers to finding available and affordable prescription-drug coverage have fueled the argument for adding a prescription-drug benefit to Medicare.

Political Rhetoric

Throughout the debate over this issue, both candidates have portrayed our nation’s senior citizens as victims of out-of-control drug prices, unable to pay the backbreaking prescription prices that they must pay in order to be healthy. However, as mentioned earlier, two-thirds of all senior citizens will pay less than $500 in out-of-pocket drug costs per year, while only 7% will pay more than $2000. And not all of those that fall within the 7% are necessarily those who do not have any drug coverage. In the same research cited above by the AARP Public Policy Institute, it was discovered that those with drug coverage from individually purchased policies such as Medigap have some of the highest average annual out-of-pocket costs at $570 per year. This is just less than the average for those with no coverage at all. Simply having coverage doesn’t necessarily protect seniors from huge costs that they are unable to bear.

The real issue then becomes whether or not a substantial number of senior citizens actually face serious financial difficulties because of prescription-drug costs. A USA Today study of this question found that only a small minority of senior citizens is actually in such a situation. Of the one-third of seniors without prescription-drug coverage, many of them are poor enough to qualify for Medicaid coverage, which could relieve them of some of their out-of-pocket drug costs. Those who are not poor enough to qualify for Medicaid are usually affluent enough to pay their own bills. They may have higher average out-of-pocket costs to fill their prescriptions, but at the same time they are able to pay it and don’t mind doing so. In fact, many choose to go this route rather than paying premiums on private supplemental coverage.

The numbers and evidence from the prescription-drug coverage analysis, along with the information about the proposed Medicare reform, suggest that the presidential candidates are proposing a solution that sounds good to all senior citizens, since they are proposing that all seniors would be covered under the plan, but that in reality will still leave the same individuals with the highest drug costs with huge prescription-drug bills to pay, due to the limits of the coverage.

Why would the presidential candidates be so adamant about a redistribution of taxpayer dollars that seems to be unnecessary? I’m sure it has to do with the fact that voter turnout increases with age. During the last presidential election in 1996, nearly three-fourths of people 70 years old and up voted, compared to only 35% of registered voters under 25. Senior citizens were expected to be the key “swing voters” in this year’s presidential election, so it is no wonder that both candidates have been in favor of adding a prescription-drug benefit to Medicare at the expense of taxpayers.

But if senior citizens are really not in need of this new prescription-drug benefit, and if other drug coverage is available to most of them, and in fact already owned by over two-thirds of them, who will really benefit from giving this benefit to all Medicare recipients? The answer to this question will be discussed later. But we first need to address the issue of Medicare’s projected budget shortfall.

Projected Shortfall in Medicare Budget

Perhaps the biggest problem with the proposal of a new prescription-drug benefit for Medicare is the fact that Medicare is currently in a very thorny financial situation. According to official government estimates, Medicare will begin to run out of money starting at about the year 2010. That will be when the “baby boomers” begin to qualify for Medicare benefits. That is why the currently proposed addition of a prescription-drug benefit to Medicare seems so irrational. Looking toward the future, we will either need to raise taxes or cut benefits simply to keep Medicare from going broke. The question that the presidential candidates should be addressing is how the government plans to pay for Medicare as it currently exists, not whether or not we should add a costly new prescription-drug benefit. Even if taxes are raised and they find a way to pay for the prescription-drug benefit, we will still be left facing a grim future for the Medicare budget.

In order to fund the proposed prescription-drug benefit to Medicare, it would become necessary to either increase taxes and redistribute this tax revenue into the Medicare budget in order to cover increased costs, or to cut back on some of the current Medicare budget. The second option seems impractical since nearly everyone agrees that it is definitely not fewer benefits, but a larger budget, that Medicare is in need of. A USA Today poll showed that voters would much rather pay higher taxes than cut benefits in order to correct for the projected deficit in the Medicare budget. Ninety-one percent of the people surveyed said that the government should do something now to prepare for this future shortfall. Fifty-six percent were in favor of raising taxes to do so, and only 12% were in favor of cutting benefits. Thus both presidential candidates have proposed a tax increase to cover the expense of the new drug benefit plan, as this seems to be the desirable solution given the options available.

By proposing a tax increase to fund the addition of a prescription-drug benefit to Medicare, the presidential candidates are ignoring the more pressing budgetary issues faced by the Medicare program and creating something that will appeal to senior voters, but that is for the most part unnecessary.

Who Would Really Benefit?

In analyzing the proposal for a prescription-drug benefit to the Medicare program, we need to be sure and point out who the true beneficiaries of such a new program would be. As was mentioned earlier, two-thirds of those over age 65 already have prescription-drug coverage, and one-third does not. Of the one-third of seniors who don’t already have prescription-drug coverage, they either have access to Medicaid or else they are wealthy enough to pay their own bills. Thus, only a small portion of seniors (the ones who are rich enough to pay for their drugs out of their own pockets) would benefit from the addition of prescription-drug coverage to Medicare because they would have some of their drug costs covered when before they were not concerned about it, they simply paid for everything themselves and did not mind doing so. This is an inefficient transfer because the rich are simply becoming richer.

Of the two-thirds who already have some type of prescription-drug coverage, a new prescription-drug benefit added to Medicare would not benefit them in any significant way, since most of them already have employer-sponsored supplemental health insurance which includes prescription-drug coverage. They would most likely continue to receive this coverage, and Medicare would simply replace their previous prescription-drug coverage, saving their previous insurance company considerable costs previously paid out for prescription drugs. Thus, we can see that the largest beneficiary of this whole prescription-drug benefit for Medicare would be the private insurance and employer-sponsored insurance companies who have been providing prescription-drug coverage to seniors. These companies are mostly major corporations and would save about $50 billion over five years by having Medicare pay for their customer’s prescription drug expenses for them. Basically, the government would be letting employer-sponsored and private Medicare supplemental insurance companies off the hook.

A transfer from taxpayers to wealthy senior citizens and to large insurance companies seems very inefficient, inequitable, and undesirable, but this is basically what the presidential candidates are proposing with the addition of a prescription-drug benefit to Medicare.

Conclusion

In summary, there are several reasons why the expansion of Medicare to include a prescription-drug benefit would be inefficient and unnecessary. Although it may sound appealing to senior citizens, in reality only a very small portion of them need or even want such a benefit. Generally speaking, most senior citizens already have prescription-drug coverage or else have enough money to pay for their prescription drugs themselves. The presidential candidates should have been addressing the more important issue of how we will pay for Medicare as it exists now. Medicare needs to be reformed to prepare for the inevitability of future bankruptcy and collapse before we should look at adding new benefits.

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MLA Citation: "Expanding Medicare to Include Prescription Drug Coverage." 123HelpMe.com. 20 Nov 2015